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When Simon & Schuster’s CEO explained why KKR won the $1.6 billion auction for the publisher, he highlighted an interesting aspect about the private equity firm. KKR was the only bidder that committed to allowing employees to “participate in the benefits of ownership” after the deal was finalized.
KKR’s proposal for an equity ownership plan stood out because very few companies currently offer their employees the opportunity to build a stake in the business they work for. A recent study conducted by Rutgers School of Management revealed that fewer than 20% of US employees own shares in their respective companies, and this percentage has remained stagnant. This trend is not limited to the US, as the number of UK companies offering Save As You Earn schemes or Share Incentive Plans has been declining.
Although boards often offer equity to align the interests of top executives with investors, only a minority extend this opportunity to all employees. As companies increasingly worry about disengaged workforces, it is time to reconsider the use of equity plans as a tool for retention and motivation.
Since the introduction of equity plans by companies like Procter & Gamble and Eastman Kodak over a century ago, proponents have argued that they are an investment that pays off by fostering a greater commitment among workers to their company’s success. Numerous studies have supported this claim, demonstrating that businesses offering staff equity are more resilient.
In light of concerns about wealth inequality, another argument in favor of equity plans has gained prominence. A significant portion of the population in modern economies does not own the financial assets that drive wealth creation. By enabling more workers to become equity owners, the wealth gap can be narrowed.
It is important to recognize that corporate share plans come with potential drawbacks. They incur costs for companies and carry the risk of diluting existing shareholders. Additionally, employees risk losing their stock alongside their pay if their company encounters difficulties, as there is no guarantee that share values will always rise.
Research conducted by the UK’s Social Market Foundation and the US’ National Association of Stock Plan Professionals identifies various reasons why many workers avoid existing plans, such as an inability to set aside funds or a lack of comprehension regarding these plans.
Nevertheless, offerings of stock should not replace fair wages. Carefully designed equity plans, however, can address many of these concerns. Research by Fidelity indicates that companies can overcome affordability concerns by offering shares at discounted prices. Moreover, companies aiming for wider participation must consider the daunting nature of investing for first-timers and provide employees with the necessary financial education.
Achieving meaningful change will require policy support. In the UK, a consultation on government-sponsored employee share schemes is currently underway, aiming to boost uptake, especially among low-income workers. Industry members have already urged ministers to reduce the amount of time employees must hold stock to qualify for tax breaks.
In the US, employee ownership has garnered bipartisan support. In the past year, Republican and Democratic lawmakers collaborated to introduce a bill aimed at increasing the use of employee share ownership plans. Joseph Blasi, professor at Rutgers, suggests that Congress can go even further by linking certain corporate tax breaks to the implementation of broad-based equity participation plans by firms.
In recent times, business leaders have presented themselves as stakeholder capitalists. What better way to demonstrate this commitment than by turning more stakeholders into capitalists themselves?
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