A pro-worker experiment in private equity

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You can get tickets at PlanetMoneyBook.com and we do hope you'll join us. Thanks. This is PlanetMoney from Anthropic. Cindy Cortis loved her job.

“She worked at a company called Capital Safety.”

It made safety equipment, like harnesses, people wear washing windows on skyscrapers or working on oil rigs, and her team made the part that attaches to the harnesses. I was in the shocks, which the shocks was the part that would tie off from the harness to your point of, say, on a building or a scaffolding or whatever. What was your favorite part of the job?

Send an out quality equipment, and no one that is going to say people lives. She'd been at the company since the early 90s, worked way up, and by 2011, Cindy was the manufacturing lead on the production floor. She oversaw a team of like 40 people. And I had to make sure that they had their job orders for the day, that they had all

their materials so that they could make their equipment for the day. And if there was any issues, they would come to me, and I would try to solve them. And one day that year, she hears that her company is getting sold.

“It was like, okay, now what are we going to get into?”

The company that's buying her company, KKR, a private equity firm, one of the big ones,

which is not always good news.

When you heard that you were getting bought by private equity, were you like, oh, great. Next feelings. You know, one big fear is, you're like, oh, are they going to take it, you know, and take it overseas, close the company here, you know, you had all those worries, you know, when you have a bigger company by you.

This private equity's whole thing is they buy companies, try to figure out how to make those companies more profitable, and then sell them for more money than they bought them for. And very often, the way they make those companies more profitable is by cutting jobs. But Cindy was in for a more interesting ride than that, because she was actually part of a brand new experiment.

A large scale experiment conducted by this guy at KKR, who had a new idea about how to grow companies. Hello, and welcome to Planet Money, I'm Mary Childs, and I'm Whale and Juan, private equity. It's ruined so many things from nursing homes, to toy stores, to that clinics.

But, today on the show, someone is trying to do private equity a different way. Will it save all of private equity? No. But maybe this one experiment in private equity will lead to more equity, and maybe Cindy has more coming than she thought.

The experiment that Cindy Cortis was inadvertently part of, began back in 2011. It's the personal project of this guy, Pete Stavros, whose job at KKR is to buy companies, make them more profitable, and then sell them. The inspiration for his big experiment comes from his childhood. Growing up in Chicago, sitting around the dinner table, hearing stories about his dad's

job at a construction company, making roads smooth and flat. He operated a road grader for over 40 years, and he was often specified in municipal contracts. Like, Harry Stavros must do the road grading, because if you don't grade a road properly, it won't drain appropriately in a little freeze, and then crack in the winter. His dad was in the union, eventually became influential, representing the interests of

the workers. And Pete says there was this structural tension between the union and the company. Workers wanted to work more hours, because they were paid by the hour, and employers wanted the work done in fewer hours. Over the years, the company was kind of winning.

It was whittling away paid time, like the time spent driving to a far away construction site.

told workers they weren't going to pay for lunchtime anymore. Employees should take an hour, unpaid.

On that one, the workers decided finally to fight back.

Pete's dad took the lead. He organized all of the workers, and, in fact, also the truck drivers who delivered the raw material to pave the road. And so he had that material delivered directly at 12 noon, right at the time the lunch would normally be.

And instead of doing the most expedient thing and unloading the truck when it arrived. He would look at his watch and say, "What a shame, we don't work the lunch hour anymore," and he would send the truck away, and he and his colleagues intentionally ran the job out of material. So the work site would have to shut down, which would mean the company had to pay late

fees to its client. Even they would have to pay the workers overtime to try to catch up. Pete says, "Is dad hated the absurdity?"

“My dad would come home and say, "Can you believe this is what we're doing?”

We're all adults, and this is how we're behaving as opposed to having the same incentives and all wanting to work together. We have all of these fights over hours." Pete remembers his dad being like, "There's got to be a better way. Some way to align the workers incentives and the companies."

Why don't we have profit sharing or ownership or some way to get workers on the same site as management? Give workers a chance to get ahead financially and give the company a reason to start listening to workers. That was where the original inspiration came from was from my dad.

The original inspiration for what Pete is now doing from his seat at KKR in the big bad world of private equity, sharing ownership with workers, which is not normal. The normal private equity move is to buy companies often borrowing a lot to do it, and try to make the companies more profitable so they can sell them at a profit. As the private equity industry has grown, over time the effects of the industry have become

more apparent.

“Like academic research has shown that when private equity buys a company, it can bring”

in better management practices or save costs, and it does increase productivity. The private equity ownership can lead to a degradation in the quality of the product, which becomes especially salient when the product is like health care or nursing homes, and it does result in fewer jobs overall.

The people who lose those jobs often make less money in their next job or never find another

one, which of course becomes very expensive for society. And as private equity has grown over the last couple decades, and bought more and more companies that touch everyday people's lives, scrutiny of it, and mainstream cultural distaste has grown too. At the time Pete had found his way to private equity, he was still thinking of out his dad's

ideas of giving workers equity. He'd even done a little research on it in business school. So now he's in charge of this team at KKR, and they give partners plenty of freedom, and he's like, "We kind of get to pick what companies to buy and what to do with them." So I kind of have an opportunity here.

I should try to see if I can do my dad's thing, making workers part owners in their own companies. It's such an opportunity to try new approaches because it's almost like a laboratory. So his big experiment is about trying different ways to get the workers at those companies more bought in, more involved.

And he suspects to some degree there's a business case for this too. Like if workers have ownership in their company, they might feel ownership as well. They might work a little harder, get more training, stay more engaged. So he decides to give it a go.

And Cindy Cordus' company, capital safety where they made harnesses, that is Pete's first

try. The first in this experiment. So Cindy remembers, when KKR bought the company, the company's management told her and all the other workers that the plants in Red Wing Minnesota would stay open and no jobs would get cut.

Cindy was like, "Okay, but for how long?" A year? Ten years? If these jobs had gone away, would you have had a hard time finding another job or an easy time?

Or I live, there is a few other companies, right in town, manufacturing companies that

“I think people, you know, some people would have found jobs, right in town.”

But I don't think they want a better enough for everybody. So the workers are nervous. And meanwhile, KKR is quietly working on their test case for this worker ownership thing. And they ran into a few problems. Pete says the first was that the workers in the company didn't really trust the company's

management. Immediately after they buy the company, Pete says KKR starts getting a lot of complaints about worker safety, unscheduled over time, and people feeling like they weren't being listened to. KKR was like, "If we give the workers equity now, they're not going to believe us.

Their company had already been bought and sold by three other private equity firms. So Pete was worried they would not trust this move. They would think it was some kind of trick."

Just some basic things.

“And then we can talk about employee ownership.”

And hopefully then it will be received in good faith.

But the other problem was, since this was literally his first rodeo, they had to figure

out how to do it. This is way more complicated than it sounds. And even just structuring it and implementing it and administering it's really challenging. This was a multinational company, so it's been different jurisdictions, each with their own problems.

You can go Western and Europe if you give a worker ownership. A lot of times they get taxed on the grant and have something called dry income. So even though they don't have any cash from the share grant that you made, they have to pay taxes. So we had to work around that.

And here at home, there were other obstacles at the time. In the United States, there was a real limit on how many shareholders you could even have in a private company. So simply figuring out the how was a big challenge, but eventually they did it. They rolled out in ownership program.

But Pete says this first time, it was kind of sloppy.

We in a very haphazard and not in a way that I would characterize as being well done. We rolled out and play ownership for everyone. But they felt weird telling the employees at that company that they were now part owners. Like what if they say everyone's getting equity, but then they bungled the rollout and can't fulfill their promise somehow.

So they just did it quietly. They structured some equity, gave it to the employees and basically didn't say a peep. The corporate equivalent of sliding an envelope across the table, an invisible envelope. So Cindy and employee at that company getting ownership at that moment had no idea. We did not know that there was going to be like this in the center.

None of that was brought to our attention until they sold the company to three young. When kicking their sold the company to three am in 2015, all that surprised equity suddenly paid out for Cindy and all her co-workers. They found out one day Cindy was in a big meeting with more than a hundred of her co-workers. So we were in the cafeteria, which is nice size and we were like sardines in there.

And then they announced that there was going to be this big incentive. What bonus that we would all be getting because of the sale and we're like, okay, you know, so we all were thinking, you know, it's going to be a few hundred dollars, maybe a thousand dollars, you know, and stuff. The check was bigger than she'd expected.

She wouldn't tell me how much it was like, oh my gosh, I've never had anything like this before.

She says it was five digits, $10,000 or more. And it came at a good time, especially for me, and I know for a few other people, were I use that money to pay off a couple of my credit cards back then. I still had a couple of my kids stole of debt home and, you know, so that I could go and I could be a little more debt free.

And Cindy remembers that feeling of getting the money. It wasn't life changing, but it was a nice surprise, were they basically like, by the way,

“you've had equity this whole time and we just never mentioned it?”

Right, no, that's so funny to me. Is it funny to you? It is, you know, there's a lot of communication that does not get brought down to the people that are working on the floor. And she thinks this was kind of a missed opportunity.

You'll let told us we the workers might have acted differently. I think if we would have known it when they would have bought our company, I think people would have probably stuck a little more effort into it and making the company grow maybe a little bit more. We had no idea that this was going to be what was going to be happening when they sold the company.

KKR did sell her company, this wasn't a failure, but on the worker ownership part, it kind of was, because maybe if the Cindy's of the world had known that they had equity and had been that much more engaged and felt that much more ownership, their productivity might have been higher. And profitability might have been higher. KKR could have sold the company for even more and Cindy's check might have had another

zero on it. Pete agrees with Cindy. The first test of how to give workers equity was not its best possible execution. I would say the communication was like an F, you know, we were worried about over promising and under delivering, so we kind of weren't real clear on what it could mean to people

and on and on and on. It was just not well done.

“So Pete has learned an important lesson.”

You got to tell people when they become owners and now he has also learned how to structure this. So he takes those lessons to the next company his group buys and the next and

That's after the break. [music]

“After the hat hazard not success, a worker ownership, a capital safety,”

Pete Stavros does not give up. He continues testing out his theory that giving workers equity can be good for business. And so we tried it again and again and again and we did it with about a half dozen manufacturing companies. Each time he tries this it's another experiment. He sets up the program using the structures he's learned so far and watches to see what will

go wrong or write this time. And then he'll write down in his mental research folder what he thinks the lesson is from this iteration and tweak his approach for the next one. And in 2018 he landed on a version that seemed to really work. He and his team bought GSI Geostabilization International. It does things like emergency landslide repairs and rock fall mitigation.

And I talked to one guy who works there, Mike Pavellko.

He told me he started at GSI in 2018 and his first job was to show up to a

work site where some emergency needed fixing like undo the mess from a landslide. Does that mean you have a shovel in you dig? Yeah, but you know even as a senior superintendent and I have a shovel and I dig that's just the way that GSI is here. As a kid, Mike was big into legos and chunk of trucks, but this work can be intense.

Like a couple years ago, he got sent out on I-40 to help clean up from Hurricane Haleen in North Carolina so that first responders could get through the mountain. The mountain was still moving while we were there. We just drilled from a safe area and we were able to drill in micro piles and ground that up and it held perfectly. That's crazy. You put nails and glue into a falling mountain

“and it stopped it. Yeah, it's just a Portland cement is to grow and that's what we use when we drill”

nails. Yep. You're like it's not glue. Okay. Yeah. Mike joined the company right before Pete's group at KKR bought it.

The acquisition was the first time he'd ever heard of KKR.

You know, impression of the company or Peter, private equity at all before that. And from the beginning KKR gave all the GSI workers equity and remember to tell the workers about it. Mike definitely got the memo. It's ownership. And how does that feel? It feels awesome. I think it gives everybody here when they go to work every day. It gives them a little edge and it gives them something that they know that they're working hard for.

It's not just going to a nine to five. This is a, this is a job that you just really truly feel a part of. And it changes how you show up. Absolutely. It does. I think that's just what makes us want to hit our numbers. Because as long as we're hitting our numbers and and selling more than what's expected, then we know, you know, we're bringing that share up. Now, the equity doesn't come with any like vote in how the company is managed and it

doesn't necessarily go with you if you leave. But for Mike, the equity changed his relationship but does work. It made him feel an act like an owner. It definitely brings a lot of pride factor to here, right? Like, we know what things could damage the sharehold. You know, other shares. We all know and keep that in our mind. You know, we need to hit make margins on projects. And, you know, there's just a lot of pride. So you like oil your machines a little bit more

carefully. You like don't steal office supplies like you might otherwise. Not that anyone would do that. Yes, correct, correct. Over the years, Mike started attending owners calls about every three months. Where he and his co-workers would hear about the company's growth and what their shares were worth. He got promoted to management. Then in October 2024, Kikiar announced it was selling GSI. Management had a big internal meeting in Denver to tell the employees and they flew my

out for it. I just remember standing in the room and, you know, they were going through the numbers. And I was just like, kind of like, no way, you know, then they reveal how much money everyone's getting. I've really didn't say anything for probably about like 30 minutes. Like, people are cheering.

“And I'm just, I wasn't shocked. Like, I just, it's just something that's just impossible to believe, right?”

Because for this portfolio company, for this worker, the payout has been life changing. When I started here at GSI, I remember getting on the plane and I had $100 in my pocket. And kind of just didn't look back. And I mean, I bought my first home. I mean, it changed my life. Well, can I, sorry, Taki, can I ask how much it was? Yeah, the initial was $195,000. And then for the next two additional years, I got $25,000 for each

year that I stay kind of like $250,000. Yes, quarter of a million dollars. Yes. Okay.

I'll be honest, I never thought that would be a situation I'd ever come upon in my life to

“purchase a brand new home. You know, that it was just built, you know, so it was pretty amazing.”

Is it in a very stable land area? Yes, it is. I have one of them, but not an unstable hill. Yeah. Yeah. Instead of doing the standard private equity thing of firing a percentage of the work force, Pete's model has those workers bought it. When we asked Pete about why he's doing all this, whether he's trying to fix private equity or rehab its image, he was like, no. Yeah. I really hope I'm not seen as someone trying to write the reputation of private equity.

It's certainly not my focus and why I'm doing this. He does it because he's seen the results. Workers who are more engaged, less likely to quit. Today, Pete's implemented his ownership model at 85 companies. They're not like distressed companies in dire streets. They're generally growing healthy companies. But his project has caused more than 190,000 workers to have a stake in their

“companies where they probably wouldn't have otherwise. In the case of Mike's company, they definitely”

saw a change in the business's metrics. Like Pete says, when KKR bought GSI, half of the workforce was quitting every year. So that meant we're hired like hundreds and hundreds of people every year and losing them almost as that whole amount every two years. What a waste for the company of having to re-recruit and retrain and re-enboard all of these folks. And then of course, the newest folks are the least productive, least efficient and most likely to get hurt. So just awful that set up.

That was before. And the after? Over five years, the quit rate dropped to fifth around 15 percent.

But this kind of clear results isn't always the case. By now, Pete and KKR, they have all

these different test cases. The companies are pretty similar. KKR gives the workers equity and all the same tools and tries to make the companies more profitable in their little laboratory. And in one case, you'll see engagement scores go up a lot in the quit rate plummet and in the other case, nothing will happen. And so as you can imagine, we're spending a lot of time trying to understand why is that? Sometimes employees don't become more engaged. Their productivity does

not go up. They keep quitting. Pete and KKR are like, okay, what gives Pete's given it a lot of thought. And the answer we keep coming back to is its leadership. You know, if you have the wrong leader at the top, they're not going to get the most out of this program. And the question is, what is it about the leader? Pete has been testing some theories. What we're focused on at the moment is this idea of empathy. So the leader who is doing this from a place of, I want to do this because it's

it's good for my people and what an honor as a leader to be able to do this for, in some cases,

thousands of people who have never had a shot economically. Those leaders were finding are the ones

who do a phenomenal job with the program. The ones who come at it from the perspective of, okay, if I do this, like, how much productivity can I get? Like, what exactly is in it for me? And how do I turn the dials? That approach doesn't seem to be as effective. It's the challenge of building trust, like what he's been thinking about all the way back with Cindy's company. It's actually listening to workers, like his dad wanted. At least in Mike's case at GSI, Pete's thesis about

empathy seems to be pretty well worn out. It doesn't matter what position you are, like you would have people coming out that you would never expect on your job site, you know, like just having

“somebody as an higher management, you know, I remember Colby very coming out one time and he was”

changing drill steel force, like he was running GSI at the time. That's something that I bought into pretty hardcore. Having a good empathetic leader is Pete's leading theory as to why this works sometimes. But Pete will tell you, worker ownership is not some kind of cheat code. It's really hard to do, he says, and it just doesn't always work. Even so, the case that Pete's making to his peers and competitors that maybe they should do it to is getting even more compelling.

Private equity just isn't generating the big returns it used to, even and especially relative to the regular regular stock market. So if Pete has found a whole new way to improve company performance and boost PE returns, maybe it will really spread. There is evidence the idea is getting traction outside of KKR. Private equity firms, including Blackstone, Aries, and TPG are all rolling out similar programs. Our book is finally available in stores. You can walk into your favorite bookstore

that shape your life. Details and book tour tickets at planetmoneybook.com. This episode of Planet

“Money was produced by Sam Yellow Horse Castler. It was edited by Justin with an assist from”

Marian McHune, fact-checked by Sierra Juarez, an engineered by Cina La Freida with help from Jimmy

Keely. Alex Goldmark is our executive producer. Thank you to Josh Lerner, I'm Mary Childs,

and I'm Wale and Wang. This is MPR. Thanks for listening.