Episode 5: Broad-Based Employee Ownership With KKR’s Pete Stavros

Invested at Work: Season 2, Episode 5

Broad-Based Employee Ownership With KKR’s Pete Stavros

 

Rodney Bolden:

On this episode of Invested at Work, I am truly honored to have with me today Pete Stavros, Partner, Co-Head of Global Private Equity at KKR. Welcome, Pete.

 

Pete Stavros:

Thanks for having me. Honored to be here.

 

Rodney Bolden:

Pete, now some of our audience, I don't know how, but they may not be familiar with KKR. Can you tell me and tell them, what does KKR do?

 

Pete Stavros:

KKR is a global asset manager, so we're an investment firm, and we invest in different categories of assets. We have a real estate investing business, a credit investing business, infrastructure, and I work in the private equity business. My partner and I co-head global private equity for KKR.

 

Rodney Bolden:

And what do you do as Co-Head of Global Private Equity? Sounds like an important title.

 

Pete Stavros:

We oversee nine different investment funds. They total about $200 or so billion of assets. And inside of those funds, we are buying whole companies, and we are trying to optimize them and make them better. We will buy a manufacturer, and we will identify ways to grow the top line faster, improve quality, improve customer satisfaction, do that over a period of five, 10, sometimes 20 years, and then we would take the company public or sell it to someone else.

 

Rodney Bolden:

One of the reasons why I was excited to have you is you are a strong proponent of broad-based employee ownership. You talked about what you do today at KKR, but let's go back in time. Let's take that time machine back. I want to hear about growing up with your dad because I've heard you talk about him before and the influence he had on your attitudes today towards employee ownership.

 

Pete Stavros:

I grew up in suburban Chicago. My dad was a construction worker. He operated a road grader for more than 40 years. He was a union guy, Local 150 in Chicago. He was a, I would say prototypical or stereotypical blue-collar worker in America, meaning didn't really like the company that he worked for. Actually enjoyed the work, liked being outside. He's a builder, built our house, but his union had a very strained relationship with the company. We lived through lots of strikes as a family, and discussions around the dinner table were very much about the plight of the hourly blue-collar worker. Hard to build wealth, nobody listens to you, you have no incentive.

 

My dad used to talk about the harder you work and the more productive you are, the fewer hours you work, because you’re doing stuff faster so your paycheck actually goes down. He would talk about the need to just work steady. You don't want to work too slow and get in trouble, but if you work too fast, you make less money. That drove my dad crazy, that part in particular. And my dad's dream was always, it didn't need to be ownership with a capital O, but alignment, profit, sharing—some way to get hourly workers like himself a way to build wealth and to align incentives with their employer. So to actually want to work faster, and to give the company a reason to listen to workers. Only thing that drove my dad nuts is he always felt like he had the best ideas, but no one ever asked him.

 

A lot of America, if you're an hourly worker in particular, is, it's like the military. Do your job, keep your mouth shut, do what you're told. If there were ownership or some aligning mechanism, my dad always felt like, well, there'd be a reason for the company to listen to us because we'd have the right incentives. So that's what it was like growing up. My dad just spent a lot of time with my sister and I making sure we understood what it was like to be an hourly worker in America, somebody without a college degree doing blue-collar work in an environment that was pretty hostile. Wasn't a great relationship between him and the company.

 

Rodney Bolden:

That must have had an impact on your perspective today on the importance of employee ownership, I would imagine.

 

Pete Stavros:

No doubt. It's not like I left childhood thinking, okay, I'm going to go into the world and promote employee ownership. But in the back of my mind for sure, there was always this feeling of people are the most important asset in any company and most companies seem to disregard the well-being of their employees. When you look at aggregate statistics around employee engagement, which are terrible, and the lack of wealth that workers have, it's pretty clear we're not investing in our people in the country. So for sure that was in the back of my mind. And then the employee ownership part came about through luck or happenstance. My folks didn't go to college, so I'm first-gen college, and I didn't have some big plan to go into investing. I randomly ended up on Wall Street. I did not want to go to Wall Street, I really wanted to work in consulting. I didn't get a job in consulting.

 

I got one job out of college, and it was to work at the old Salomon Brothers in their mergers department, which I reluctantly did because you have to work your life away, and worked 100 hours a week like those young kids do. And then the guy who ran the mergers department came to me one day and said, "Hey, there's this investment firm, they're looking for young people. This is the first time they're ever hiring young people at this investment firm. You should go do it. You should go meet them." Anyway, so I met them and hit it off and they gave me a job.

 

And at this investment firm, the first two things that they had me work on, I'll tell you, and I don't remember the order to be honest with you, but one of the first things was they were selling a company. And in those days, when you were selling a company and you were distributing the proceeds of the sale, it was all done manually, so there was something called the funds flow. You would stick a young person like me at the time in a broom closet and give me a bunch of wire instructions, and I was on the phone moving money around. It was not a huge responsibility—you're just following instructions. But in that process was confirming wire transfers. I talked about this in my TED Talk. You confirm a wire transfer with the CEO for millions of dollars, and it's pretty matter of fact: "Hey, thanks a lot. Got the wire. Click."

 

Rodney Bolden:

Must be nice, yeah.

 

Pete Stavros:

You confirm a wire transfer, and the example I gave in the TED Talk, the assistant treasurer who's making a fraction of that, and the guy's so overcome with emotion, he literally can't get the words out to confirm the wire. That was literally, I'm this young kid out of college, that's one experience that happens right away. Takes me right back to my dad, and thinking this assistant treasurer, this is probably not only the first wealth he's really created for himself, but maybe the first time he's felt really recognized and included.

 

And then the other thing that I worked on very early was an ESOP. An ESOP is a tax structure created in 1974 as a part of the ERISA Act that gave companies tax incentives to share stock ownership with frontline workers. This company was called Gleason Corporation, they make machine tools up in Rochester, New York. You looked at the capitalization table and you would see factory workers and secretaries with million-dollar ESOP accounts. And I was blown away by this.

 

Rodney Bolden:

I bet, back then. I mean, especially when you think about it.

 

Pete Stavros:

Yeah, first of all, people at that level never had stock ownership, typically still don't, but the magnitude of what they had was very eye-opening. There's a long answer to your question about employee ownership.

 

Rodney Bolden:

No, this is fantastic, I know.

 

Pete Stavros:

But when I went to business school, the second year of most business schools, you have a lot of academic freedom to pursue what interests you. And so I had this fascination with the ESOP that I had come across, and other than working on that deal for Gleason Corporation, I had literally never heard of it. And when I asked people, no one knew what an ESOP was. I went to my finance professor, and I said in my second year, "I'd really love to go deep into this ESOP thing. What is it? Where did it come from? Why does no one know about it?"

 

And so I spent that second year really going deep into this world of ESOPs, and I met all these wonderful people in the ESOP community and I studied the history of the law and what worked, what didn't work and ended up publishing a paper on it. And then when I left business school, now I'd say finally at that point in my life, I had in my mind at some point I'm going to start experimenting with this because I believe in this. And then when I got into a leadership position at KKR, this is now a long time ago, 15 years ago, started experimenting with ways of sharing stock ownership with workers.

 

Rodney Bolden:

It's funny you say that, because before coming to the studio, I reread your KKR bio on their website. One thing stood out for me and has stood out for me before when I've read your bio, is they said that you were the pioneer of an innovative employee engagement and ownership model. Tell me what that model is.

 

Pete Stavros:

Okay, so that model is, I'm now going to put ESOPs to the side because that is a very specific tax structure that can be challenging for institutional investors to use. I don't want to go down a rabbit hole, but now, outside of the ESOP model where there's a tax incentive, the question was how can we get stock ownership in the hands of employees, all employees, and use that as a way to create a different type of culture? Now, I'm going to go back in time 15 or so years ago. We were looking at a manufacturing business, and we had not done a lot of manufacturing investing. We had done some manufacturing investing in the '70s, '80s. Really '90s, early 2000s had focused on healthcare technology, other faster growing, more exciting sectors. The recession hits, and it's an interesting time to look at manufacturing again because everything's down.

 

As we get into this, that was really for me, a reintroduction to the life of blue-collar workers. Back to my roots, and you could see inside of these manufacturing plants, people are disengaged, they're not terribly happy workers, safety's not great. They don't have a say in their work, not much of a voice in their jobs. If our mandate from our investors is whatever companies we buy, our job is to help them reach their full potential. Well, how can you help them reach their full potential if the people are disengaged?

 

So that was the early experiment that we started to run of what can we do here? The model that is referred to as the employee ownership and engagement model has evolved over the last 15 years for us. It started with just ownership, which doesn't really do that much. It's nice, it financially could be exciting to workers. But what makes the program effective, if I now jump to where we are today, it's this holistic ethos around ownership where it's not just a piece of paper with stock, but it's employee engagement, financial literacy training, giving people more of a voice in their work. It's that holistic program that moves cultures.

 

Rodney Bolden:

I want to expand upon that because that's an important point right there, because some think that all you have to do is give them ownership and then they're off and running, but that's not the case. Tell me about those early examples, those early situations where you used the model and came to that understanding. What were some of the learnings, and possibly some missteps, and how did you adjust for those?

 

Pete Stavros:

Well, there were so many missteps. To be honest, we continue to learn. We're in the third inning of figuring out how to do this well. You were trying to overcome a lack of trust, first of all, among blue-collar workers. So the idea that you're going to give ownership, and ownership for us always has to be free to workers, so we're not asking them to invest, we're not asking them to risk their money, and it's got to be incremental. There's no trade for wages or 401(k) match or anything. So you show up and you start going into this program and they say, "I don't believe this. A free incremental benefit that could be worth maybe even hundreds of thousands of dollars to me, there's no way."

 

So you're fighting trust, you're fighting lack of financial understanding. This is everywhere. You're also fighting against this ingrained corporate culture of it's just a few geniuses at the top who make these companies go, we don't need to share ownership with everyone. And why would you do that? It's a waste of money, waste of time. There's a lot you're fighting against.

 

Now, lessons for us along the way: communication. In our early goings, we didn't communicate well. The example I often give is if we say, and I talked about this in my TED Talk, if we would say, "All right, here's the five-year business plan, and here's what we're going to go together. If we get there, this is what this could mean for you." And we would go into the guts of the business plan on how to get there and so on. But what people heard was “five years.”

 

Rodney Bolden:

So then they mark the calendar.

 

Pete Stavros:

So, five years, we sell, and sometimes we'd hold businesses for much longer than that. Just being clear on communication, financial education. I'm embarrassed to say how long it took me for the light bulb to go off that, holy cow, I didn't know about this data that so much of America didn't have financial understanding.

 

Rodney Bolden:

Yeah, it's so true because the TIAA Institute and the Global Financial Literacy Excellence Center, which you're probably referring to their annual P-Fin index survey of financial literacy in America, average score is 50 out of 100.

 

Pete Stavros:

That's an F.

 

Rodney Bolden:

And it's the same across any demographic, whether you talk about income, gender, race, ethnicity.

 

Pete Stavros:

It's everywhere, yeah.

 

Rodney Bolden:

Everyone fails.

 

Pete Stavros:

Well, being a finance person, and like I said, I'm embarrassed to say it took me a while to, and what happened was we were in one of our companies, we were paying dividend after dividend after dividend on the stock and the company was doing great. One of the shop floor workers came up to me in tears, he was going to lose his house.

 

I was like, "Well, how's this possible? Business is doing great. We've paid all these dividends. You're financially, objectively, way better off than you were three years ago. How could this be?"

 

He said, "Well, I bought a truck with the dividends, and then I bought my brother a truck and took some loans."

 

And so this was years after we started this ownership program. So again, I'm embarrassed to tell you how long it took to say, "Oh my God, we need to focus on financial understanding."

 

And that, as I say, this program of employee ownership has evolved greatly over the last 15 years. And one of the important adjustments was not only financial coaching during our investment period and along the way, but particularly at the end when there's a large sum of money hopefully coming people's way, making sure that gets put to its highest and best use. So we pay for financial coaching along the way, and then at the exit, prepay for a year's worth of coaching for everyone so that we know the money will go to its best use possible.

 

Rodney Bolden:

Now, as part of that structure that you put in place to safeguard the employees and that investment that they have, tell me about Ownership Works and how that comes into play. Because you are the founder of Ownership Works, right?

 

Pete Stavros:

Yeah. What happened was we started this sometime around 2010. I think the first interview I gave on employee ownership was 2017, right around then. We had enough data and success and experience to comfortably talk about it publicly. I think we talked about it in a Bloomberg piece in 2017 or so, and then we continued to have exits and success with it so we started getting a lot of inbounds from family-owned businesses, public companies, other private equity firms saying, "Hey, could you help with this? We want to do this."

 

Some of them were also calling with questions that indicated they might head down a path that we had unsuccessfully headed down or almost made a big mistake on, and I'll give you an example of that in a second. Ownership Works, the idea was a couple fold. One, let's set up an organization that will establish standards, so we're all doing this in a way that is truly good for workers. For example, making sure workers aren't investing and risking capital or making trade-offs with wages or other benefits. Let's do a bunch of convenings and have Ownership Works be the clearinghouse for best practices and experimentations. We can learn from one another. And then we'll have a lot of hands-on coaching for CEOs who want to roll out this program. So my wife and I started Ownership Works two, three years ago with that as the goal.

 

Now maybe to go back to lessons learned, we had a company where the CEO had a lot of conviction that workers needed to invest out of pocket. So it's great to have them be owners, Pete, but trust me, I know my people, there's got to be skin in the game. It doesn't need to be a lot, but everybody's got to invest at least a thousand bucks or some amount of money, which as we know is a lot, unfortunately, for a lot of families. We opened up a solicitation period, and one of the employees showed up with, a relatively lower wage employee, with a brown bag with $12,000 of cash in it, I think, something like that.

 

And so the head of Human Resources went to the employee and said, "Not trying to be nosy, but noticed you brought a bag of cash. Could you give me the background?" He said, "Why didn't you write us a check or…?"

"Well, I don't have a bank account."

"Oh wow, so you just had this under your mattress or something in cash?"

"Oh no, it's a loan."

And the HR person's like, "A loan. You don't have a bank account. How'd you get a loan?"

And he's like, "Not that kind of loan, a street loan."

 

So, that, we obviously shut down the solicitation. We knew we never wanted people to invest out of pocket, and we don't want to be Big Brother-ish here and control people's decisions, but this is why we didn't want to do it. Back to Ownership Works here, that's an example of a standard. There's a whole, if you work with us at Ownership Works, the nonprofit, you have to sign a contract, and one of the standards is people who make less than $100,000 may not invest out of pocket. It's got to be purely free and incremental. More senior executives, more highly compensated folks can get the free benefit and also invest.

 

Rodney Bolden:

I want to talk about employee engagement because you mentioned it before. One HR term, every few years they come out with a new HR term, the Great Resignation. Last year, the term that was going around was the Great Betrayal, and it started with industries that had layoffs and employees saying, "Hey, I thought we were family. And when Uncle Joe acts up, we don't lay off Uncle Joe.” But it spread to mean, in general, employees who feel like the company sold them a bill of goods that didn't deliver when it comes to giving them a successful life financially. Can you talk about employee ownership, and maybe some metrics around what you've seen before implementing this model and then afterwards?

 

Pete Stavros:

Well, the biggest driver of the wealth gap by a mile is stock ownership. So, it's not housing. If you look at Federal Reserve data and household wealth, the ownership or the lack of ownership of stock, that's everything. We've got to get appreciating assets in the hands of everyone if we're going to, I'm not saying we're going to solve wealth inequality with this, but if we're going to give working folks a chance to get ahead and get somewhere financially. What we're shooting for is to get people a free and incremental benefit that if we hit our plan, which is not guaranteed, we're always so careful to say, "This is risk. It's not a promise, it is an opportunity. You're not paying for it, so there's no downside, but the upside is not guaranteed." But if we hit our plan that we can show people a path to earn 100% of their income over five years. If you make $75,000, our goal is, if we perform, you get $75,000 in value at the end from your ownership.

 

Now if it goes great, it could be much bigger than that because if you think about how we're investing, we are shooting for pretty significant returns. We're often trying to take companies that aren't performing and really inflect their performance. We've had hourly factory workers make $500,000, so it can be a much bigger payout. But over time, what we're aiming for is people who are more, I never liked the term financial literacy. I don't know, we need a better term, but people who are more financially competent. Empowered, there you go. And ideally have better credit scores, more savings. We do a lot of measuring, we probably do too much, but we work with the Financial Health Network on financial stability. And then we developed our own survey called the OW10. We jointly own it with Gallup. We at Ownership Works and Gallup own it together, and it's about ownership culture. But a part of that is people feeling that they have stability in their financial life and have hope in their financial life.

 

Rodney Bolden:

I did not hear about that last measurement. You said OW10?

 

Pete Stavros:

OW10.

 

Rodney Bolden:

Can you talk a little bit more about that?

 

Pete Stavros:

Yeah. We do a lot of work with Gallup, and I think they have the best Employee Engagement Survey. The Gallup Q12, it's been around forever, it's 12 questions that haven't changed. That really measures engagement. What it doesn't measure is, do I feel like an owner of the business? Do I understand how if my company succeeds, I'll financially benefit? Do I understand what the key drivers of success are going to be, and do I have financial understanding? Do I have financial hope? So, we're trying to measure this ownership culture. That's what the OW10 is trying to do, the survey we jointly developed and own with Gallup. Our surveys include financial health network, financial resilience stuff, ENPS we use as well, which is a very simple question about how people feel about the employee experience. And then also the OW10 and the Gallup Q12, so lot of surveying.

 

Rodney Bolden:

Wow. So, you have the data. So if someone says, "Hey, tell me the data before this program was rolled out and after the program," any examples of those metrics and how they've improved over time?

 

Pete Stavros:

And I should also note quit rates.

 

Rodney Bolden:

Oh, okay.

 

Pete Stavros:

The most indicator of how happy people are is the quit rate.

 

Rodney Bolden:

Yes.

 

Pete Stavros:

I would say, although we've been at this 15 years, we have 50 companies at KKR we've done this with. Many more at Ownership Works, but we only have of the 50, 15 or so that have been exited. I think it might even be a touch less than that. So we don't have so many full soup to nuts case studies.

 

Rodney Bolden:

Right.

 

Pete Stavros:

But we have companies where the quit rate dropped 90%, now it took 10 years, so it doesn't happen overnight. That company called Gardner Denver, it's now known as Ingersoll Rand. The engagement scores went from the 19th percentile to the 90th, and we have now 16,000 workers in 80 countries who all are owners and have created, across all of them, a billion dollars of wealth for themselves.

 

Rodney Bolden:

That's potentially huge. I mean, when you think about, according to SHRM, the average cost to replace an employee is I think $4,500. And others have estimated it to be a lot larger than that. To go from one extreme to the quit rate, 90%, it's just decreasing.

 

Pete Stavros:

These consulting firms are always touchy about you using their name, so I won't name them, but a very prestigious consulting firm studied that example. They estimated that there was conservatively a 10 to one payback for the company when you look at the investment they made in the workforce with ownership and some of these other programs and then the payback they got because they were hiring 3,000 fewer people every year as a result of the drop in the quit rate.

 

Rodney Bolden:

Right.

 

Pete Stavros:

I could not agree more that $4,000 is way understating. So, if you think about the cost of recruiting, onboarding, training, think about how unproductive those people are for the six months before they quit, so all that lost productivity. Think about the lost knowledge in the organization from all these folks walking out the door, and the impact on customer satisfaction. I just think if you just elevate for a second and think about the economy more broadly, and we're always struggling for productivity growth as we know it’s the only path to prosperity. So, without it, we're just going to get inflation.

 

The only way to sustainably increase prosperity is through productivity growth and population growth. Productivity growth, how are we going to really have productivity growth when we have an economy where 70% of Americans don't like their jobs, the majority don't have any financial understanding, and the quit rate is through the roof? The quit rate peaked at 40%, so four in 10 of Americans quitting their job every year means an average company's rehiring the entirety of their workforce every two and a half years. How are we going to drive productivity? To me, the things that we're trying to address with this program, when abstract to the full economy, and you think about what it could mean if we went back to a world where people weren't job hopping, where companies had a reason to invest in their people because they were going to stay. And where wealth was more broadly shared and people had financial understanding, you could have a huge impact on the economy.

 

Rodney Bolden:

Oh, I bet. Talking about an ownership culture and how it changes a company, what have you seen as far as employees making recommendations now that they feel like an owner and taking ownership of their roles, but also how to improve the company? Any examples of that?

 

Pete Stavros:

So many examples. When this is done well, leadership teams take their big picture objectives of how to improve, they dissect them into more digestible components and push those components down to frontline workers and give them autonomy to make it happen. For example, we had a company called Minnesota Rubber and Plastics. The CEO, Jay Ward said, "There's a huge scrap opportunity. We're wasting so much money, the raw material's a huge part of our cost to goods, and we are wasting it all over the floor." So he estimated, I don't remember the numbers, this is so long ago, but we could save millions of dollars if we could just bring scrap in line. But how are you going to do that?

 

The way you reduce scrap in the shop floor is lots of little things. And those little things, the best ideas for those little things come from the people doing the work. So Jay basically said, "Hey, if we could do this, this would be the impact on our earnings. At our current valuation multiple, this is the impact on the stock price. This is what it could mean for everyone in this company." And now I'm going to break that down by manufacturing plant, by shift, by line, and we're going to give you data on how you're doing, and we're going to ask for your ideas on how to reduce scrap. And we've seen this play out at Charter Next Generation and other companies as well.

 

C.H.I Overhead Doors, the company I talked about in my TED Talk, this has been a tried and true example, but I would say the same thing for inventory reduction, quality improvement, on-time delivery, customer satisfaction. At C.H.I, you start to see salespeople on their weekend time doing things for customers. A customer is at a trade show, "Oh my God, I forgot my sample," calls his or her salesperson at C.H.I Overhead doors, that person drives four hours on a weekend to make a customer happy.

 

As an owner, right? We've had truck drivers identify opportunities for greater route efficiency because truck drivers are like hourly factory workers. They typically get paid by the mile, which is no incentive for productivity. But once they become an owner, they say, "Hey, wait a minute, something is wrong with our route scheduling system because my route's massively inefficient." And they come up with ideas. In that example, actually, they identified that our transportation team was overriding our route scheduling system, which is only something you could get from the field, right? You're not going to be in a boardroom.

 

Rodney Bolden:

Exactly. There's no way you can sit in a boardroom or sit behind a desk and say, "Oh yeah, this is happening. Yeah, this is happening."

 

Pete Stavros:

So, lots of examples of employees speaking up with ideas, with recommendations, with wanting to have their voice heard and make a difference.

 

Rodney Bolden:

Because they know that what they're suggesting will have an impact on the company, which then has an impact on their bottom line.

 

Pete Stavros:

I think some of it's financial, honestly. I think it goes back to this idea that ownership is this broad ethos. I think people just want to be heard. They want to be recognized. It's like my dad. Had my dad's company listened, they would've gotten so much more productivity, such higher quality just because my dad wanted to contribute. Now, if you also layer on a financial incentive, sure, I think it's even stronger, but I think there's such a broken line of communication between the top and bottom of companies today that people just want to be heard, and they want to contribute.

 

Rodney Bolden:

Yeah. So, for those who are listening, who may be an owner, maybe we have a lot of HR benefit folks. We have equity plan managers that listen to this podcast, and they're saying, “Hey, you know, that sounds good, but what do I do? How do I go about doing this?” What's your recommendation?

 

Pete Stavros:

Well, it'd be great if they could reach out to Ownership Works: OwnershipWorks.org. There's a mailbox in there. They can just send a message, say they're interested in learning more. I do have to say, Ownership Works is overwhelmed with demand, which is a high-class problem. That's, you know, that's one of the reasons why I established the nonprofit is to get people talking about this topic and have a repository of best practices and how-tos, you know, like where do I start? How do I do this? How do I structure it? How should I think about vesting and retention requirements? And how do I even just get stock in the hands of all these people all over the world in my company? So there's a lot to it.

 

Rodney Bolden:

Within the portfolio companies or other companies you speak to, when you speak to the owners, the C-suite, what's the biggest pushback that you receive from rolling out broad-based equity ownership?

 

Pete Stavros:

There's a lot of different areas of pushback. Workers will never understand this. They're never going to understand stock. All they want is cash. Let's just put a bonus program in place.

 

I can address all of these, but I would say the one I have the most time for is the CEO who says, "All right, Pete. Now that KKR is involved, let me just get straight all the priorities that you are giving me. I'm supposed to double my profits in five to seven years. You want me to add diversity to the board, the C-suite. You want me to change the way we recruit to add diversity deep into the company. You want me to decarbonize, reduce water consumption, reduce landfill tonnage, and you want the metrics packaged by the 12th of the month, full financials by the end of the month, and you want a big report on how we're hardening the company for cyber risk and on and on and on. Now, on top of the 50 things you already gave me to do, now I also need to make everyone an owner, drive employee engagement, teach financial literacy. Give me a break, I can't do it all."

 

And there, the mental unlock is to get people to understand that if you do these last three well, and you take care of your people, then everything else becomes easier. But some of the other earlier criticisms I mentioned, people never understand this. Well, you'd be surprised how many HR leaders don't understand stock.

 

Rodney Bolden:

I'm not.

 

Pete Stavros:

Yeah. This is a broad, back to your point, which I thought was very astute, which is, this is not a class issue or a race, it's everywhere. We need to take more time and effort to educate everyone in a company about stock ownership and where we're headed and how stock works. Not just workers. Everyone needs that. And then, workers just want cash. Well, this is not an either or. So, workers need fair wages and benefits, but in terms of, sometimes CEOs will say, "Well, let's just take the amount that they could make in stock and just give it in cash."

 

I was like, "Great, let's do that. So that would be quadrupling their wages. So how are we going to do that?" The kind of wealth we're talking about with ownership with wages, it's not possible.

 

You could go back and say, "Well, let's tenfold their wages." You still can't get there. So, the only path to real wealth in my view is you’ve got fair wages and benefits, but they also have to have a free and incremental benefit in the form of ownership to help them participate in real wealth creation.

 

Rodney Bolden:

Yeah. I want to thank you for this conversation. It's been so wonderful, but if you have time, I have one more question.

 

Pete Stavros:

Sure, of course. Yeah.

 

Rodney Bolden:

I can tell you're passionate about broad-based employee ownership, but what I want to know is what makes you invested at work? What makes you do the things that you do?

 

Pete Stavros:

At KKR.

 

Rodney Bolden:

At KKR.

 

Pete Stavros:

The reason I'm so invested in KKR, I mean, there's a lot of reasons, but the culture that we have at the firm is very much oriented on teamwork. So, we don't have a star culture. We're not one of these firms that's like, there's a few brilliant investors who make all the money. We really believe whether you're in fundraising or operations or finance or technology or you're an investor, we all do it together. The culture of the place really speaks to me at a deep level, and I love that. I love how much autonomy and rope they give us to experiment. Whether it's with broad-based employee ownership, where it's not like you need to go get approvals for everything you try, there's a feeling of, you're in the seat for a reason.

 

So, I love the ability to innovate, and it's allowed my partner and I to start new investment funds, new strategies, innovate with human capital in a significant way. And then I would say, lastly, related to the people, the culture is just the people, so I just have a huge amount of affection for my Co-Head of Private Equity, Nate, for the gentleman who founded the firm, for the guys who run the place, and for all my colleagues.

 

Rodney Bolden:

You know Pete, I've been sitting here the whole time listening to you, and one thing sticks out from, once again reading your bio, is that you have a degree in chemistry. And now I understand because you like breaking down the particles and creating something new, and that's what a chemist does. And so, you are the chemist of broad-based employee ownership.

 

Pete Stavros:

The problem with college is we go to college too young. If I could go back now, I'd want to study philosophy and ethics, and I didn't know what I was doing. Chemistry, sure. It seems like something will come of that. Maybe I want to be a doctor or something. But yeah, that was not a great use of time in retrospect.

 

Rodney Bolden:

I don't know. I think it was because it got you thinking about, like I said, outside of the box and how to create, and also the influence of your dad, who I'm sure is very, very proud of the work you do.

 

Pete Stavros:

He's a good man. Still going, 85.

 

Rodney Bolden:

Oh, wow.

 

Pete Stavros:

Yeah.

 

Rodney Bolden:

That's wonderful. Well, Pete, thank you very much for joining me today. It's been a great conversation.

 

Pete Stavros:

My pleasure, thanks for having me.

 

Rodney Bolden:

Thanks.

 

Please join us for the next episode of Invested at Work. If you haven't already, remember to subscribe, and share it with your friends and colleagues. Be sure to visit us at morganstanley.com/atwork for more insights on workplace financial benefits and how Morgan Stanley may be able to help you. In the meantime, I hope you'll consider what makes you and your employees invested at work. Invested at Work is brought to you by Morgan Stanley at Work, hosted by me, Rodney Bolden. Our executive producers are Fiona Kelsey, Lisa Boyce and TJ Bonaventura.

 

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