The following article reports on recent developments in the private equity sector, maintaining a neutral and professional tone.
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KKR’s senior dealmakers traveled to Denver on Wednesday to present the $1 billion payout they earned from the sale of an engineering firm.
Unconventionally, the audience comprised the company’s blue-collar employees, who together will receive $75 million of the proceeds.
These payouts and evolving incentive plans reflect a wider industry effort to mitigate the private equity sector’s image as primarily serving the elite, an image often criticized by policymakers due to income inequality in the United States.
The sale of GeoStabilization International (GSI), a company specializing in emergency landslide repairs and rockfall prevention services, will benefit the majority of its 900 employees. GSI workers are slated to receive between $10,000 and $325,000, with the median three-year employee receiving $110,000. These funds come from stock awards usually reserved for senior management during buyouts.
For many GSI employees, these payouts could facilitate significant financial steps such as home downpayments. KKR will provide Ernst & Young’s financial advisory services to the employees and has also hired tax accountants to manage the windfall. However, it is noted that the worker payout is less than 10 percent of the deal’s overall value, highlighting that KKR’s investors have realized greater benefits.
On Wednesday, Democratic presidential nominee Kamala Harris appeared supportive of these initiatives.
“We will reform our tax laws to make it easier for businesses to let workers share in their companies’ success. And I will challenge the private sector to do more, and lift up workers through equity, profits, and benefits, so more people can share in America’s success and prosperity,” she stated in a speech outlining her economic agenda.
Pete Stavros, head of KKR’s private equity division, has dedicated the past decade to developing worker equity incentive awards within the firm. He initiated Ownership Works, an industry-wide effort aiming to generate $20 billion in worker wealth by 2030, supported by major industry players including Apollo Global Management, TPG, and Silver Lake.
The employee payouts are part of KKR’s broader strategies to incentivize line workers without affecting deal returns. These awards originate from a management equity pool or are structured as options and restricted units, which only pay out if the company significantly increases in value. While some KKR deals have resulted in substantial cash for workers, a failed or bankrupt deal would nullify any incentive value.
KKR currently has nearly 50 deals where it has extended similar equity awards to workers and has completed 10 investments, yielding $1.6 billion for 33,000 non-management employees.
GeoStabilization International (GSI) is among a rising number of private equity-backed companies offering stock as part of employee compensation, setting the stage for lucrative payouts if the business hits growth targets and is sold.
The windfall from GeoStabilization’s sale, to another private equity firm, represents a fivefold return on KKR’s 2018 investment — a significant gain for investors who have faced challenges in liquidating investments and returning cash.
Leonard Green, the buyer of GSI, intends to issue a new set of equity awards for the company’s workers.
“This tremendous outcome recognizes the work GSI’s employees have done to create value, not just for the company but for themselves,” Stavros commented.