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Rewriting the employment contract, courtesy of COVID
As we begin to slowly emerge from the pandemic, some of the contours of what post-pandemic life will be like are starting to come into focus. As employees leave their old roles in droves and employers reconsider how this affects their business operations, a private equity firm, of all things, may be showing us the way forward.
Unprecedented turmoil in the labor markets
With annual turnover of jobs reaching 30% to 40% of the population, depending on whose statistics you read, it is clear that the post-pandemic employment scene is up for radical change. Over 50 million people quit their jobs in 2022 alone, according to government figures.
It’s clear that returning to the 2019 state of play in the employment markets is highly unlikely. But why are so many people simultaneously deciding that a radical change is right for them?
Time richness, rather than time poverty
The pandemic had the effect of making many people feel time rich. For many, not having to answer to the normal routine created a sense of having far more time than normal. We know from extensive research that feeling you have time leads to a willingness to consider more possibilities, be more curious and indulge in daydreaming.
Feeling you are short of time, in contrast, leads to incremental thinking and more-of-the-same. It has also been associated with “lower well-being, physical health and productivity,” according to one study. So rather than trudging along with a sense of time famine, for many people the pandemic surprisingly gave them a ton of free time – no travel, no commuting, fewer in-person meetings and just generally less of the overhead of daily life pre-pandemic. Among the business-traveling classes, many admitted to a dirty little secret – the fact that they had an excuse to opt out of the road warrior lifestyle was quite delightful.
Time richness means we might consider alternative paths. Many have done so.
An inescapable confrontation with mortality
The pandemic also pushed everyone - young, old, mid-life – into the contemplation of their own mortality. Ordinary tasks like going to the grocery store or turning up at work became potentially lethal encounters with a deadly virus. Even for young people, this meant that you couldn’t brush off the recognition that death might literally be right around the corner.
Contemplating our own mortality leads us to think a lot more about what we really want to do in life and about what legacy we want to leave, further leading people to rethink how they spend their time at work. As my colleague Adam Galinsky and his co-authors observe, COVID created a universal mid-life crisis, a time in life when one seriously considers how they want to spend scarce, precious time and what we desire our legacy to be. This in turn often sets off a search for more meaning, more purpose and more emotional satisfaction.
Another way in which the pandemic changed how we feel about work is that it sparked what academics call “counterfactual” thinking. That’s thinking about the road not taken in a manner of speaking. In “normal” life it happens to us when we encounter a surprise – say you trip over the slippers you left in the hall. It leads you to ask yourself “this never would have happened if I had only put them away.”
During the pandemic, there was a lot of “if only I had (or hadn’t) taken a different approach, something good, or bad, wouldn’t have happened.” This again leads us to consider possibilities that we would not have in the course of normal events. Counterfactual reflection “heightens the meaningfulness of key life experiences” research has found. It also helps people realize when key life experiences are less than they might have been.
For many, confronting a once-in-a-hundred-year, global event was a seismic challenge to taken for granted assumptions. Interestingly, when things are dramatically different, one of our responses as human beings is to launch our imaginations, as Martin Reeves and his colleagues at BCG have found.
We seek to figure out why our previous theory of how things work in the world is wrong. We consider what new activities might be possible. We imagine other alternatives. We consider solutions (and problems) we wouldn’t have paid any attention to before.
Toward a new employment model, featuring ownership
We know that the people changing jobs and roles are not just looking for more money, although that was a result for many. They are looking for purpose, passion and something that will allow them to leave a legacy. And that has huge implications for employers.
In the midst of this landscape, here’s a super interesting development, brought to us by none other than the private equity firm, KKR.
The old playbook for private equity used to be to use financial engineering to take apart bloated old companies and sell the parts off for a profit. Maybe that worked in the 80’s, but it doesn’t work today. As an observer remarks, “the financial and operational maneuvers that buyout firms pioneered are now basic blocking and tackling for corporate CFOs….“Let’s not delude ourselves,” says John Skjervem, chief investment officer of the $100 billion Oregon State Treasury, a KKR investor since 1981. “This is getting much harder.” As George Roberts says of the leveraged buyout game, “There’s no art in it anymore. What’s relevant is what you’re going to do with the business.”
In other words, what once gave finance-savvy PE firms an edge has now eroded, and the game has changed. Instead, the firm, under the leadership of its co-founders and Managing Director Peter Stavros, have made a commitment to grow the firms they buy.
An example is the recent sale of CHI Overhead Doors. Instead of the slash-and-burn playbook, KKR invested in the company’s growth and success. And yes, they made out really well, with an investment that returned roughly 10X what they put in.
But the bigger story is that because they had awarded equity stakes to all the company’s employees, they all participated in the payout. An average worker could receive a payout of $175,000 (yes, you read that right) when CHI Overhead Doors was sold to Nucor Steel. Stavros also made sure that the money would be used well – KKR pre-paid for education in financial literacy for the entire workforce so that they could understand how to manage their new wealth.
Treat yourself to 3 minutes and 18 seconds of pure delight as the workers learn of what they earned working for CHI and how their involvement directly connects to the success of the company.
KKR was ahead of the curve when the private equity market as we know it came to be. Maybe they are also ahead of the curve in the way employers need to start thinking about the jobs – and more importantly the ownership stakes – they offer.