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This private equity firm is sharing returns with portfolio company employees

May 3, 2022, 3:17 PM UTC

When a record number of people are quitting their jobs, it may help to give employees a stake in the company they work for.

It’s a major reason that health care-focused private equity firm InTandem Capital Partners earlier this year committed to share a portion of its returns with portfolio company employees.

“People should share in the success that they helped create, and we were finding different ways of doing that,” says Elliot Cooperstone, founder and managing partner of InTandem. “But when we took a hard look at the way equity plans are structured—not just in companies we own, but I would say across private equity—generally those structures don’t match up with that philosophy.”

The firm is allotting some 5% of equity gains to employees who are not already shareholders in the company, based on how much time they’ve worked at the portfolio company since InTandem Capital Partners first invested. When the firm sells the portfolio company, or there is a recapitalization, those employees will get to participate in that—not just the management team. The 5% figure may fluctuate based on company size or structure. Regardless, the idea is to make employees become co-owners, to motivate them to do better work and encourage them to stay at the company longer. 

“We think that by engaging all employees as owners in the company, we will have an easier time recruiting great people, retaining great people, motivating them and as a result, and generating better financial results over time,” says Cooperstone.

Ultimately, LPs agreed with the thesis, though initially there may be risk of cutting into returns for all shareholders. University endowments, charitable foundations, and some pension plans were motivated by the social good aspect of it. But Cooperstone says the main selling point is that there is a really strong business case to be made.

InTandem laid out its data and projections to LPs, Cooperstone says. Worst case scenario—meaning that the allocation has zero impact on employee productivity or retention—the decrement on multiple on invested capital would only be a few tenths. The decrement on IRR was “barely a percentage point.” If employees were motivated by it, the financial impact could be significant.

Cooperstone says the firm is currently in the process of rolling out the compensation structure to all of its portfolio companies, and it has yet to see the immediate financial results—but initial responses from limited partners and management teams have been enthusiastic.

“It’s still early days in terms of being able to distribute checks, but I’m looking forward to those days coming,” Cooperstone says, noting he hopes other private equity firms will follow suit.

Roe v. Wade… It would be difficult not to mention the leaked initial draft Supreme Court opinion that Politico published yesterday evening, which suggests that the landmark Roe v. Wade decision (which guaranteed constitutional protections of abortion rights) will be overturned. While the decision is not yet final and there is still time for justices to change their votes, likely in the next two months, the ruling would reverse a 49-year precedent and allow each state to determine whether to restrict or ban abortion. You can read more about this in today’s Broadsheet newsletter, and you can read the full initial draft in Politico.

Jessica Mathews
Twitter: @jessicakmathews
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