Apollo PE on Ownership Works, Appreciation Awards & Building Stronger Businesses

Apollo is proud to be a founding member of Ownership Works, a new nonprofit with a mission to increase prosperity through shared ownership at work

In Discussion with Private Equity Partner Alex van Hoek.

Apollo is proud to be a founding member of Ownership Works, a new nonprofit with a mission to increase prosperity through shared ownership at work. Membership is a natural next step for Apollo, whose Private Equity business recently implemented its first equity-like award for all employees of a portfolio company. Learn more from Apollo Partner Alex van Hoek who helped spearhead the new program.

Q&A

Last month, Apollo implemented its first Appreciation Award program at a fund portfolio company. Can you start by explaining how that works?
We created a broad based, equity-like program called Appreciation Awards where, with the close of our fund acquisition, every full-time employee at the Venetian Las Vegas was granted these awards for free, and the associated value is tied to the increase, or appreciation, in the company’s equity valuation during our fund’s ownership period. My US-based colleagues David Sambur, Danny Cohen and Monta Ozolina, who lead the Venetian investment, rolled it out last month to some 7,000 employees. It’s completely incremental to compensation and benefits, and all about aligning incentives, helping employees think like owners and providing another means to participate economically in a company’s success.

What was the genesis of the initiative?
At a high level, David Sambur and Matt Nord who lead Private Equity at Apollo always challenge us to help build better companies and take our ESG initiatives to the next level. We recognize at the heart of every great business is great talent, and that aligning incentives and sharing in the upside across all levels supports better business outcomes.

More specifically, late last June Apollo met with the Venetian management team and one of the agenda items was to discuss the equity option plan for senior team members, which is a pretty standard component any PE buyout. During those meetings we started thinking about how we could take the spirit of what we’re doing with the senior team and bring it to all employees. This is a world-class team that’s on the frontlines with customers every day, and the goal is for everyone to feel engaged and aligned in the business strategy.

Some could view this as economically dilutive. How did the team get buy in?
Apollo’s leadership team was fully supportive day-one. There are myriad reasons why but chief among them is the fact that, more often than not, it’s people who make the difference between a good investment and a great investment – not how we allocate percentages of value. There’s also cost-saving potential associated with higher retention and better recruiting because of the program, and it’s highly motivating for the deal team and management as well.

So summer 2021 the award program is greenlit and in March 2022 it becomes a reality. What was the process like in between?
To be frank, it took many months and we consulted with multiple advisors. Our objective was pretty straightforward, but the actual structure of these equity-like plans can take many different forms. How do you ensure it’s not a tax burden to employees? Do we include vesting? What is the treatment under securities laws? All of these elements inform the plan. I had relocated to Apollo’s London office around this same time, and under David Sambur’s leadership and guidance, Apollo Principal Monta Ozolina really took things from concept to reality. Danny Cohen, a US-based Partner who helps David run point on the Venetian on a day-to-day basis, rolled it out to thousands of employees last month. It was a massive team effort.

To state the obvious, the logistical and intellectual heft you describe may not bode well for smaller companies or sponsors. Any advice for those with fewer resources who want to put similar programs in place?
These programs will all have their own unique elements but broadly speaking employee ownership programs are not new and we don’t need to recreate the wheel each time. That’s where initiatives like Ownership Works come into play. All of the participating private capital firms will share data and learnings from programs like this over the next few years in order to co-create replicable models for privately held companies and develop widely accessible resources for others.

One other point I’d make is around blind spots. If you’re a PE sponsor, odds are you take for granted what it means to have equity-like ownership, so it’s important to spend time on the presentation and to solicit others’ opinions. The onus was on us to communicate well and explain what we were doing and why it mattered.

If successful, these programs help to economically power thousands of people and that’s also a key tenant of our Expanding Opportunity commitment at Apollo. So in closing, can you talk briefly about what the notion of Expanding Opportunity means to you?
At the risk of sounding cliché, I read recently that the late Mr. Rogers encouraged a practice of closing your eyes for one minute and picturing all the people who helped you get to where you are today. To me, Expanding Opportunity is about paying it forward so that in the future a much larger and more diverse group of people have us in mind when closing their eyes and reflecting upon their success.

Alex van Hoek is a London-based partner in Apollo’s private equity business.