Businesses that undergo management buy-outs (MBOs) backed by private equity actually tend to increase their staff numbers in the long-term, a new survey has found.
However, wages in these companies are on average lower and immediately after the initial buy in job cuts loom.
MBOs account for the majority of private equity deals but although the first year tends to see cuts in staff numbers firms grow by an average of 36% thereafter.
“Private equity firms that take over companies and bring in new management teams are likely to cut jobs and depress employees’ wages,” The Work Foundation said in a statement.
“However, where an existing management team helps take a company into private equity in a MBO, they tend to expand jobs and the impact on wages is smaller.”
The report found that workers in private equity backed businesses are £83.70 worse off each year as wages grow less quickly.
But when an outside management team is introduced to an organisation in a management buy-in (MBI), employment falls on average by just under a fifth over a six-year period, and the workers in these companies are £231 a year worse off than other private sector workers.
Will Hutton, chief executive of The Work Foundation, said: “Private equity firms pride themselves on their ability to squeeze performance from the organisations they own, and they turn up the pressure on individuals in order to do so.
“When private equity backs an incumbent management team the result can be improved productivity and higher employment.
“But we are concerned that often, the price that is paid by workers is too high and that levels of trust between workers and managers suffer.
“In some cases, private equity ownership may be inconsistent with the principles of ‘good work’ - fairness, job security, the ability of individuals to have a say over their working life, to manage stress, and to be able to communicate effectively with senior management appear to fall down the list of organisational priorities under PE ownership.
© Crimson Business Ltd. 2007