In the last several years, there has been a growing trend for private equity firms to include broad-based employee ownership programs in their transactions. This trend has gained national attention, with stories on 60 Minutes, Freakonomics, the New York Times, and many other news outlets. The new paper Private Equity and Employee Ownership (PDF; also see the embedded version below) by NCEO founder Corey Rosen looks at the history of private equity and employee ownership in the 1980s and the current wave of interest among some large private equity firms in sharing ownership with employees.
The trend toward private equity firms sharing ownership with employees started about 14 years ago when Pete Stavros, now the co-head of global private equity at private equity giant KKR, began to create equity incentive programs for the employees of companies that KKR purchased. In 2021, he founded Ownership Works, a nonprofit organization designed to promote employee ownership across corporate America. Thirty-three private equity firms have committed to experimenting with the Ownership Works model of employee ownership in their portfolio companies. As October 2024, 113 companies with over 163,000 employees have used this model, delivering $570 million in equity to employees, who have been able to cash out their shares when the private equity firm sold the company or the company went public. In addition, Teamshares, another investor-backed fund, has bought 84 mostly small companies, using a model intended to provide 80% of the ownership to employees over time. Finally, some private equity firms are starting to invest again in employee stock ownership plan (ESOP) companies, often through providing mezzanine debt to 100% ESOP-owned firms.
Research has consistently shown that companies that share ownership with employees broadly perform better and provide significant wealth sharing for workers. The growth of private equity has its skeptics, however. This paper reviews how these deals are being structured, what they mean for employees, and how they compare to ESOPs.