For an industry that employs roughly 12 million people in the United States, or about 8% of the labor force, the fundamentals of how private equity operates remain notoriously opaque. The big headlines about deals gone wrong — Toys “R” Us collapsing after a leveraged buyout, private equity firms buying up housing stock, Deadspin abruptly shuttering — capture the fallout but often miss the bigger picture of private equity’s cumulative impact on workers and the broader economy. In her new book Bad Company, Megan Greenwell details how these cases are not outliers but rather emblematic of a model that consistently prioritizes financial extraction over worker wellbeing, operational stability, or long-term value.
As Greenwell outlines, private equity firms make money by buying companies using borrowed money, then load that debt onto the companies they acquire, rather than bearing the risk themselves. While some of the borrowed money comes from pension funds or university endowments, the majority of it comes from bank loans. Once the PE firm takes control, they extract value through fees, aggressive cost-cutting, and selling off assets. These tactics may boost short-term financial metrics but often weaken the company over time, leading to layoffs, reduced wages and benefits, and higher rates of bankruptcy. Most significantly, private equity usually profits even when the companies they acquire go bankrupt themselves.
Research from the National Bureau of Economic Research and the Center for Economic and Policy Research shows that private equity–owned companies eliminate jobs at nearly twice the rate of comparable firms, often within the first two years of a buyout. Between 2015 and 2023, analysts estimate that PE-driven restructuring and closures have cost U.S. workers more than one million jobs, while saddling many companies with unsustainable debt.
As the evidence of harm piles up, private equity — arguably some of the most sophisticated practitioners of extractive capitalism — has begun recasting itself as an ally of workers and communities. Over the past few years, the industry has adopted the language of “shared ownership,” positioning itself not as a driver of inequality but as part of the solution. The latest frontier in this rebrand has been its foray into employee ownership. Through initiatives like KKR’s Ownership Works and similar programs, firms now promise workers a financial stake in the companies they acquire — a chance, they claim, “to share in the upside”. Ownership Works has attracted substantial philanthropic funding — more than three of the field’s largest, longstanding employee-ownership organizations combined — and the irony is hard to ignore. The firms that have done the most to erode worker power are now being celebrated and funded for “empowering” workers.
For decades, unions, ESOP advocates, cooperative developers, and community organizations have worked — usually on limited budgets — to expand democratic ownership of the workplace and build real wealth and governance rights for workers. At its best, employee ownership is not simply a financial perk but a governance model, one that embeds accountability, transparency, and shared power into how a business operates. Worker cooperatives, for example, elect their boards democratically and distribute profits equitably.
Employee Stock Ownership Plans (ESOPs) are the most common form of employee ownership, and when structured with meaningful participation, they reduce layoffs and help narrow the wealth gap. ESOP firms often contribute shares amounting to 6–8% of annual pay to workers’ accounts — with some contributing up to 10–25% — compounding over decades.
Private equity’s version bears little resemblance. PE-backed arrangements operate as what the ESOP Association calls Short Term Equity Plans (STEPs). STEPs typically deliver only a one-time payout equivalent to 6–12 months of wages over 4–6 years and are contingent on a liquidity event like the sale of the company. When that sale occurs, workers’ “ownership” rights end entirely. A recent paper from the National Center For Employee Ownership breaks down some of the deal mechanics and highlights a few case studies. While ESOPs can and often equal to 100% of ownership of the firm, the PE-backed version seen so far limits ownership to 10%.
Legally, ESOPs function as retirement plans and are governed by the comprehensive federal protections of the Employee Retirement Income Security Act of 1974 (ERISA). In contrast, private-equity-backed STEP proposals seek to create an entirely new plan structure that would be exempt from core ERISA safeguards. Expanding ESOPs is a new lobbying effort launched by KKR’s Pete Stavros and funded by both private equity and philanthropic dollars. As documented by the ESOP Association, instead of trying to “expand ESOPs” as they have existed for five decades, it is pressing Congress to create an entirely new legal category of ESOP tailored specifically to private equity, complete with exclusive tax benefits and sweeping exemptions from ERISA. Their proposal would allow private equity firms to receive a doubling of its payroll tax deductions, legal immunity concerning the valuation of share prices, and access to a lucrative new 1042 tax deferral — all while workers receive only a short-term bonus tied to a liquidity event.
Without situating private equity’s employee-ownership initiatives within the broader empirical record of how private equity operates, and how its practices have historically reduced worker bargaining power, any positive account is incomplete at best. Omitting this context obscures the structural tension between private equity’s financial incentives and meaningful worker ownership. As Marjorie Kelly of the Democracy Collaborative says, “it’s a step up on an escalator that’s moving rapidly down. So, private equity gives workers this little hit of money, but then it sells the firm and they’re highly likely to be laid off.”
Private equity’s co-opting of employee ownership is unsurprising. What should give us pause is the enthusiasm with which philanthropy and parts of the labor movement have embraced this effort. The underlying dynamic is not new — social movements spend years advancing solutions to inequality and concentrated economic power, only to be told their proposals are impractical, too radical, or incapable of scaling. Their models remain underfunded and politically marginalized. Then corporations “discover” a market-friendly version of the same ideas, stripped of their redistributive or democratic intent. Money begins to flow to those versions, new policy frameworks are built around them, and the mainstream narrative shifts to insist these watered-down approaches are the ones best suited to scale. It raises an obvious question about why philanthropy feels compelled to subsidize Ownership Works when firms like KKR reported more than one billion dollars in adjusted quarterly profit and are on track to manage one trillion dollars in assets by 2030. A company of that size does not need philanthropic support to share a small, temporary sliver of upside with workers.
The labor movement needs an alternative path to scale, one that treats worker ownership as a strategy for democratizing the economy rather than allowing private equity to wield the idea of scale as a cudgel against more transformative approaches. Union co-ops are one such model that are re-emerging to meet the current moment. They combine the structural power of organized labor with the democratic governance of worker ownership and they do so without relying on extractive financing or short-term liquidation events. Funders, legal experts, and policymakers will find that shifting the center of gravity back to movements that strengthen worker power shows far more promise for democratizing the economy than private equity’s window dressing.
