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.”
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