By all means, let private equity save capitalism
We should get Wall Street involved too.
This essay is research for my book We Should Own The Economy which I am writing in public.
KKR is either a villain or a hero, depending on who you ask.
The private equity firm started buying up companies, giving employees equity in them, then selling them at a profit with windfall results for employees and KKR. Some employee-ownership advocates see the company as an unlikely savior, offering workers stake in billion-dollar businesses. Others see it as an apex predator of late capitalism, giving workers a watered-down version of “equity” for their own financial gain.
Katie Boland, co-founder of the Delta Fund, is of the latter party, and in response to my rebuttal of the idea, she said I’m being “grateful for a cup of water in a desert that private equity itself helped create.” She takes issue with the fact that, for the $3 billion sale of the garage door company CHI, employees earned $360 million while KKR earned a whopping $1.96 billion. Why should we be grateful that they give employees so little when KKR pockets so much?
But that money isn’t KKR’s to keep. Because KKR manages other people’s money, most of the profits from its funds—roughly 80%—go to its limited partners, such as pension funds and endowments. KKR earns its share through management fees and a cut of the investment gains, known as carried interest. KKR’s take is about 20%—$300 to $400 million in this deal—not much more than the 15.5% and $360 million CHI workers received.
That they cut employees in on the deal is a good thing, and other private equity firms, including Blackstone, are now following suit. If every PE-backed company were given the CHI deal—15.5% of equity value with an exit event in 5-7 years—then, with $398.5 billion in exits annually, $60 billion would be paid out to workers each year. Over the next 20 years, that’s $1.2 trillion shifted from the investor class into worker hands!
Would I be grateful for that cup of water? Absolutely!
I don’t think KKR is “performing a charade” or “using the language of ownership,” for providing a stock option that becomes liquid upon sale, is short-term, and is not democratic—they are merely catching up to the equity model venture capital-backed companies already use. In both cases, employees receive restricted stock units (RSUs) that only become valuable upon exit—that makes sense for high-growth, high-value companies that couldn’t promise equity gains up front, but could promise future rewards in the event of their eventual success.
That doesn’t mean I think it’s good enough—far from it! Most companies never see an exit event—for every employee whose options produce a payout, another one or two walk away empty‑handed. And shares are inequitably distributed—employees who do reach a successful exit might experience life-changing wealth, but the average founder experiences nation-changing wealth. What does it matter if workers earn an extra $200,000 if founders earn an extra $200 million? Every billion-dollar exit creates a wealth gap of 1,000x between the average worker and the founder/CEO.
Instead, Boland favors the model used by Apis & Heritage, which buys companies and converts them to 100% ESOPs—isn’t 100% of the company better than 15%? And Employee Stock Ownership Plans (or ESOPs) give employees long-term upside in the company’s growth, rather than short-term gains through exit events. Employees earn shares commensurate with their salaries and, as corporate value goes up over time, see their equity accounts grow throughout their careers. When they leave or exit the company, the company buys back the shares, and the employee cashes out.
There can be no doubt that ESOPs are a huge win for putting wealth and capital in the hands of workers. Only 8% of US corporate equity is currently in worker hands, but ESOPs make up about a third of that despite making up less than 0.2 % of all firms. Of the 6,247 companies currently owned as ESOPs, 3,400 of them are majority or 100% employee-owned. As a result, 10.7 million ESOP employees currently hold $2.09 trillion in corporate equity.
That’s incredible!
But percentages aren’t everything. In response to Boland’s analysis, KKR co-head of global private equity and employee ownership advocate, Pete Stavros, says we should focus more on worker returns than percentages. “Percentages are totally meaningless,” he told ImpactAlpha. “I could give you 100% of a company and if I have enough leverage on it, the percentages, it doesn’t mean anything. What matters is dollars to workers.”
After considering debts, a generous ESOP benefit might pay out 40% of worker salaries over five years, he says, but KKR is aiming for 50% and even 100%.
As an employee, which would you rather have? 100% of your company, but shares are worth 40% of your salary? Or 15% of your company and shares are worth 50% or even 100% of your salary?
More importantly: Every company can’t become an ESOP! Companies need an annual EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1 million+ to make the financial hurdles worth it—on average, that happens once companies have about 50 employees. ESOPs also can’t be too large—with more than 5,000 employees, the cost and complexity of an ESOP far outweigh the benefits. Even then, ESOPs flourish in capital-intensive, steady-cash-flow businesses like construction, manufacturing, and wholesale that could afford to buy employees out of their shares when they retire in 30 years. According to a Rutgers analysis, there are only 140,000 companies and 33 million workers that could feasibly become an ESOP.
That’s still a sizable market. Assuming a valuation of between $120,000 per employee (for construction) and $260,000 (for professional services and tech), if every one of those “ESOP-ready” businesses transferred a 30% stake to its workers, roughly $2 trillion would transfer into worker hands.
I would take that cup of water every day, but it’s still not enough! We’re only creating 284 new ESOPs each year—even if we manage to turn that around and max out the entire ESOP market, we’ll still have the bulk of the economy to reach!
And ESOPs come as a retirement account which limits their effect on wealth inequality. That was a good thing in the 1970s when the ERISA Act was introduced—401(k)s didn’t exist, and IRAs had only just been created—but today 90% of people with an ESOP also have a 401(k) or other retirement account. What good does it do us to have 10 million people with two retirement accounts when capital owners from the VC world have fast access to cash and are using their outsized equity gains to invest in more businesses, influence laws that favor them and their wealth, and build companies that control our economies, our technologies, and our governments?
Stavros has it right: “What we’re gunning for is the dollars of wealth, even if it’s not yet liquid. And by the way, take an ESOP as an example, you have to retire before you get your cash. What we’re after is dollars of wealth in people’s accounts and then it’s going to crystallize into cash as companies go public and get sold.”
The goal here is not to convert every company to an ESOP so everyone has richer retirement accounts. It’s to create more owners of the economy so we don’t have a small group of wealthy individuals owning all of our homes, businesses, media, technologies, energy, and governments; but a wide group of people who, together, participate as owners in our homes, businesses, and technologies, energy sources, and governments. I’m after wide access to wealth and power and that requires democratized ownership in corporations.
This is much bigger than a labor movement. It’s not about minimum wages and 40-hour work weeks and unions battling against the owners for rights anymore. It’s about becoming the owners! We wouldn’t need minimum wages and work limits if employees were also the owners, we’d design our workplaces for our best benefit! If unions become our corporate owners, our financial and worker incentives would be aligned.
We will need a wide variety of employee ownership structures to get there.
Under KKR, employees receive a smaller percent of the company and have less governance than an ESOP, but they can turn shares into cash years—rather than decades—sooner. That’s a good option for companies held by a PE for a short time. At an ESOP, employees accrue shares and see their value grow throughout their careers, sometimes with governance and sometimes without, but they only have access to those funds through a retirement account. That’s a good option for manufacturing and construction companies where cash flow is steady and employees stick around for the duration of their careers.
We also need models that work for, not just PE-backed and manufacturing companies, but also large, traditionally-owned companies. We need the Amazons and Walmarts and Targets to become employee-owned, and that’s what Expanding ESOP’s vision of 10% ownership is all about. Boland’s right, it’s pure fantasy right now. But it’s not something KKR is pursuing with individual deals; it’s a policy change that would incentivize C-Corp ESOPs, not just S-Corp ESOPs, at the federal level.
We need that policy change. In the US, there are 2,138 firms with more than 5,000 employees, employing 46.7 million workers. Amazon could never become an ESOP, but with the right incentives, they could shift meaningful equity to workers. With a much higher valuation of $500,000 per employee, 10% employee ownership of large corporations would transfer $2.34 trillion into worker hands over the coming decades.
Boland would say that’s not enough, but I’d be incredibly grateful for that cup of water too!
“This partial ESOP model could expand the market to include bigger companies, public companies, investor-owned businesses, companies that are in all sectors of the economy,” Stavros says. “Most new ESOPs are in services and industrial companies. But what about software, media, technology, financial institutions? We need activity there as well.”
I agree. There are still 5.92 million companies and 40 million employees that have less than 5,000 employees, are not PE-backed or VC-backed, and are otherwise un-ESOPable. We’ll need equity options that work for them too. Perhaps high-growth, but high-volatility tech companies could pair current 20% employee equity programs with more equitable distribution and regular liquidity events. Larger firms with high wages might issue 20% of the company in phantom stock with regular liquidity events. Mid-sized businesses with moderate profits could become 30%-100% Employee-Owned Trusts (EOTs). Small, community-based businesses with fewer than 50 employees could become 50% to 100% worker cooperatives.
Assuming a valuation of $175,000 per employee at the top (for tech companies and high-end services) and $60,000 per employee at the bottom (for mom and pop retail), we’re looking at between $2 and $4 trillion in corporate value, 20% to 30% of which could realistically be captured by workers through broad employee equity options, phantom stock plans, employee‑ownership trusts, and cooperatives.
I’d be incredibly grateful for every cup of water there too!
But let’s check in with our ownership math so far. If we did all of the above, over the next 20 years, we could give workers:
10% of every company with more than 5,000 workers: $2.34 trillion
15.5% of every PE deal: $1.2 trillion
30%-100% of every ESOPable company: $2 trillion+
25% of every mid- to small-sized company: $1 trillion
Total: $6.54 trillion shifted to worker hands
Would I willingly turn off any of those faucets just because one isn’t as good as another? Absolutely not!
Right now, US corporate equity is worth $54 trillion, and workers hold about $4.4 trillion of that through ESOPs, 401(k)s, ESPPs, RSUs, and other stock options. Add another $7 trillion to that, and workers would go from owning 8% of the economy to 18%! A nearly $7 trillion hand‑off would be the biggest single redistribution of US corporate wealth since World War II. It’s a massive and nearly impossible feat to pull off, and we’ll need every cup of water we can get to create that oasis, and many more besides!
I am not “applauding a predator for offering its prey a slightly larger-than-usual morsel,” as Boland says. I am saying that if 30% equity held for 30 years is the only morsel we are willing to accept, then we will lose out on the rest of the meal. And with only 8% worker ownership, the rest of the meal is the other 92% of our economy!
That doesn’t mean we can’t make every one of those options better. We can!
Employee ownership is in its infancy. We haven’t yet landed on the runaway bestselling option that will entice everyone to our cause, or will provide the best possible ownership and governance structure for every company or worker. Nor do I think we should be dividing up the movement this early in the game just because one version doesn’t come in high enough percentages or isn’t democratic enough. Instead, we should hitch all of our stars together and create as many employee owners as we can. We need the ESOP community to convert every ESOPable company. We need the cooperative community to convert every possible cooperative. We need PE- and VC-backed companies to give shares to every company in their portfolio and to allocate those shares more equitably. We need policy shifts that will incentivize large companies to become employee-owned and that will improve the stock options currently available to companies across the board.
Personally, I’d love to see ESOPs that work more like RSUs—where workers earn shares as part of investment accounts rather than retirement accounts. And I’d like to see RSUs that work more like ESOPs, where employees earn shares throughout their careers regardless of liquidity and can sell shares back to the company during regular liquidity events.
Boland believes the KKRs of the world will suck the wind out of the others, but I think they will be additive rather than subtractive. KKR is the second-largest PE firm in the country after Blackstone. Both will continue to buy and sell companies, and if they give more wealth to workers, popularize ownership models, and incentivize policy shifts at the federal level rather than laying off employees and trying to extract value that way, I’m all for it. This could create a new chapter for PE that scales far faster than anything the ESOP community could do. A reinvented PE could transform capitalism radically, and quickly.
We should let it.
That doesn’t prevent organizations like Apis & Heritage from doing it for ESOPs, or even growing to the scale of KKR. I hope they do! But even if they reach every possible ESOP-able company, there will still be many more companies those models can’t reach. They might benefit from KKR-backed policies that create easier access to funding and benefit an even larger market of companies and workers.
That will mean crafting policy together.
What would it be like if organizations like the Delta Fund, Apis & Heritage, and KKR joined forces to write that better policy? Already, the ESOP Association's president, Jim Bonham, has influenced the policy originally proposed by Stavros’ Expanding ESOPs. “His coalition initially proposed that in exchange for providing a 10 percent equity stake to employees, PE firms would be allowed to double their payroll expense deduction for income taxes for five years, plus carryover beyond that,” Bonham said. “Those specifics have since gone from their website, with current language saying the tax incentives must be ‘commensurate with the cost of providing ownership,’ and ‘at an up-front cost that is manageable to a company.’”
Bonham, like Boland, worries that the incentives we give to PE companies might encourage companies to become 10% employee-owned rather than 30%, and with less democratic governance rather than more. But there’s no reason we can’t work together to architect incentives that encourage wider participation in employee ownership at the same time that we protect and incentivize traditional structures. Or better yet, improve them! Even Bonham agrees that something needs to change if we want more ESOPs. Why not work together to get the incentives right and benefit all parties? Why not create ESOP/RSU hybrids that could provide the best of both worlds to employees across the board?
This is just our starting place.
Eventually, we can even raise the bar to models Boland, and I, would find preferable. Large companies might start at 10% employee-owned, but that’s just a politically palatable wedge we can insert into the system. Properly established, enshrined in policy, with access to financing and good tax breaks and incentives, selling to employees could become our default exit option. As companies want to raise more financing, they could become 20%, 30%, or even majority employee-owned later on. Eventually, it could become more financially beneficial to sell to employees than any other exit option.
This is important. Boland and Stavros agree that companies need better off-ramps. After all, when KKR sells an employee-owned company, it ceases to be an employee-owned company at that point—that’s true for ESOPs too. When a Vermont ESOP recently sold for $1 billion, that created a huge windfall for workers, but it was no longer worker-owned after that.
KKR has already been experimenting in this realm. “We’ve had a number of these examples where a company has an Ownership Works program, and it sells to another private equity firm and they replicate the program.” Stavros said.
He points to two deals in particular where this happened: When KKR sold RBmedia and GeoStabilization International. He detailed the latter deal on a Financial Times podcast, explaining that they bought the company in 2018, made it partially employee-owned, then sold it in 2024 for $1 billion, with $75 million going to employees. But the company that bought it, Leonard Green and Partners, is part of Stavros’ Ownership Works organization, and they are creating a new set of employee equity incentives to continue the tradition.
Creating better financing options will be an essential part of the process for PE and VC deals, as well as ESOPs alike. After all, owners often sell to PE or go public because those routes deliver a quick cash infusion and a clean risk transfer—not because they prefer outside control. If founders could access that same day-one liquidity by selling to employees—perhaps through the funding methods outlined by Transform Finance—many would choose that path instead. Making employee sales a default option would redirect a meaningful share of deals away from traditional PE and reduce the need to go public purely for liquidity, while capital-intensive or high-growth firms that still might benefit from PE or public markets could build broad-based worker ownership into the deal.
With mainstream adoption, we’d have all of the regulatory rails in place to make adoption easier. Some large companies might become 10% employee-owned, others might become 20%, 30%, or even 100% employee-owned! Some of those companies might become cooperatives and grant full voting rights to employees, others might give workers control over the board, or form committees that inform leadership democratically. A variety of options will only increase ownership overall, not detract from it.
This, by the way, is how many movements work. They begin as narrow, politically palatable compromises but, once people see the upside, they scale far beyond the original deal. The Adamson Act once gave interstate railroad crews an 8-hour day, before the movement reached federal status in 1938. Social security programs started out small and only applied to half the workforce until they were expanded. The 401(k) was a tax shelter for wealthy executives until we figured out how to scale it to all employees. Starting with 10% employee ownership today, only to grow to 20% or 40% tomorrow is not wishful thinking but the historical norm for workplace change.
In the meantime, we should welcome every option that will get us closer to that goal and work together on a compromise that will achieve it. Unite the movements! That includes PE companies that provide short-term equity structures while doubling the amount of employee owners each year; and traditional ESOP, cooperative, and EOT structures that are creating foundational ownership and governance models we should expand and build upon.
Hopefully, we can create even better ownership models from here. But in our quest for full ownership of the economy, we will need a portfolio of ownership models that can scale to the entire workforce, not just one that only works for a sliver of it.
Tagging Katie Boland, Paul Spinrad, and The Main Street Journal, who contributed to this discussion in various places.
Thank you for reading and thinking with me,
P.S. Thank you to those members of the Elysian League who previewed an early draft and contributed your thoughts and ideas. They helped inform mine!
P.P.S. This essay has been added to the manuscript for my book We Should Own The Economy, which can be found here.
Follow the argument
Boland’s post caused quite a stir in ownership economy circles. Here’s the argument as it unfolded across the internet for those interested in following the rabbit hole:
Here is Boland’s initial post: “Equity-Washing: KKR, Ownership Works and The Polished New Face of Corporate Greed”
Here is my rebuttal: No, KKR is not “equity washing”
My response is above
ImpactAlpha responded last week with three posts:
Michael Morosi, Managing Director for 40 Million Owners, also showed up in the debate on LinkedIn:
“Katie, when you are leveling this type of criticism, it's important to be precise. Apis and Heritage is a great firm with great leadership, but they are not competing with KKR for $B buyouts. The real challenge to scaling the type of capital that you're referring to is that low-double digit returns are an uncomfortable middle ground for institutional asset allocators.
“CIOs of pension funds and endowments know where to go when they need to earn 6% and be nearly certain of getting paid back (i.e., the debt markets), and they know where to go when they can take some risk and try to earn 20%+ (i.e., the equity markets). Employee ownership is fundamentally a credit product from an investment standpoint (the equity is owned by the employees, after all), and the subordinated / mezzanine piece is, well, somewhere in the middle. The return profile is debt like, the risk profile is equity like. Who owns it? Where does it go? What does it get comp'ed against?
“This also ignores the fact that the beneficiaries of these pension funds and endowments -- state employees, teachers, police officers, college students, university employees -- benefit from and require the 20%+ equity returns to make the actuarial math of their benefit work.
1) It's hard to argue that CHI wasn't a great outcome for everyone.
2) Nothing in traditional EO comes close to competing for $B buyouts (anytime soon).
3) There is an EO solution for every business.”
Robin Hood is alive and well! I haven't been following financial services for years. The last time I looked MBAs were gobbling up small companies, firing the workforce and pocketing the capital. In these years of corrupt business practices masquerading as governance in the United States, this is mana from the corporate boardroom.
SSRI is right on in pointing to a time when robots are the majority of the workforce aka the day after tomorrow. The shift is inevitable so we need ways to ensure humans still thrive, though not necessarily in such large numbers. Thank you for awakening me to this important and surpising trend.
Given the prospects for using AI and much more automation as we reshore production in the US, the balance between capital and labor will continue to shift towards capital, so these ideas of making more people owners of capital is a good move. Otherwise they might not have the income required to buy the products the automation is producing.
I have been skeptical that some of this is really a net move to UBI type schemes, but your essay helps clarify some of that [although perhaps a little too long for a Substack article - as I only scanned the last 1/3, even granting that some repetition can be useful in discussing new or complex ideas]. I suspect more education of employees and small business owners might still be necessary to help convince all parties to their net benefit - short term or longer term, as applicable.
I will plan to copy this essay into Word for a later reread to help cement my understanding of the available options.
When you said in your last paragraph " ... quest for full ownership of the economy, ... " that triggered a thought that people also need to have a better gage as to the value of their respective human capital, but perhaps that is really nothing more than obtaining or realizing the value the marketplace puts on various skills/education/talents at any given time and place. Maybe the current methods of collecting and publishing that type of information could be further improved over what is available now, and means provided to alert more employees/job seekers as to that sort of data.