The Great Equity Wash: How Private Equity is Hijacking Employee Ownership

If you’ve been reading the financial press lately, you might believe that the masters of the universe have suddenly developed a conscience. The titans of private equity—firms that have spent decades strip-mining companies, loading them with debt, and laying off workers to maximize returns—are now rebranding themselves as the champions of the working class.

They call it "shared ownership." They launch glossy non-profits and polished PR campaigns under names like "Expanding ESOPs." They tell heartwarming stories about factory workers getting checks when a company is sold.

Do not be fooled.

As we have argued before, and as The ESOP Association (TEA) lays out in devastating detail in their newly released Special Edition Report, this is not a revolution in worker power. It is Equity-Washing—a cynical attempt to dress up extractive capitalism in the clothing of employee ownership to secure tax breaks, improve a toxic public image, and put "golden handcuffs" on workers.

We were honored that The ESOP Association chose to reprint our analysis of this trend in their report. But the full document goes much deeper, exposing the specific policy mechanisms private equity is using to try and rewrite the rules of ownership in their favor.

If you care about building a just economy, you need to understand the difference between true ownership and the "Short Term Equity Plans" (STEPs) that private equity is trying to sell us.

The "STEP" Trap: A Bonus, Not a Stake

The ESOP Association’s report makes a critical distinction that every impact investor must grasp. The "ownership" models being pushed by groups like Expanding ESOPs are not Employee Stock Ownership Plans (ESOPs) as we know them. They are Short Term Equity Plans (STEPs).

Here is the reality of the trade-off they are proposing:

• Temporary vs. Durable: Genuine ESOPs are designed to be multi-generational trusts that build long-term wealth and anchor capital in communities. STEPs are designed to be terminal. They exist only as long as the private equity firm holds the asset—typically 3 to 7 years. When the PE firm sells, the "ownership" evaporates.
• Governance vs. Silence: True employee ownership often comes with governance rights, trustee protections, and a voice in the company’s future. The PE model explicitly avoids transferring power. It is designed to make employees feel like owners so they work harder, without giving them the rights of owners and retaining control so that they can maximize cash flow to extract as much as they can during this timeframe.
• Wealth Building vs. Lottery Tickets: In a STEP, the equity pool (usually a meager 10%) starts at zero value and only pays out if the PE firm hits its aggressive financial targets upon exit. If the PE firm drives the company into bankruptcy—which they do at a rate 10 times higher than non-PE firms—the workers get nothing.

Subsidizing Extraction

Perhaps the most infuriating revelation in the report is the financial engineering behind this push. Private equity firms aren't just asking for a pat on the back for tossing crumbs to workers; they are asking you, the taxpayer, to pay for it.

The proposals from "Expanding ESOPs" seek massive government tax subsidies to fund these 10% equity stakes. Effectively, they want the public to cover the cost of the employee payout, allowing the PE firm to keep their extractive returns intact while enjoying a tax shield.

As the report notes, this creates a "redistributive tax policy" where taxpayers buy the employee stake while all the profits continue to accrue to the investors. It is a masterclass in privatizing gains and socializing costs.

The Existential Threat to Real Ownership

Why does this matter? If a few workers get a check, isn't that better than nothing?

It matters because language has power, and policy has consequences. By lobbying Congress to redefine "ESOPs" to include these hollow, short-term schemes, private equity puts the entire legal framework of employee ownership at risk.

Real ESOPs rely on specific tax structures that have bipartisan support because they demonstrably build retirement security and community stability. If those structures get lumped in with predatory private equity deals that blow up companies and lay off workers, the political backlash could destroy the authentic ESOP model along with the fake one.

As the report bluntly puts it: "Pigs get fat, while hogs get slaughtered". If we allow private equity to turn the ESOP brand into a tax shelter for Wall Street, we risk slaughtering the most effective tool we have for closing the wealth gap.

A Call to Defend True Ownership

We need to stop applauding "financial innovation" that is nothing more than a re-branding of the status quo.

We support capital that builds power, not just capital that pays a bonus. We support ownership that anchors jobs in communities, not “ownership” that is a pit stop on the way to a strategic sale.

Here is what you can do:

1. Read the Report: Download The ESOP Association’s Special Edition. It is a vital primer on the dangers of "Equity-Washing."
2. Interrogate Your Managers: If your wealth managers or the funds you invest in promote "shared ownership" in private equity, ask the hard questions. Is this a STEP or a trust? Do workers have governance rights? Is the ownership durable? What percent is being shared with workers (we think 30% is the barest minimum)
3. Invest in the Real Thing: Move your capital to funds and models that are building genuine, democratic ownership. Look at organizations like Apis & Heritage, Project Equity, and Common Trust.

We are at a crossroads. We can let the machinery of extraction co-opt the language of our movement, or we can draw a line in the sand.

Let’s choose ownership. Let’s choose power. Let’s choose the real thing.