Why people can’t build wealth on wages alone, and what to do about it

As Jennifer Harris, director of the Economy and Society Initiative at the William and Flora Hewlett Foundation, has recently pointed out, we are at a particularly fraught moment. Rising inequality means that fewer people have spending power, creating incentives that sharpen the affordability crisis for everybody else. But there are remedies that don’t require draconian taxes and are proven to work—at their core is ownership. 

Since 1984, worker productivity in the United States has risen by 80%. Real wages have risen by 20%. The stock market, in the same period, has risen by roughly 9,000%. Now comes artificial intelligence—poised, in BlackRock CEO Larry Fink’s words, to “repeat that pattern at an even larger scale.” The wealth from the next great technological wave—like the ones before it—is on track to flow to the people who own things, not the people who do things.

We are right in the extraordinarily messy middle of what economic historian Carlota Pérez calls the installation phase of a technological revolution. During such periods, finance operates in a casino-like economy, financiers and high-tech barons capture most of the gains, inequality spikes, and populism rises. The Gilded Age looked like this. The Roaring Twenties looked like this. So does 2026.

But Perez’s framework contains an underappreciated ray of hope. Every installation phase has eventually given way to a “golden age”—a deployment phase in which the new technologies spread widely, productivity and wages finally move together, and prosperity broadens. The age of steel, electricity and heavy engineering had its Belle Époque. The age of petroleum mass production had the postwar boom.

With all the talk of AI widening income inequality, we should be spending at least as much energy and intellect on what conditions are necessary for a golden age to follow. Chief among those conditions, historically, is getting money out of the casino and into productive enterprise that benefits the workers who create the value. I believe there is a policy mechanism hiding in plain sight that could accelerate this shift. It won’t require taxing the rich into submission or building a new federal bureaucracy. It involves changing the incentives so that more companies convert to worker ownership—through Employee Stock Ownership Plans, worker cooperatives, or other broad-based equity structures. The idea is not new, but it is newly urgent, and the evidence for its benefits have never been stronger.

The Evergreen Inspiration

I had a revealing conversation recently with Dave Whorton, the founder of the Tugboat Institute and co-author (with Bo Burlingham) of Another Way: Building Companies That Last and Last and Last. Whorton spent years in Silicon Valley venture capital before becoming disillusioned with the grow-fast-and-exit model. He set out to find companies built on a different logic, and discovered what he calls “evergreen” companies.

Examples include high-performing companies such as the SAS Institute, Springfield Remanufacturing, Enterprise Rental Car, and Radio Flyer. They share a set of practices that look countercultural from a Wall Street vantage point: little or no debt, open-book management, and people development practices favoring long-term skill development and growth. 

The fact that there are so many financially successful companies that people love to work at and that are regarded as exceptional employers raises a question: why aren’t more companies built this way? Whorton’s answer is simple and structural. “There’s a powerful ecosystem that financially benefits from the current model.”  This includes the investment banks, private equity players, venture funds, and wealth managers who need the IPO-or-exit conveyor belt to continue running. The incentives tell you all you need to know.

A Hard-Nosed Reason for a Golden Age approach

But, we may well be on the brink of an era in which the smart money realizes the sheer destructiveness of the current model.  Compelling recent evidence for the benefits of worker ownership comes from none other than KKR, one of the world’s largest private equity firms.

Pete Stavros, KKR’s co-head of global private equity, has spent fifteen years proving a model. Starting in 2011, he began giving equity stakes to all employees in KKR’s investments, not just to senior management. The results have been remarkable by any measure.

At C.H.I. Overhead Doors, an Illinois garage door manufacturer KKR acquired in 2015, only 18 employees were shareholders at the time of purchase. KKR extended ownership to all 800 workers. When the company was sold to Nucor in 2022, hourly employees averaging $50,000 a year received payouts averaging $175,000—plus $9,000 in dividends paid out earlier. More recently, at CoolIT Systems in Calgary, workers received average payouts of roughly $240,000 when KKR exited—Wall Street bonus territory. At Ingersoll Rand, 16,000 employees across 80 countries shared $800 million in wealth creation.

KKR now oversees ownership plans at 84 portfolio companies covering nearly 200,000 non-management workers, and has already distributed $1.8 billion across 13 exits. Total projected payouts when remaining companies are sold or listed: as much as $14 billion.

But here’s the thing Stavros wants the business world to understand: this is not philanthropy. Employee turnover at these companies has fallen dramatically. At some portfolio companies, KKR was “hiring three thousand fewer people every year” after implementing ownership—a direct cost saving. Engagement scores moved from the twentieth percentile to the ninetieth. Employee-owned companies attract better talent and keep it longer. KKR has won competitive auctions—including the $1.6 billion acquisition of Simon & Schuster in 2023—partly because sellers and employees value its commitment to broad ownership.

Stavros is blunt about the underlying problem he’s trying to solve: “It’s hard to get rich on your labor alone. People build wealth in this country by owning things. But that hasn’t been the case for frontline workers.”

What the Policy Landscape Is Missing

Current ESOP law, created in the 1970s, was intended to formalize and incentivize broad ownership. But even today, only about 15 million workers are part-owners of their employers. The technical requirements are burdensome, the lawsuit exposure is high, and for large companies, converting to an ESOP structure is complex. Stavros’s nonprofit Ownership Works and its coalition Expanding ESOPs are pushing for federal legislative changes to simplify the rules, expand tax incentives, and provide better legal protections for ESOP transactions.

This is the right direction. Here are several specific interventions that could further accelerate the conversion of firms to worker ownership:

Expand seller-side tax incentives. Under current law, owners who sell their company to an ESOP can defer—and in some cases eliminate—capital gains taxes. This is a powerful incentive for business owners approaching retirement to sell to employees rather than to private equity or a strategic buyer or to simply shut the business. Pennsylvania recently extended this benefit at the state level. More could be done along these lines.

Simplify the ESOP formation process. The legal and fiduciary requirements for forming an ESOP remain complex. A streamlined, standardized formation process—akin to the B Corp certification framework—would lower the barrier dramatically.

Create a “cooperative conversion” loan facility. Just as the invention of the 30-year mortgage made the previously-unheard-of idea of average workers becoming homeowners, a similar innovation could help average workers become owners. The New Economy Coalition supports a version of such a facility. 

Reform stock buyback taxation to favor ownership investment. Since the SEC’s 1982 ruling legalizing open-market buybacks, public companies have funneled trillions of dollars into share repurchases rather than wages, training, or capital investment. The Inflation Reduction Act imposed a 1 percent excise tax on buybacks—a start, but too small to meaningfully alter behavior. Raising that tax while providing benefits for companies that implement broad employee ownership plans could shift the calculus.

Require ownership disclosures in government contracting. The federal government spends over $700 billion a year on contracts. Requiring bidders to disclose their employee ownership structure and giving preference to firms with broad-based ownership or ESOP status could create powerful market incentives without mandates.

The Challenge of the Turning Point

Golden ages don’t just happen. They need governments to provide directionality. They need long-term corporate decisions, in which capital is directed productively, not, as Warren Buffett argues, “wasted” on a casino-like environment.  They need fresh ideas, such as those coming out of the Committee on Economic Development, which shaped much of the Post WWII Golden Age. 

The gilded age of the current digital revolution has lasted longer than it should.  Financialization has meant, as Whorton observed, that “you can make more money jiggling around with financial assets than you can investing in real companies.” Worker ownership is one of the most direct ways to break this loop. When employees are shareholders, the productivity gains from AI and other technologies accrue—at least in part—to the people doing the work. The incentive to underinvest in workers reverses. The “quit rate” falls because employees have a financial stake in the outcome. Open-book management, which Whorton’s evergreen companies practice almost universally, becomes natural because employees with equity have reason to understand and care about the numbers. Jack Stack rebuilt Springfield Remanufacturing on exactly this insight: “Give them the numbers, show them how to play the game and win—and they’ll help you do that.”

The Moment We’re In

A wave of baby boomer business owners is approaching retirement over the next decade. Something like $10 trillion in privately held business assets will change hands in the next twenty years. The default outcome, if nothing changes, is that most of those businesses will close, be sold to private equity or strategic acquirers, or broken up. The employees who built them will receive nothing beyond their wages.

This is the window. With the right incentives, a meaningful fraction of those transfers could flow to workers, creating the kind of broad-based prosperity that Perez’s framework says is necessary for a golden age to take root.

The Stavros model shows that this doesn’t require sacrificing returns. The evergreen companies show that it doesn’t require selling out to capital markets. What it requires is changing the defaults—the legal structures, the tax incentives, the financing tools—so that employee ownership becomes the default rather than an arduous exception. 

An even wilder idea is to imagine shifting away from the corporate forms suitable to the mass production era to those that fit an age of digitally enabled, smart offerings, such as LLC’s or even Decentralized Autonomous Organizations, governed by smart contracts. 

Imagine that—no formal Boards, no IPO’s, just owners, making the best decisions they can for the long-term health of themselves, their companies, and their communities.