Do Employees Cheer for Private Equity? The Heterogeneous Effects of Buyouts on Job Quality

Abstract

We show that private equity leveraged buyouts (LBOs) reduce perceived job quality despite not impacting average base pay. This appears to reflect higher risk for employees. Both job quality and employee incentive pay are more related to firm performance at private equity-owned companies than at public control firms, with 1% higher deal IRR associated with 0.7% more employee incentive pay. Also, higher leverage deals and employees with worse outside options and longer tenure drive the post-LBO satisfaction declines. Our results highlight how job quality is tied to job security and how ownership affects employees through mechanisms beyond base pay.

Keywords: private equity, leveraged buyouts, job quality, employees, corporate culture, non-pecuniary amenities, implicit contracts

JEL Classification: G24, G32, J31, J32