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

Abstract

We examine how private equity investments affect job quality. Leveraged buyouts (LBOs) – unlike standard M&A or growth equity deals – reduce employee satisfaction with compensation, work-life balance, firm culture, and senior management. These effects are driven by longer-tenured and lower-skill workers, and by high-leverage deals. However, reported pay is unaffected for most workers, while managers earn substantially more incentive pay. Using deal-level cash-flow return data, we find that LBOs have more IRR pass-through to employee satisfaction than mimicking public equity investments, with 1% higher IRR associated with 0.7% more incentive pay. Overall, LBOs appear to lead to both more rent-sharing with employees and increased job insecurity, particularly in high-leverage deals.