Its an interesting concept. However, it may never work for one simple reason "risk". When my partners and I started our company the risk that we took was astronomical, leaving our high-paid jobs, masters, phd's to start a company. This risk needs to be rewarded and it is via equity. Building a company that is there only for its employees does not provide the founders with enough reward to warrant the risk.

This does not include the stress it takes to start and run a company, that stress should be equally as rewarded.