http://www.usatoday.com/money/companies/2007-04-03-esop-usat_N.htmThat link is about ESOPs (Employee Stock Ownership Plans) and has some good points about both the up and the downside.
What you are describing sounds almost more like a collective or a co-op, especially since you seem to be restricting ownership to employees only which might make it difficult to raise funds in the future as opposed to a publicly owned company. But, I don't see why in some specific situations that it couldn't work. In the end it comes down to the actual real-life people involved in such a venture. As described by scarletwoman above, committee decision making can be torturous and not always a good thing and a couple of nincompoops can upset an entire applecart.
I also think that employees who do have some kind of stock ownership via 401K matches and the like do not use the power they already have. No one reads their annual reports and most people just sign the proxy form or don't bother responding at all. They could make more of a show at annual stockholder meetings and ask questions and push for more and better employee benefits. I think they are cowed and afraid of losing their jobs if they make waves.