Would you rather be paid 40k a year cash or 20k a year cash and 30k in stocks which can't be sold for 5 years and you must give 3 months notice before selling.

The stocks are not liquid and mass selling harms the value further diminishing the benefit. You think the employee will be happy getting only 20k in cash for their bills? Furthermore you will be diluting the stock on each dispersal which decreases value further.

CEOs already have lots of capital and prefer stocks to cash because it's taxed less. Plus already being rich means they can borrow against their assets to avoid most taxes.

Think about this. You have 100k in assets and just it as collateral to borrow 50k. Eventually you need to repay the loan when the term is over right? Sure but you can pay that loan by borrowing against the assets appreciation and the additional assets you acquired (stocks/property/etc). You can continue you this as you accumulate more wealth. Now 100k on assets likely won't take work, but when you are talking 100s of thousands then you can start to see why our tax system can be worked over so well.

Capital gains taxes only come into play when you sell an asset that has appreciated. Borrowing against that asset to make money does not invoke capital gains.

The other thing you need to keep in mind is that profit sharing can be great at company that is doing well but it's horrible when it's not. My company used to compensate everyone partially based on hitting numbers with a effective profit sharing. The problem was that company wasn't able to hit numbers for a few years which meant everyone were being underpaid vs the general market. Eventually they switched the system to have the expected bonus compensation added directly to lower level employees pay checks and only upper level people had their compensation split because lower level employees have no power in the company hitting numbers. This made all the lower level employees happy because it gave them a substantial pay increase vs having a roller coaster pay based on how the company did.

As an FYI, the company still gives performance bonuses for lower level employees. The difference is that higher level employees have their bonus more based on company performance instead of individual (it's a ratio that moves based on level of pay).