Employee Ownership

[kugeman]

The management staff at the restaurant and brewery where I work has floated the idea of employee ownership (most likely partial employee ownership with the current owners maintaining a majority share in the company). My question is, are there any brewpubs out there that have this sort of arrangement? The only brewery I'm familiar with that's employee owned is Full Sail in Hood River, OR, but I'm talking more a <1000 bbl/year brewery & restaurant.

If there is anyone out there who's a part of an employee-owned brewpub would you mind sharing your thoughts on the arrangement? Is it viable, profitable, how is it structured? Does it change the "culture" of your workplace, etc...?

Cheers!

[Brett0424]

My brother works for an employee owned restaurant that has considered adding a brewery. I have spent some time there and even considered helping out with the brewing aspect, but moved far far away. I can tell you that this type of environment most certainly changes the "culture" of a business. The employees all do all the different jobs from the dirtiest to the cleanest. I believe this makes the employees/owners all feel more directly connected to the product and thus more happy/satisfied about being in the industry. Whether it's viable or profitable depends on how it is arranged and there are many types of collective arrangements. I would encourage looking into a collective network of some sort in your area because they often have yearly or bi-yearly meetings where several of them get together and discuss ways of doing things. As for profit, yes, you can make enough to survive as a business but if profit is what's driving you you're going in the completely wrong direction.

[Larry Horwitz]

Hey Hutch!

Great to see you at the GABF...man what a great week!

A word of caution on "employee ownership": A minority position in a private company is usually not a great spot to be in. If they give you stock you'll have a big fat tax bill, if you buy in you will have no say in how the company is run, dividends distributed or even to whom and when they may or may not sell. Be very, very careful or you may be buying into a big fat loss. If I were you I'd say keep the stock, give me a raise...a raise is something you can count on. The chances of your (or anyone elses for that matter) brewpub being bought for a huge profit down the road are very, very slim. The majority ownership will undoubtedly give themselves a raise / distribution weather you get one or not.

Now I don't want to say you work for untrustworthy people...in fact I'm sure you don't 'cause they've been around for a while...I'm just saying at some point human nature for self preservation kicks in first. Also, I'd ask why they want to sell.....could provide some insight.

good luck!

[3DogsBarking]

To avoid the tax trap the brewpub needs to be structured as a corporation, preferably S-Corp. Then tax is only due when shares are sold. The problem is that not many small businesses utilize a structure other than the standard partnership/sole proprietor thing. While not common for breweries, some businesses set aside 15 to 20% ownership for employee incentive.

And unless the pub is a corporation and they give you a board seat with the ownership options, then you are at the mercy of the decisions of others. It really depends on the company if it is good or bad, but in general ownership is a very effective incentive. That is unless you don't plan on working there for long and don't understand their vesting terms.

[Carpeiem]

Henry Ford

One other option to employee ownership is implementing a profit-sharing or aggressive bonus program. In order for these systems to work, they must be implemented into the right atmosphere. If your employees are interested in the work that they do and truly care about the company; profit sharing actually could increase your margins. It puts them in the position to monitor the bottom line and increases innovations, making for a more creative work place.

A great instance of paying employees more and in turn increasing profits is Henry Ford's 5 dollar work day. By increasing the wages, employees were more loyal and did not want to lose their job as well as people lining up at the door waiting to turn in applications. While this is not necessarily the case in the brewing industry in paying more than the average wage, if you are able to convince your employees that they are working for a worthwhile cause, it is beneficial for everyone.

my 2 cents

[alexmoss]

Hey Hutch!

...A word of caution on "employee ownership": A minority position in a private company is usually not a great spot to be in. If they give you stock you'll have a big fat tax bill, if you buy in you will have no say in how the company is run, dividends distributed or even to whom and when they may or may not sell. Be very, very careful or you may be buying into a big fat loss. If I were you I'd say keep the stock, give me a raise...a raise is something you can count on. The chances of your (or anyone elses for that matter) brewpub being bought for a huge profit down the road are very, very slim. The majority ownership will undoubtedly give themselves a raise / distribution weather you get one or not.

The problem with this analysis is that it leaves ownership for the owners, when in fact a huge # of successful businesses are in fact employee owned so that employees share in the value that they are creating. I agree that the minority position does not give you voting control over Board decisions...but is that what you're after? Equity gives you a piece of the wealth that you're helping to create. There are MANY ways to structure this, from direct stock purchases (with some of the tax problems identified above), to stock options, to Employee Stock Ownership Plans (ESOPs) -- which is what Full Sail Brewing has, as does New Belgium Brewing, as well as companies like Hot Dog on a Stick, Green Mountain Coffee, King Arthur Flour, and gobs of other highly successful companies (no, not everyone gets screwed, it actually works when you do it right) -- to worker cooperatives, which are more common in smaller restaurants, etc. etc.

Yes, of course caution is warranted -- if you buy into a lousy business, you can lose money, and I can point you to many employee owned companies that have failed...because their businesses failed so the stock was worthless. Duh. But it's a little simplistic to conclude that therefore employee ownership is a bum rap, when the fact is that it is extraordinarily successful under the right circumstances. And it's the only way to get everyone looking at the long-run in a way that shares the long-terms rewards.

I agree w/ Carpeiem: profit sharing and other forms of cash bonus are also very important. But again these do not focus on sharing the long-term wealth. If you don't care about long-term wealth, then you might not want to be an owner, stick with profit sharing alone and let someone else pocket the stock value growth; if you do care about creating and sharing wealth, you might want to at least take a more careful look at employee ownership. Often, the best approach is not either-or, but rather a mix of various profit sharing and ownership tools. Obviously, what works for someone else may or may not work for you, you need a solution that fits your circumstances.

The best source I know for more info is the National Center for Employee Ownership, www.nceo.org. That's not a commercial plug, they are a non-profit research organization, and they have a few publications focusing specifically on employee ownership in smaller organizations. Ask for Corey Rosen, the Executive Director, he's very approachable and will give you info without trying to sell you one way or the other. Tell 'em I sent you, I used to serve on their board.

My 2 cents.

Good luck,
Alex Moss