GIVING WORKERS A BIGGER STAKE
A piece of the pie: Small-business owners are trying to retain staff in high-cost Bay Area and secure their business’s futures by sharing ownership with employees
Carolyn Berke knows the challenges of owning a food business in the Bay Area.
As the owner of Union City-based Niles Pie Company for several years — and having owned and worked in bakeries on the East Coast — she’s experienced some of the industry’s long-standing challenges: a struggle to find and keep employees in what is a notoriously highturnover, low-wage profession, and the challenge of growing a business in a high-cost region.
As of recently, however, Berke is not handling the challenges of business ownership alone. Her employees are now owners themselves, since Niles Pie Company made the shift to a worker-owned cooperative about six months ago.
The worker-owned model is nothing new, but it could have important implications as businesses try to get ahead of the challenges of operating in the Bay Area and as the wave of baby boomers — who own more than half of all privately owned businesses in the Bay Area — retire, sometimes without a succession plan for their business.
“We are looking at employee ownership as a way to stabilize local ownership versus absentee ownership,” said Alison Lingane, co-founder of Project Equity, an Oakland-based nonprofit that helps businesses, including Niles Pie Company, transition to worker-owned models.
Absentee ownership, the argument goes, makes it easier for businesses to make decisions that are disconnected from what is good for workers, and with
“If they’ve got family in the wing to take over, or another local owner to sell to, that’s a fantastic succession plan. But increasingly, kids don’t want to take over family businesses. The challenge right now is that employer ownership is not on the menu for a lot of businesses.” — Alison Lingane, co-founder of Project Equity
union membership lower in many regions than it has been in the past, low-wage workers have little protection.
According to research from Project Equity, more than 85 percent of business owners do not have a succession plan in place for their businesses, and increasingly, many are struggling to find a buyer when they are ready to sell. Some close down, some are passed on to family members or sold to local owners, and others are sold to larger companies or absent owners.
“If they’ve got family in the wing to take over, or another local owner to sell to, that’s a fantastic succession plan,” Lingane said. “But increasingly, kids don’t want to take over family businesses. The challenge right now is that employer ownership is not on the menu for a lot of businesses.”
Project Equity is trying to change that. It works to educate business owners about the types of employee ownership available, which can range from worker-owned cooperatives to the widely used employee stock ownership plan in which shares of a company are owned by a trust on behalf of employees. Conversions to worker-owned cooperatives are mostly debt-financed, in the form of loans to the employeeowned business that pays the departing owner the value of the business.
It’s not a model that will work for everyone. If a retiring
owner wants or needs to make a bigger profit from selling the business and can sell to a strategic buyer, they should do that, Lingane said, but often, owners want to leave a legacy and keep a work force and mission intact, and if there is interest from the employees in being part of the ownership, it can be a good option for accomplishing that, she said.
And for broader issues affecting the local business landscape, such as the aging of baby boomer owners, putting broad-based employee ownership “on the menu” is important, Lingane said. Project Equity
has been working with the city of Fremont, for instance, to analyze the risk of losing its dense crop of locally owned manufacturing businesses.
Manufacturing represents one in four jobs in Fremont, according to the city’s economic development department, but in that sector, 38 percent of businesses are at least 20 years old, signalling a need for a succession plan. Because keeping those businesses in the city is part of its long-term economic strategy, said economic development director Kelly Kline, it is now working to educate older businesses throughout the
city about the challenge.
But even for owners who are not yet retiring — like Niles Pie Company’s Berke — transitioning to employee ownership could provide relief for other challenges, and help their workers.
Hiring, for example, has been a challenge for several years in the region, particularly as high costs of living prompt workers to look for careers in higher-paying industries than food and hospitality. When they have a stake in the company and a chance to share in profits, employees are invested in the success of their business and can make a higher wage. “You have to take the
long view,” said Sarah Vegas, one of Nile’s Pie Company’s new employee-owners. “It reflects on you. If things aren’t going well (for the business), you can’t just say ‘oh well.’ ”
Plus, employees are all sharing in the success of the company, Vegas said. “We’re not exploiting people just so we can rake (the money) in.”
Vegas is one of two employees who earned ownership status at Niles Pie Company when Berke transitioned the company into a cooperative, and they hope to extend the opportunity to more employees. All employees are eligible after a nine-month candidacy period, and there is a $2,500 buy-in cost for equity in the company, though employeeowners can get that back if they ultimately leave the business.
Once they transition to owners, they share in the profits, based on how many hours they work.
Vegas, along with fellow employee-turnedowner Toto Chittharath, won’t know for certain how much the transition will affect their take-home pay until the business’s 2017 finances are worked out, but they said they appreciate the stability and the chance to share in company profits. Berke, the former sole owner, said it does not change her finances that much except that now, as part of the employee-owner team, she actually gets a paycheck from the business, as opposed to when she would simply write a check when needed and pour the rest of the money back into her business.
The model is a chance to better ensure that the business can give its employees (now owners) a better living than is typical in the traditionally low-wage restaurant industry, she said.
According to Project Equity, household net worth is 92 percent higher for employee owners, and median job tenure is 53 percent longer.
That helps in a place like the Bay Area, said Berke, where it can be a struggle for small businesses to pay workers a wage that meets the high cost of living.
“I want people to be compensated.”