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Will Chobani's big fat Greek giveaway to workers help its bottom line? (+video)

Chobani CEO Hamdi Ukulaya, Hamdi Ukulaya made headlines last week when he announced that Chobani would be granting its 2,000 full-time workers ownership shares worth up to 10 percent of the company's worth.

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    Yogurt containers run along a conveyer at the Chobani plant near Twin Falls, Idaho. Greek yogurt maker Chobani said it is giving its employees an ownership stake in the privately held company.
    Drew Nash/ AP/ File
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What do you get when a Kurd born in Turkey capitalizes on a Greek delicacy in upstate New York?

In the case of Chobani, the answer is: a big fat success. Greek yogurt-making company Chobani – founded in 2005 and today valued at between $3 billion and $5 billion – has made headlines with its rapid growth and broad grab of market share. Last week Chobani's CEO, Hamdi Ukulaya, made headlines again when he announced on April 26, 2016 that Chobani would be granting its 2,000 full-time workers ownership shares worth up to 10 percent of the company's worth, if the company is ever sold or made public in an IPO.

Some analysts have speculated that – assuming a worth of $3 billion for the company – the average employee will receive a tidy sum of $150,000. Long-serving employees could find that their share worth more than a $1 million.

Ukulaya's own stake in the company will be considerably diluted by the move, although he will still be its majority shareholder.

An employee share ownership plan (ESOP) is somewhat rare among established companies. The practice is most common among startups in the tech sector, which sees greater competition for recruits. There are exceptions, however, and on a list of the largest 100 employee-owned companies released Aug. 2015, Publix supermarkets ranked first.

Still, as Bruce Elliot, who manages benefits and compensation for the Society of Human Resources management, explained to the Los Angeles Times, "It's unusual to see [a move to ESOP] in food services and manufacturing." Yet there are clearly business benefits to the move. Employees with substantial equity stakes may find themselves more aligned with both investors and management. "It definitely creates an ownership culture," says Elliot. "It focuses not only management but employees on bottom-line and top-line figures.

When the employees who share ownership are active participants as opposed to passive recipients, they far exceed their competitors' performance because laborers "adopt the habits of business owners," writes Mary Josephs, CEO of middle market investing firm, Verit Advisors. These habits may include "being highly productive; engaging in less friction between front-line workers and management; self-policing each other to reduce waste and errors; and offering up many helpful ideas."

Research shows that workers at ESOP companies tend to have stronger retirement plans. About 65 percent of ESOP companies offer a second retirement plan whereas only 45 percent of non-employee owned companies offer any type of retirement plan. This enormous employee compensation is possible in part because of the costs saved from unemployment benefits and federal taxes that are paid only in the event of sold stock or retirement.

But there can be a downside to employee ownership as well, note those have studied the culture of ESOP companies. Where they sometimes go awry is when employees shareholders vote for policies that compromise the integrity of the company – voting to spend less on research and development, for instance – in favor of their own gain, warns the National Center for Employee Ownership. "Just setting up employee ownership plans does not improve performance and can harm it if not coupled with an ownership culture."

For some Chobani employees, however, the announcement seems to have created a new sense of belonging. When Ukulaya made his initial announcement and spoke about the company's future, "he was talking about basically our future as a family,” Julio Montenegro, production lead for Chobani Kids products, told the Associated Press. 

Rich Lake, one of Chobani's first five employees, told the New York Times that, as far as he is concerned, owning a share of the company is "better than a bonus or a raise." "It's the best thing because you're getting a piece of this thing that you helped build," he said.

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