Is Chobani's Employee Stock Ownership Plan a Model for Other Companies?

Yogurt company Chobani will soon become a publicly traded company. The company filed its initial public offering (IPO) paperwork with the Securities and Exchange Commission last month, and its IPO is expected to occur before the end of the year.

According to the company's filings, management anticipates that Chobani could raise as much as $100 million in its IPO. In this segment of Backstage Pass, recorded on Nov. 22, Fool contributors Jason Hall, Toby Bordelon, and Rachel Warren discuss one unique aspect of the company's business model that potential shareholders should be aware of. 

Jason Hall: Chobani, I guess they filed their S1, is that what it is? Their initial S1, they're going to go public. It's been planned for a while that the company was going to go public. Here's the thing.

Back in 2016, the company's founder and CEO said that if the company were sold or when it went public, as much as 10% of the equity would go to employees. I think it's pretty amazing. I think it's pretty cool. I don't know, Toby, you remember the stories about the millionaire janitors in Microsoft?

Toby Bordelon: Yeah.

Hall: It's the same thing. But just thinking more broadly, let's have a thought exercise here. Should more companies be giving equity to employers as part of their compensation? Rachel, you want to kick us off?

Rachel Warren: Yeah. I think this is such amazing way to approach employee benefits and compensation. I think especially today, we talk about "The Great Resignation" a lot. We talk about the things that workers and employees are concerned with in addition to perhaps flexible working options, compensation. Benefits are key there. If you have the opportunity, not just to work for a great company, but to feel like you are contributing to and enjoying the product of its overall success.

I think that really changes the game in many ways as an employee. I think it is a fantastic way to draw new talent. I think it's a huge draw for potential employees. I think it's a uniquely challenging hiring environment for companies. I feel like this would be a great way for businesses to entice new talent in addition to better benefits and wages. It's interesting because the company that my dad works for actually does this.

One of the things that he's talked about a lot is how it's been this amazing thing to be able to basically share in the success of the company he is working so hard for. It's been a really big draw for some of his colleagues as well. I think this is something that more companies should be doing.

Again, I think it would be something that you might be looking at a potential company in today's hiring environment, if you are seeing that as something they offer, I would imagine that company might be more successful in drawing new talent.

Jason Hall: I like that insight. Toby.

Toby Bordelon: Yeah. My thought here is that I'm a firm believer in this. I think all employees should have equity. I really do.

Hall: All? Right, all. 

Bordelon: All, every single employee. I think you find a way to make that happen. Now, maybe you have to have a year of initial eligibility or something like that. You've got to say you got to work for certain amount of time. We're not just going to give equity to people who come here to get summer jobs, even though that might be something to consider, too. But I can buy a certain minimum period of eligibility and then maybe you have a vesting period. You've got to wait five years before you can sell it.

Maybe when you can sell, you have to maintain a certain ownership while you're still with the company. You have this for CEOs, a lot of companies, I think you can do for all employees. If we're going to give you stock, you're going to have a minimum amount of ownership you must maintain. I think you have a contractual period where you have to sell over time when you leave. You don't bail at the sign of bad news. If you leave, you want to make sure you're incentivizing leaving the company on good terms or at least in a good place. Because your comp is still going to earn out for several years.

I really do think that anyone who works for a company, whether it's public or not, I think even private companies, you find a way to make this happen somehow, should have equity in the company. You should be involved, you should be incentivized to see that company perform well, and you should reap the rewards of your labor when the company does perform well, that's key. I think every employee has a right to benefit from the company's success. You do that with equity, I think that would be a game-changer in this country if we took that mindset.

Hall: Prior to what we've seen over the past six to eight months, the gap between labor and management and labor and ownership has been in the past 30 years getting broader and broader. Anything that could happen from just a social good perspective to narrow that, I think is wonderful. I think giving every employee ownership, I love the idea.

Here is the caveat. Just like pensions, I want you to pay for it, that growing obligation. Here's the thing, if I invest in your company, because I believe in your mission and I believe you're going to create wealth for me, if you're going to dilute me through regular giving of shares to employees as part of their compensation, you need to make it part of your financial plan to have a regular, consistent share repurchase plan to cancel out that dilution.

It's not just free money for the company either. It's a real cost of the owners to bear, and there needs to be a plan to pay for it. I think that's the key, and I think that's one of things that can make this thing hard to do and practice. But I love it. I absolutely love it.