The 2,000 full-time employees of Chobani were handed quite the surprise Tuesday: an ownership stake in the yogurt company that could make some of them millionaires.
Hamdi Ulukaya, the Turkish immigrant who founded Chobani in 2005, told workers at the company’s plant in upstate New York that he would be giving them shares worth up to 10 percent of the company when it goes public or is sold. The goal, he said, is to pass along the wealth they have helped build in the decade since the company started. Chobani is now widely considered to be worth several billion dollars.
Ulukaya will visit Chobani’s 3 1/2-year-old Twin Falls yogurt plant Thursday to share the news with the 1,000 full-time workers there. They earn an average wage of nearly $15 an hour, with health care and retirement benefits.
Ulukaya said he considers a promise to create something of value together, not a gift.
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“I’ve built something I never thought would be such a success, but I cannot think of Chobani being built without all these people,” Ulukaya said in an interview in his Manhattan office that was granted on the condition that no details of the program would be disclosed before the announcement.
Now they'll be working to build the company even more and building their future at the same time.
Chobani founder Hamdi Ulukaya
Employees got the news Tuesday morning. Each worker received a white packet; inside was information about how many “Chobani Shares” they were given. The number of shares given to each person is based on tenure, so the longer an employee has been at the company, the bigger the stake.
Two years ago, when Chobani received a loan from TPG Capital, a private equity firm, the company’s value was estimated at $3 billion to $5 billion. At the $3 billion valuation, the average employee payout would be $150,000. The earliest employees, though, will most likely be given many more shares, possibly worth over $1 million.
The transfer of money by Ulukaya touches on a hot-button economic issue: the rapidly expanding gap in pay between executives and average workers. The United States has one of the widest pay gaps, and the topic has played a prominent role in this year’s presidential race, particularly among Democrats.
Some other executives have also taken this issue on themselves. Nampa native Dan Price, a founder of Gravity Payments, a Seattle credit-card payment processing firm, last year promised to pay a minimum wage of $70,000 to his 120-person staff within three years. Not everyone cheered.
A GIFT FROM THE FOUNDER
The shares given to Chobani employees are coming directly from Ulukaya, who owns the vast majority of the company. The shares could be sold on private markets, or the employees could wait for the company to go public or be bought by another business, neither of which seems imminent.
(Chobani, a limited liability company, said it does not believe the units could be traded privately but could be converted into stock or cash at an initial public stock offering.)
This sort of transfer of shares to employees is rare in the food industry. In one of the few notable examples, Bob Moore, the founder of Bob’s Red Mill, an Oregon grains and cereals company, handed control to employees in 2010 with the creation of an employee stock ownership program.
The unusual announcement comes before TPG Capital, which helped bail out Chobani with a $750 million loan, can buy a stake in the company. Tension between Ulukaya and TPG about the direction of the company emerged shortly after the deal.
TPG has warrants to buy 20 percent or more of Chobani’s shares, depending on targets set in the original deal it struck. But that percentage would now be calculated from the 90 percent of the remaining shares, after the 10 percent given to the employees, essentially diluting TPG’s potential stake.
TPG declined to comment on Tuesday.
In addition, a year ago, Ulukaya settled a lawsuit with his ex-wife, who was seeking a stake in the company. The terms of the settlement were not released.
‘RARE’ FOR SUCH PROGRAMS OUTSIDE TECH
Technology startups often pay employees partly in shares, to help recruit them and sometimes because they do not have the cash to pay employees competitive wages in the early days. Early employees of Google and Facebook became overnight multimillionaires thanks to such compensation.
But unlike many of those tech companies, Ulukaya is giving his employees a piece of the company after its value is firmly established.
“It’s very uncommon and rare, especially in this industry, for these kinds of programs to be rolled out – we’re much more accustomed to seeing this in the high-tech space,” said Jessica Kennedy, a principal at Mercer, the large human resources consulting firm that worked with Chobani on the new program.
Ulukaya has played a hands-on role in the company since 2005, when he bought a defunct Kraft yogurt plant in New Berlin, N.Y., with an $800,000 loan from the Small Business Administration. Two years later, he began selling Greek yogurt, a largely unknown product in the United States, setting off a heated competition in what had previously been one of the sleepier refrigerated cases in grocery stores.
Chobani said it pays employees above the minimum wage, with entry-level pay in Twin Falls nearly $12 an hour, compared with Idaho’s $7.25 minimum. Early on, Ulukaya established a 401(k) plan for employees and pushed them to participate.
“I preached and nagged and tried to force them to do it,” he said. “Unfortunately, not all did, and I’ve continued to worry about them in retirement.”
IDAHO MOLD ‘A WAKE-UP CALL’
A few years ago, though, the company ran into financial problems after spending almost half a billion dollars to build the largest yogurt processing plant in the world, the 1-million-square-foot plant in southern Idaho. The plant allowed the company to expand into new products. It began producing a children’s yogurt packed in a tube and tiny cups of dessert-like yogurts with 150 calories or less, now known as Chobani Indulgent.
But the company struggled to get lines up and running smoothly, and public health officials identified mold contamination in some products.
“It was a wake-up call for us,” Ulukaya said soberly. “It made me realize that I needed to get this right, and so I’m glad it happened.”
The company, which had already raised the ire of retailers for failing to fulfill orders on time, had to close lines and invest in improving its food safety regimens. It also took the loan from TPG Capital to help build sales, distribution, marketing and other management teams better suited to the billion-dollar business Chobani had become.
In a presentation to investors, though, TPG boasted about how it had waited until the last minute to come to Chobani’s rescue with the loan, thus allowing it to negotiate better terms in a deal that it estimated could increase the company’s value to as much as $7 billion. In addition, rumors circulated that TPG wanted to replace Ulukaya with a new chief executive. That rankled him.
But in the last year or so, business has rebounded, thanks in large part to new products made at the Idaho plant.
Ulukaya will still own the vast majority of the company, though his stake will be diluted as well. He said that giving his employees a stake in the company’s success was among the terms he demanded when the deal with TPG was struck. The terms also included a commitment to never substitute cheaper ingredients in Chobani’s products, among other things.
“I want Chobani to be here for a very long time,” he said. “And doing this, giving my employees a chance to be part of that future, is part of that.”
The Idaho Statesman contributed.