Beau Jo’s Pizza owner wants to give every worker a slice of the equity pie

Chip Bair, the owner of Beau Jo’s Colorado Style Pizza, wants to make sure all his employees, from managers to servers, receive a generous slice of ownership as he plans his exit from the iconic restaurant group he has headed for five decades.

“I have had different people talk to me about buying the restaurants,” he said, adding his refrain would go something like this: “I am more than willing to talk to you, but I have to take care of my people.”

At a 50th anniversary celebration held at the flagship store in Idaho Springs on April 1, Bair rolled out a succession plan he had been mulling over for several years, one that he believes will take care of his people and keep the distinctive Colorado restaurant group going for generations to come.

He and his family will retain 30% of the company, with the remaining 70% of the ownership in the restaurant group, famous for its “mountain pies,” going to the company’s 252 employees. Future profits will fund an Employee Stock Ownership Plan or ESOP, which should provide a generous retirement for those who dedicate their careers to the company.

“The employees are the ones who made us who we are today. We wouldn’t have anything without our employees. I have to make sure the people who are there are taken care of and working for a common goal,” he said.

Details of how the plan will work are still being formulated and weren’t ready in time for the anniversary celebration. Bair wasn’t able to answer the questions employees had, and given how rare ESOPs are and the misconceptions surrounding them, the reaction he received wasn’t quite what he expected.

“It would’ve been nice to have more of the details, however my consultants felt that we would be OK to announce our intentions and start the process of educating the staff. This way I can start getting them involved from the beginning. The whole idea is employee involvement,” Bair said.

Change is hard, and the change he is proposing is a big one conceptually, he said. But he adds the change isn’t one that should directly impact employees in how they do their day-to-day jobs, other than giving them more say in how the company is run and the ability to share in its future profits.

“Chip is amazing and he wants to always do so much for the employees and the management team,” said Michelle Priola, director of operations at Beau Jo’s. “We have a lot of employees who have been with us for a long time, and it is because of their dedication to Chip and how good he has been to us.”

Even though Bair had mentioned handing control over to employees over the years, Priola said the announcement caught her and others off guard, raising more questions than could be answered. Bair wanted to surprise everyone at the anniversary party, and he did.

“There are just a lot of uncertainties we have,” she acknowledged.

After the announcement, Priola tracked down two of the ESOP consultants at the celebration. She told them the concept was new to her and asked if they could help her get up to speed and educate employees at each restaurant, which a team of experts will do. As a first step, Bair said employees will be provided with a poster that details how ESOPs in general work.

“Employees are buying the company over time, but they don’t actually write a check,” said Sandy Shoemaker, an ESOP consultant who worked with Bair and who chairs the state’s Employee Ownership Commission. “What happens is that the cash flow of the company is what buys the company.”

Some plans borrow funds from a bank or other lender to pay off the selling owner, and then use the profits of the business to pay back the loan. More commonly, the person selling the company extends a note that gets paid back over time with interest. Although a board of trustees oversees the plan, the management team still calls the shots, often with more input from rank-and-file workers than is usually the case.

If the company is well-managed and employees work hard, something they should have a stronger incentive to do as part-owners, then the payoff in retirement can be more lucrative than what is available in a traditional retirement plan. But that doesn’t mean there aren’t risks. If the company fails, employees could lose not only their jobs but their retirement savings as well due to the diminished value of the company shares.

Bair said his goal is to preserve Beau Jo’s culture, which emphasizes good customer service and treating employees well. He couldn’t guarantee that would carry forward in a sale to a competitor or other private buyers, nor could he protect his employees and management team from the disruption that a more traditional sale might bring.

One of his daughters is the company’s vice president of marketing and another works as a server, and the structure will allow family members to remain involved.

“You can keep your company intact and keep it moving forward and do it in a tax-efficient way,” Shoemaker said. “But you have to have the right situation.”

A Polis administration priority

The Beau Jo’s conversion, if it goes through, will stand out as the highest profile to date under the Employee Ownership Office that Gov. Jared Polis set up within the Colorado Office of Economic Development and International Trade shortly after taking office.

The program offers three types of assistance to owners looking to transition a company to employees, starting with a free online study plan detailing what employee ownership is all about in 13 lessons. For small companies wanting to go deeper, the state will ante up to $3,000 in consulting fees to help determine if employee ownership is a good fit.

Converting to a cooperative or employee stock ownership plan can be a complicated process with costs comparable to selling to an outside buyer. Those conversion costs are one of the biggest hurdles owners face in switching to employee ownership. To help out, the state provides half of the costs of setting up a conversion, up to $25,000 for a cooperative and $100,000 for an ESOP, via a grant. A bill before the legislature would increase that amount to $50,000 for a cooperative and $150,000 for an ESOP.

New Belgium Brewing in Fort Collins was an early and leading example of a Colorado ESOP until employees in 2019 signed off on the sale of the state’s largest craft brewery to Lion Little World Beverages out of Australia. Last summer, Apex Plumbing in Arvada, a 50-person firm, switched over to employee ownership.

DaVinci Sign Systems, Fancy Tigers Craft, Enduro Bits and Eztax Denver are among the 20 companies that have taken advantage of state grants under the employee ownership program. But none are as familiar to the Colorado public as Beau Jo’s Pizza is.

The third benefit comes in the form of Employee Ownership Tax Credits, which allow businesses to receive a state tax credit for half of the professional expenses involved in a conversion. Up to $10 million in credits are available each year and last month, Gypsum-based Top Notch Logworks was the first company to claim one, said Alissa Johnson, a spokesman at OEDIT.

About 200 Colorado companies operate under some form of employee ownership, but that is a tiny fraction of the total number of companies in the state, which might help explain why some employees might be unsettled when they first hear about a transition. Shoemaker said there is a big knowledge gap that needs to be overcome, both for owners and employees.