P. Terry’s original location. | Photo courtesy of P. Terry’s Burger Stand
Back in 2016, a private-equity firm offered to acquire the family-owned P. Terry’s Burger Stand.
Co-founders Kathy and Patrick Terry turned the offer down. But it was an incident that made them realize two things about the Austin, Texas-based chain that they founded in 2005, which has grown to 38 units:
First, it was validation that they had a concept with real value, she said.
But, more importantly, the Terrys realized they needed to figure out a succession plan — one that ensured the people-first business they had built would be protected down the road.
“We knew that if we sold it, everything would change,” said Kathy. “The culture would change. And they wouldn’t take care of employees the way we’ve always taken care of the employees. And the experience with the customer would change.”
Many family businesses get passed to the next generation, but the Terrys didn’t want to assume their children, who were then quite young, would pick up the ball. “Neither one of us wanted to burden them with our vision,” she said.
So, after some research about other available options, P. Terry’s last month announced a unique solution.
The company is transitioning to an Employee Ownership Trust (EOT).
Designed in partnership with Common Trust, a firm that specializes in employee ownership, the model is increasingly in use in the United Kingdom, but is less common in the U.S., said Kathy.
Under the model, the Terrys have sold their equity to the EOT, which holds shares on behalf of employees. Written into the trust are certain guardrails for the business that include preserving certain fundamental operational standards and practices.
The chain is known for offering high-quality food at an affordable price, for example, including meat raised without antibiotics, hand-cut Idaho Burbank potatoes and fresh-squeezed lemonade.
Employees have access to perks like interest-free loans, and the chain regularly gives back to community charities.
These are practices that the Terrys want to make sure will continue long after they are gone.
“A new CEO couldn’t come in and say, ‘Now we’re going to serve frozen french fries, we’re going to take on a bunch of debt and build 10 stores a year,’” which Kathy said would fundamentally change the brand. “They can’t go crazy.”
With the transition, Patrick will remain CEO. But operations will be guided by a Stewardship Committee, made up of employees, who will make sure the chain stays on course, even long after he is gone. The committee has term limits and may grow in number, but employees will have a voice.
“They basically are making sure what we’ve written into the trust is always protected and adhered to by the operating team,” said Kathy.
And, perhaps most importantly, the trust will also protect a profit-sharing plan that is built in.
Under the plan, all workers that have been with the company for at least two years will be eligible to share in the chain’s profit.
It will start with 5% of the operating income this year, which will be distributed at the end of the year among the 1,800 employees who are eligible — including hourly and part-time workers. The amount will build to 20% of profit within four or five years, said Patrick.
Profit sharing is based on a points system determined by years of employment. So one of the longest-serving employees, a burger prep cook who has been with the company for 21 years, will get the biggest check.
“This is the most lower-case-D democratic system in the world,” said Patrick.
The leadership team is taken care of with a good salary and bonuses, he added. But profit sharing conveys the message that workers at all levels are “the foundation and backbone of what we do every day.”
It’s a two-way street, he added. P. Terry’s also sets high expectations for worker performance.
But the profit sharing builds on what Patrick argues were already strong benefits that keep workers on staff and growing with the company. P. Terry’s has about half the turnover rate of most chains, Patrick noted.
Employees get a cake on their birthday at P. Terry’s. | Photo courtesy of P. Terry’s
P. Terry’s, for example, was one of the first chains in Texas to start workers at $15 per hour during the pandemic years. Everyone gets a cake on their birthday. Even before profit sharing, there were Christmas bonuses ($10 per month worked).
And all workers get free meals at the restaurants, which, Patrick said, “frankly I was astonished to find out that isn’t the norm.”
Kathy added that the chain’s workers should have the same opportunity to accumulate wealth they have had.
“Patrick and I definitely understand that we are privileged, and we have access to things other people don’t have access to,” she said. “So, we feel like we just got lucky, and, if anything, we should be sharing our access.”
The EOT model is somewhat different from an Employee Stock Ownership (ESOP) plan, from which employees don’t typically benefit until they retire or leave the company, said Kathy.
It took a lot of modeling out, she said. But she hopes other family-owned businesses will realize this could be an option.
P. Terry’s has no plans to franchise. All units are company-owned and the chain will grow at a rate of about two per year, said Patrick.
Fundamentally, the EOT ensures P. Terry’s will never be acquired by private equity.
“We sell $3.10 hamburgers,” she said. “Everything we do is not in the playbook of private equity.”
