July 19, 2014 at 1:00 am

Zingerman's owners to let employees in on decision making

Zingerman's hostess Andrea Byl talks with President Barack Obama and U.S. Rep. Gary Peters, D-Bloomfield Twp., when they stopped in for lunch at the deli a few months ago. (Max Ortiz / The Detroit News)

Ann Arbor — When Paul Saginaw and Ari Weinzweig started Zingerman’s Delicatessen 32 years ago, they had no idea it would turn into a group of nine independently operated businesses that bring in more than $50 million in annual sales.

But that is the result. Now the two are reshaping their business model to share with their employees not just the wealth, but also the creative control over the direction of Zingerman’s Community of Business.

Saginaw said that contrary to some previous reports, the company isn’t moving toward a cooperative model because the state of Michigan doesn’t have provisions for worker cooperatives.

“My partner Ari was either misquoted or misunderstood. What we are working on, because there’s no easy path legally, is creating a hybrid structure that will create two things,” Saginaw said.

“It will let the employee participate financially in ownership and it’s going to let them participate in the decision-making at the community level.”

Saginaw explained that Zingerman’s Community of Businesses is made up of nine individually managed businesses and that each business has one to about three managing partners.

“Ari and I are partners in all of them, and we have a holding company — Dancing Sandwich Enterprises — and that entity holds our interest in all of the various businesses,” Saginaw said.

The two own anywhere from 20 percent to 80 percent of each of the nine businesses, and their equity, as well as all the intellectual property of all of the products, is vested into Dancing Sandwich Enterprises.

“What we’re going to do is set up a new entity and contribute our intellectual property and licensing revenue to that new entity. Then we are going to allow the staff to buy a share in that new entity,” Saginaw explained.

“That entity will make distributions when all the businesses cumulatively hit certain financial targets. In order to own that share, you have to be employed at Zingerman’s, and if you are a shareholder you are eligible to be elected by your peers to the partners group. The partners serve as the decision-making body for Zingerman’s Community of Businesses.”

This is the first step in moving toward full employee participation and engagement in the organization, Saginaw said.

“This is just another step in the direction in which we want to go. There will be three to four staff members that will move up through the company to become the partners group. ... All of our decisions will be made by that group and each member has an equal voice,” he said.

“They’re there to make decisions and bring the perspective of the staff in order to make the best decisions for the community. It’s really more significant than the ownership of the interest. They’re becoming shareholders in the entity that owns all the intellectual property.”

Zingerman’s fiscal year begins the first week of August, and the company hopes to implement its new model by the end of the 2014-15 fiscal year.