A Slice of the Pie

Chunky deep-dish pizza, thick crowds and long lines spilling out the door are hallmarks of two popular East Bay restaurants.

Zachary's Chicago Pizza has been a growing success since husband-and-wife team Zach Zachowski and Barbara Gabel opened their first store on College Avenue in 1983. Over the span of 21 years, they have tripled the square footage of the restaurant and more than doubled the number of seats. A second store opened on Solano Avenue in Berkeley in 1984.

Now the pair are retiring and giving Zachary's staff a piece of the pie-making the restaurants employee-owned through a program known as the Employee Stock Ownership Plan.

"We wanted to give our long-term employees a future," Gabel says. "We wanted to get out, and the ESOP is the best way to accomplish that and carry it on to the next generation. We think our employees deserve that."

The company is in the early stages of transitioning to the plan. The owners have set up a trust fund that allows employees who work more than 1,000 hours a year to hold shares of the company proportional to their salaries. For example, if an employee makes $40,000 a year, he or she will receive twice as many shares as someone making $20,000 annually.

After seven years of vesting, starting from January 1, 2003, or their first day of work-whichever is earlier-an employee's allotted share of the business will become theirs to sell or keep.

"For a lot of these people it's going to pay off for them in the long-term if they stick around," says General Manager J.P. LaRussa, who began working at Zachary's at age 17. "It's not a get-rich-quick scheme for anyone."

Zachowski and Gabel say they are confident their hard-working and loyal crew of 110 employees will continue their success and carry on their philosophy of friendly service, quality pizza and good employer-employee relations. Much of the staff has worked at the restaurants for more than 15 years, and many support families with their jobs.

"I think we'd have a hard time letting go of it to anyone but our crew," Gabel says. "We think they, more than anyone, deserve the right to be the next owners-they have the best chance of continuing the success that we've had to date."

The ESOP is the perfect exit strategy, Zachowski says.

"If we sold the business to a corporation, the culture will change and so will the food and the staff," Zachowski says. "This is the only way for us to keep it like it is without us being there."

Employees are still ironing out technicalities of the plan, but most reacted enthusiastically about the new business venture.

"This is my first experience being closely related (to an ESOP). It's really exciting to see how this will all unfold," says Leandra Schuler, dining room manager at the College Avenue location, who started hosting and waiting tables five years ago. "The future of the company is rested in our hands-so that's a really big responsibility."

The plan provides both monetary and moral incentives to employees, Schuler says.

"ESOP has potential to even reinforce day-to-day how each individual employee cares about the work that they do, because their income will be directly tied to the success of the business," she says.

Schuler says she is grateful to hear employees will preserve the mom-and-pop attitude and integrity of Zachowski and Gabel, who treat their employees with respect.

"People that have been here a long time will really have the possibility to make it a career-in that they'll have this equity building up both in these cash contributions and in the value of the business," LaRussa says.

But for customers, the transition should be seamless, he says. Zachary's does not plan to make any changes to the quality of its pizza and service, or its hiring and training practices once the plan is fully in place.

Zachary's will continue to operate with a top-down managerial structure, LaRussa says. Once Zachowski and Gabel turn over complete control to employees in the next several years, a board elected by management and confirmed by the owners will head the company.

To date, about 70 employees own shares of the company, making about 25 percent of Zachary's employee-owned, LaRussa says.

Zachowski and Gabel have stepped back from day-to-day operations over the last 10 years, but serve as senior advisors and remain the guiding visionary force behind the company.

The byproducts of the business decision are better company performance and greater profits for employee owners, Zachowski says.

"A lot of people are watching us to see how this works, because it's not an everyday thing," he says. "It's a lot more work and risk to do it this way, but it can be a win-win situation for both people-the customers will benefit by Zachary's staying the same and hopefully getting better, and the employees will pay more attention, be more productive, and take pride in their work."

Zachary's is part of a small group of 11,000 businesses of every size, both publicly held and privately owned, that participate in ESOPs. In 2002, the plan covered over 8.5 million employees nationwide, according to the National Center for Employee Ownership.

Things have not slowed down for Zachowski and Gabel since they entered their last chapter of involvement with the company. There's plenty of talk about opening a third restaurant sometime in the next few years, they say.

While the couple say they appreciate the opportunity to work with wonderful, fun people at Zachary's, they are enjoying having more free time to travel.

"We're on the brink of giving (Zachary's) to the next generation," Gabel says. "It's very rewarding and very exciting for us."

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