Not quite, since it's unvested shares they're taking back. The company has promised to give those shares to the employees when they hit certain tenure milestones, but the company still owns them in the meantime. If they fire the employee, the company keeps those shares.
The fact that it is unvested shares changes little. The employees where lead to believe that if they meant a certain milestones they would receive stock. Now the milestones have been changed. The employees must now also meet new criteria for productivity to receive stock. They signed up for one deal and are now being served another.
Except the possibility always existed that they could get fired and not get that stock. The only thing that has changed is that Zynga is now saying that they're willing to fire you just so you don't get that stock.
Deeply unethical, and terrible for employee relations, and not at all in the interests of the company, but probably legal.
Even in right to work states, there's all sorts of reasons a company can't fire you, it's just the burden is on you to prove them. Pedagogical example is that your boss can't fire you just because you wouldn't sleep with him. If they fire you claiming it was just for performance, but you have evidence of circumstances that makes it clear it was because you wouldn't sleep with him, then you've got a problem.
Firing someone to screw them out of contractual rights you both agreed to is problematic. And even if the company claims it was performance-based, which they will have to, the CEO's statements basically give the other side all the evidence they need to refute that.
This is extortion of sorts right? I mean, yes they could fire the employee for genuine reasons, but if there is a way to prove that the conversation did occur, where the execs did tell the employee to return the unvested stocks in order to keep the job, its pure blackmailing.
I wish there was someway to expose these crooks and bring them to justice.
CA law provides for at will employment but if the original option was not contingent on specific performance beyond what is needed to continue as an employee, and they are willing for the employee to continue working there provided they surrender their stock they may be in more of a gray area. It's in the nature of a targeted pay cut but it doesn't seem to involve a demotion or change in position, they are effectively approach certain employees and telling them, "we are paying you too much, accept a reduction in your total compensation or we will terminate you."
Although legally they might be safer firing everyone and re-hiring them post IPO. Although I would hate to work with anyone that they got to agree with this!
I would agree with the analogy if the stock compensation was payed out along the way.
I think it is more akin to "we are not satisfied with your work on the contract we are taking what you have produce so far and are only going to pay you a portion of the original agreed upon amount."
In effect it is paid out along the way, that's the effect of the vesting schedule (whether it's options vesting or buyback rights terminating each month).
Wrong. They're saying "I know I gave you this, and put a lock in so you had to stay, but now it's worth more than I think you deserve so I'm going back on my agreement. Sorry you worked here so long for below market wages".
"Although Zynga's decision might be met with some criticism, the firm's executives reportedly justified their strategy by saying it was best for the company. With the unvested shares, the executives believed they could attract more top talent with the promise of stock."
And now we know what a promise from Zynga is worth. It's hard to see a bet that won't be permitted to pay off as anything other than a way to lure and then defraud employees. I think it's time to start insisting on accelerated vesting if you want anyone to take your option offer seriously.
But still then mark pincus would find another way to cheat his developers. The only way to deal with little lucifers like this is to completely avoid and ignore them.
No, contracts are useful even if you trust the other party intimately, because they spell out, in writing, exactly what is expected of each party. Believe it or not, sometimes disputes arise even among people who had the best intentions.
They also allow you to continue to do business even if the other company changes hands.
I think the point you're trying to make is that if you already don't trust someone, a contract is not going to save you. That I can agree with.
I couldn't agree more. Even if we assume there is a justifiable reason or perhaps its happening only to employees who have not performed (which I doubt can be the case considering those employees could not have lasted this long any way), this probably has done irreparable damage to their reputation in the eyes of current and prospective employees. I hope all this bad PR makes them reconsider it, if not anything else.
> I hope all this bad PR makes them reconsider it, if not anything else.
Even if they reconsider, I doubt any "top talent" will be joining them any time soon, if ever again. At least, not with a twelve-pound contract inked in blood.
I was told my many folks I respect that Zynga is a sweat shop, and discouraged me going there. Now, with the options scandal, Zynga shot themselves in their foot. What is surprising is, Bing Gordon is on KP's board and an honorable, great chap. Wonder why didn't he advise Pincus against this. Pincus openly admitted that Bing is a great friend and mentor. It is a poor reflection on KPCB, the venerable VC firm.
I kind of got out of startups for that reason. I just couldn't take working with sociopaths anymore. I have some stories. Serious f'ing stories. And no, I'm not just "player hating." A lot of it didn't even involve me. I just couldn't take working in proximity to such sleaze.
Tech's had this reputation as a place where fortunes can be made. That's going to attract a lot of ambitious and creative people, but it's also going to attract a lot of scum.
What amazes me about my personal experiences is how unsuccessful a lot of the sociopathic behavior was. It really brought home to me that these people have a mental illness. In the same way that someone with severe OCD will do things like wash their hands until the skin comes off, these people are neurotically compelled to dominate others even if doing so actually harms them. They must win their petty battles and dominate those seen as weaker, even if it means losing in the real world.
I literally watched the moment at which a pathological sociopath tanked a million-dollar opportunity because he had to try to put one over on his partner. Had to.
I'm not willing to go into specifics, but I will say that I saw worse things in the biotech industry. Having something in the pipeline for human clinical trials really boosts the IPO, even if maybe it doesn't belong there.
I think this is spot on. I have friends who left the finance industry because they absolutely hated the toxic personalities that it attracts. The ones who went into tech say it isn't much different. Anywhere there is fast money to be made will attract scumbags.
The most disturbing thing that I noticed was this: a person's status in the business world (or at least certain sectors of it) seems to be perfectly correlated with how they'd probably score on this:
I'm not making some superficial political statement either. I noticed it in myself. There were people I worked with that I completely hated yet... when they were present... it was almost like a drug. There's this "high" you get off them. You feel more confident just because they're in the room. They've got this kind of charisma that goes beyond mere confidence or enthusiasm. They were, by their actions, the most psychopathic ones.
It's like we have a genetic, predisposed tendency to follow psychopaths. I found it unbelievably disturbing. I'm a bit skeptical of evolutionary psychology, but this is one area where that kind of thinking feels like it could be right. It's like we know, on some subconscious animal level, that while these individuals are dangerous to us they're also more likely to win in a war. They will kill for us. And our genes want to be on the winning team.
Among other things, it converted me to a born-again advocate for human genetic and neurological engineering. We simply have to purge ourselves of this evolutionary legacy code or it will kill us all.
A psychopath as defined by Hare will never kill for you. At least, not in the sense you mean by "kill", which is probably "go to extreme lengths". They quite likely would kill for you, under the right circumstance - but only if it served their purpose and only because taking a life doesn't carry any particular emotional connotation for them. The scariest thing about realizing you're surrounded by psychopaths is knowing that they have about as much regard for your feelings and well-being as those of their toaster oven.
From an evolutionary psychology viewpoint, things are probably the other way around. That is - psychopathic personalities evolved to reflect, albeit in a very shallow way, the traits we're programmed to identify and follow as leaders.
I find the whole topic morbidly fascinating. In a way, it's the closest we can get to observing an alien intellect.
The idea that so many executives in and around my industry could be such people just creeps me the hell out.
In my experience, finance scumbags and startup scumbags are different breeds. Finance scumbags are greedy but honest. They believe themselves entitled to own $20 million apartments and will do whatever it takes to get them, but they don't pretend to be anything other than what they are. Startup/tech scumbags (because they're more accountable; Zynga's behavior would be unremarkable coming from Goldman) tend to be a bit better at disguising their intentions. They also tend to care more about power, social access and kingmaking, whereas finance scumbags are purely about money. In my opinion, that makes finance scumbags more respectable (or, I should say, less repulsive).
That said, I like technology a lot better. There are always going to be scumbags when there's money, but the difference (IME) is that: (1) there are more normal (non-scumbag) people in tech, probably 85% vs. 70%, (2) the normal people in tech are more interesting and creative, whereas decent people in finance tend to be boring, 9-to-5 types, and (3) technology has a small but sizable number of people who are decent and have entered the upper ranks, whereas there's a glass ceiling that non-scumbags experience in finance (unless they start their own trading firms).
I didn't move from finance to technology with the illusion that I'd never have to deal with another asshat. I moved because in technology, it's much more likely that I can succeed (a) in a creative way, and (b) without becoming a scumbag myself.
well, zynga in particular has been sleazy from day one. if any other company had done this, i bet people would have been a lot more taken aback - here it's still shocking, but at some level it's in line with their general business ethic.
Nothing new here: "Later, in 1982 when Allen had been diagnosed with cancer, Allen is reported to have said he overhead Gates and current chief executive Steve Ballmer discussing Allen's lack of recent contributions to the young company, and talking about how to dilute Allen's stock allocation."
I went to Startup School in 2009 and 2010, but not this year. In 2009, Mark Pincus was one of the speakers. In 2010, Andrew Mason was one of the speakers. It looks like Pincus spoke again this year.
If a seemingly honest man like pg can't arrange a nice little startup conference without having at least one speaker every year who turns out to be some sort of con man, then yes, I'd have to say tech is particularly sleazy right now. I'm not faulting the Startup School organizers for this, but it's an interesting observation.
I would fault the Startup School organizers for this. They are creating a community that is catering largely to people who are young, talented, but not experienced. They need to be educating people about how to avoid the pitfalls and scams of the startup world as well as about how to succeed.
Instead, they bring scummy fast talkers and put these people up on the stage as ideals. Not only is that teaching the next generation of entrepreneurs to be scummy fast talkers, but it's setting up these kids (and many of them are kids) to look up to and follow people like this. It's setting them up to be taken advantage of, or to become abusers themselves.
Like any guru, pg only pimps the upside. He has a lot of good things to say, but at the end of the day it's basically self-help, water cooler wisdom, and motivational speaking for beginning entrepreneurs. He's not going to tell you about the filthy underbelly.
He's not going to tell you that a good 20% of the people in the startup world have a diagnosable psychosis. Psychopathy, narcissistic personality disorder, and bipolar disorder are the most common. He's not going to tell you that startup stock is basically worthless, and that if you're about to vest you are probably about to be fired unless you are in the "inner circle." He's not going to tell you that the game is rigged hugely in favor of the already-connected.
pg has also gotten into bed with Yuri Milner and his DST firm. You will notice that both Zynga and Groupon are recipients of DST funds, so it's no surprise that pg is promoting Pincus and Mason.
In fact, I have no doubt that if any of the new batch of YC startups were to become successful and IPO, this sort of behaviour that Pincus is trying to pull may be emulated.
When you lie with dogs you get fleas, etc.
When PG wrote about how the latest batch of YC startups were run by "operators" rather than your typical "shy tech guys," I knew he'd started to fall into the orbit of the boiler room crowd.
Earlier this year, one such sociopath latched onto my sister and she convinced me to get involved. As soon as the project looked like it was going to get released, the sociopath tried to dilute my sister's and my shares from 1/3 each to 1/20th each. He wanted to bring in partners that he had previously screwed over to make something up to them by screwing us.
"He wanted to bring in partners that he had previously screwed over..."
That is so classic. It really does get kind of Monty Python-ish.
Like I said in my post above, I have a lot of stories. If I ever wrote a book about it, I'd have to tame them down quite a bit to make them believable.
I dont think my experience is at a similar scale, but it sure is immoral. I interviewed with a SF based YC startup recently. I already had plans of being in the area during the time they wanted to "fly me in" and I asked them if they could just reimburse me. They said yes, and then I got there, things didnt work out and they said they werent going to make me an offer. Thats all good, but then they said "their accountant" had told them they cant reimburse me the measly amount of $200. It just surprised me that people would swoop to such cheap behavior.
In order to determine which employees would be asked to give stock back, Pincus and his executives tried to pinpoint workers whose contributions to Zynga--in the execs' eyes--didn't necessarily justify the potential cash windfall they could receive when the company went public
I'm going to take a wild stab here and guess that none of their own names were on the list they came up with.
Whenever crap like this happens, pull out an org chart. You'll pretty much be able to draw a straight line that divides who shits and who eats shit.
This happens everywhere. Employers let the flotsam sit around for months, even years, configuring servers or generating a slide deck and when time comes to shell out cash as either a reward or through compensated attrition, they'll pull out that long-dormant knife and stick it into an unsuspecting recipient's back.
That way the don't have to over-compensate the performers beyond what they've already promised them.
Most companies will never be in this position though. What if you were an executive and you suddenly found yourself in a position to pocket hundreds of millions of dollars simply by firing a few employees. At the very least, that's a moral dilemma. It would be very easy to go from 'upstanding and moral' to going flat out existential in that situation. It's a scummy thing to do, but the human brain can justify a lot of crap in those types of situations.
You can always hire a relative/mistress to a no-show/do-nothing job and further dilute the option pool in your favor. It's easier on the conscience as you effectively cancel the stealing out by adding to the employment rolls.
Beware the shuffling of chairs, granting of titles, lateral promotions, unannounced appearance of new employees cutting back on company snacks. These are all clues that lead to a financial event where unless you're in the driver's seat, you're bound to take a hit.
For those of you with the altruistic bent, please watch the Spanish Prisoner. It's a classic example of fuckery.
It's only a moral dilemma if you believe pocketing hundreds of millions of dollars is a moral imperative.
If not, you have exactly two choices. One is moral, one is not. The dilemma is between your greed and your morality, not between seemingly contradictory moral imperatives.
If that's true, then the business world needs to do a better job internally policing itself. Behavior like this (and worse... honestly this story is like a 4 on a 1-10 scale) creates exactly this impression.
Clean your own house, or it'll be cleaned for you.
I agree. It is a bullshit situation, and you should be mad about it.
Employers have a responsibility to maximize the profits of their shareholders/investors.
They are not there to be your friend, take care of you, or compensate you beyond the minimum that they have to. Companies that offer bonuses/'benefits' are doing so as an incentive to retain you. The minute the market indicates that they can pull any of those benefits, they will.
MegaCorp does not give a holiday bonus out of the goodness of its heart. It doesn't have a heart, it is an inanimate object. It can not possibly feel a loyalty to you. It may bullshit you by telling you this, but that is really just to embiggen your feelings of loyalty towards it.
It has rules and structures, carefully laid out towards its goal... maximizing profits. An optimally designed corporation will fire you the minute that there is a cheaper alternative to your employment. If it were human, it would be a sociopath.
> Employers have a responsibility to maximize the profits of their shareholders/investors.
Somewhat shortsighted statement for this topic, considering the people they're harming here are employees who are... shareholders.
> If it were human, it would be a sociopath.
It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.
> Somewhat shortsighted statement for this topic, considering the people they're harming here are employees who are... shareholders.
I think it is pretty clear I was referring to the general case, rather than this particular situation. Anyway, until they vest, they technically aren't shareholders. (And after they've lost their rights to vest, they certainly aren't going to be shareholders).
> It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.
I agree completely. It is a crock of shit that corporations aren't held to the same basic moral and ethical standards that people are. (In my opinion, they should be held to greater standards, being that they are in practice immortal, and can wield greater sums of wealth than any single human being).
As an employee in the current environment, however, you have to keep the reality of how corporations are expected and allowed to behave in mind.
A corporation is a group of people. Like all groups of people there can be a mix of the full spectrum of humanity in varying percentages. Go to a protest or a concert, witness how groups of people react, especially when they are told to do something that no one wants to do. Corporations are run by people but you should not think that they are somehow different from groups of people and that group psychology somehow doesn't come into play.
I can believe we get a skewed view of anecdotes at HN, but stories about how employees got screwed out of equity by investors/founders when an exit loomed do seem like the norm around here. People even routinely give the advice that you should treat equity grants as having cash value ~$0 if you aren't a founder or maybe one of the first few key hires, because apart from the risk of the equity becoming worthless if the company folds, there's always some way to cut you out of the deal even in the case of a successful exit. Zynga's notable because of how brazen it is, not because the screw-employees-at-exit story is never-before-told...
On the contrary, I think HN would respond pretty well to stories of IPOs that went well, and employees who succeeded. They would likely have a lot of good advice.
Personally, I can think of three people I've met who did well at startups. One was at Google, one was at Amazon, and the third was at a company I don't remember. But I can think of an awful lot of stories of public and pre-IPO companies screwing over their employees, including myself being shafted at least three times by employers.
No seriously, I was just making the point as a joke that we shouldn't be surprised that a company like Zynga, who makes money through admittedly slimy means, wouldn't have the same attitude towards everything else too. I think the ScumBag meme is apt.
There is risk associated with working for a startup. Risk that you will suddenly lose your job. Risk that you will lose your health insurance two days before one of your kids requires an operation. It's a level of risk that doesn't exist if you work for the government or some big mega-corp.
There's also a level of buy-in that startups demand. You're asked to make it more than "just a job." Even the guy mopping the damn floor is asked to mop it until it shines, just because "we're all in this together."
People deserve to be compensated for that if things go well. But to your stereotypical business sociopath only executive-level individuals and their cronies are real human beings. (Actually, nobody is a real human being. It's only about winning in the shortest possible term.)
And I'd be willing to wager that these particular executives were more of the empty suit, posturing, clueless, "let's do lunch," "I'll have my people talk to your people," variety. There is a negative correlation between actual merit and this kind of behavior.
> Even the guy mopping the damn floor is asked to mop it until it shines, just because "we're all in this together."
Guy I used to work for said one of his proudest moments was hearing the receptionist at the company he had founded was able to buy a house outright with cash from the proceeds of her stock options.
The elitism openly displayed by Zynga blows my mind. Chefs are somehow too lowly to have their contracts honoured? It's somehow morally wrong that Chefs should make millions?
Only soulless suits and maybe a few key nerd-slaves deserve lots of money! If anyone else gets money, it's a crime against humanity and we must take bold action to rectify it!
Runaway sociopathy is the only way to describe this behaviour.
This sounds exactly right. He was hired, in part, to make it more attractive for employees to work longer hours. He succeeded so it hardly seems unfair that he was well rewarded.
"He signed up, however, and started easing the computer engineers into the long hours culture with innovations including free beer and fortnightly "big ass" barbecues, and breakfast specials. He converted the "googlers" to a diet that ensured they kept working after lunch and weaned them off pizzas."
Presumably he took stock options and was paid less than he would receive elsewhere. And the options also compensate him for career risk.
The way I read it, committing to Google was a much bigger risk for him than that of any of the programmers. What if Google had never grown beyond a handful of employees? How does that look on a resume? Instead of "sous-chef at Restaurant le Snob", "managed the cafeteria in some anonymous company in a Mountain View office park."
Important to note this applies only to unvested stock.
I'm not defending the move, but in reality the company could terminate the employees (at-will employment in California), which would terminate their further vesting anyways.
This is not the clawback scenario that Silver Lake executed with Skype.
That it's the unvested portion definitely makes a difference... But to be ethical you really can't just take unvested shares from employees because they have "too much", which is how the WSJ tells the story.
Sounds like Pincus gave performance-based pay with a pretty transparent system, which should have worked well. Employees must know how management sees their performance, otherwise you're destined to have a bad breakup.
If the story is accurate (hopefully it's not as who'd want to ever work at Zynga after this?) then the lack of stock for new hires was a management issue, and should be resolved from management, the investors and the board's pockets. After all, each investor saw the cap table before putting money in.
They are talking about unvested shares. The employees do not own them or have a right to exercise them yet. Every standard contract I've ever seen also includes a clause that shares stop vesting upon employment termination for any reason.
So, they are basically saying "give up unvested shares, or else we'll make you give them up by firing you".
Law student about to graduate, but not yet admitted to the bar/not giving legal advice/etc:
The law does draw distinctions based on the circumstances surrounding a termination, even in an at-will state. The employee does not yet own the unvested shares, but they do have a contractual right to them. Terminating someone just to screw them out of a contractual right you agreed to in a contract is going to give someone ammo in a lawsuit.
Given its pre-IPO situation, Zynga is in a bad leverage position in the face of such a lawsuit. They're going to have an incentive to settle just to get the claims to go away. What they probably should have done instead is to terminate the employees for performance up front with a generous severance package and a contractual agreement to not sue the company for improper termination. But they probably couldn't handle these employees leaving right now. They wanted to have their cake and eat it too.
Interesting, in that case would it not be wise for all of the disgruntled employees who are about to be screwed over to just refuse to give back the stock, get themselves fired and then start a lawsuit and assuming they win use all the money from selling the IPOd stock to start a business that directly competes with their previous employer?
It really depends on the probabilities of settlement versus winning a suit versus the costs of litigation, etc. It's probably best for them to just lawyer up and take their advice. This sort of tactical strategy is what they're paid to do.
News like this damages the startup community, especially in game development. Lots of potential employees already have a sense that stock is "worthless paper" and this Zynga stunt just exacerbates the problem.
This could end up like what happened with Activision and the CoD guys.
So a company whose business model is based on the notion of ripping off actual game companies is also unethical with its own employees? What a completely unshocking development.
Sometimes you just have to sue to enforce a contract and your rights. Many employees either don't realize this or they don't have the stomach for it. If you find yourself in this position, my advice is to play the game and see it through.
1. Don't resign, don't capitulate and hire a good lawyer immediately. If you don't have the cashflow, but are defending a huge pile of stock about to IPO you'll probably find a lawyer that will defer payment.
2. Start documenting everything including making timestamped notes of what was said to you verbally.
Then play it out. Read all documentation the company has given you and fully understand it. They usually have to fire you for cause for you to lose your options, so figure out what the angle is they're using and make sure they don't have cause. Be 100% professional and non-confrontational, but ask the hard questions when you need to. DO NOT treat the company's staff (including your boss) or their legal team as your own legal counsel. They will try to give you "good advice" or intimidate you. They will claim things are "standard". Get your own info and use your own lawyer.
Often simply retaining counsel lets the opposing team know you're serious and professional, and worst case it will up any settlement.
PS: I'm an exec, not an employee, so technically I'm the guy on the other side of the org chart that Micah (see below) is describing. But assuming the report is accurate, this is unacceptable behavior and I'd like to see more employees who take a risk on startups getting what they deserve and enforcing their rights.
as an executive, do you think that zynga's executive team gave any thought to the bad press this might generate and the talent that this might scare away?
From my perspective, this sort of thing scares me away from companies, because they might do it again in the future.
Honestly? I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run.
There's no way that this actually turns out to be a net positive for the Company. It's going to make it significantly harder to hire actual talent, it's going to cause morale decay and revolt from within the company, and it erodes Zynga's brand. Literally the only benefit here is that the execs end up with more stock when the IPO happens.
>I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run.
This is EXACTLY what is happening - anyone who thinks otherwise is deluded or plain stupid.
When Lockheed bought Savi technology, the RFID company, there were massive stock bonuses given out to the the Savi execs just prior to the sale.
Then they told all the employees who had been there less than 18 months they would get NOTHING for the shares they were hired on with as incentive.
All the other employees were given 15% of what the company had been claiming the street price of the options were.
PLUS they held some significant % of the stock value in an escrow account for some number of months should there be a legal backlash and Lockheed were sues - they were to use the escrow share money on that case...
Pincus is a very very VERY shady character.
Yet another IPO that I would never touch purely on principal alone.
This isn't surprising, not everybody in the game is for building something or for changing the world or for passion.
Someone is here only for the money multiplication factor. Sales, advertising, marketing and your usual MBA subjects are all about that. That is, not to care about what you are selling, but to create an illusion which gives an opportunity to amplify that seed investment. That is the time to cash on and move on.
>not everybody in the game is for building something or for changing the world or for passion.
You fucking suck.
I am not clear if youare advocating these actions or not - but let me make it very clear to you; if you are a proponent of such behavior - lets make sure we never cross paths.
This is NOT OK.
People like this are CANCER.
Sure - many instances of CEOs end up in the position of a Pincus - but it DOES NOT make it ok.
Pincus is a detriment not a person to be idolized.
The guy is telling it how it is, you are behaving like an 11 year-old. The world is not a nice place, it gets less nice when money is involved, grow up.
You're both right. Just because "it is how it is" doesn't make something OK, as you say the world is not a nice place, but it also doesn't mean you have to sit down and take it like a cabbage either.
And it's perfectly fine to tell people with questionable moral values to go and fuck themselves. Even though it's not always the most strategically sound way to make sure they get what they got coming in a world that is indeed not a very nice place at all.
There's a bloody big leap from "screwing employees over stock options" over "excessive 'inspiration' from competition" to "not in it to change the world with a passion".
Replying "you fucking suck" to someone taking the position that it's actually OK to go and do a job without having passion and unicorns and rainbows flow out of your ass all day is not the opposite of "taking it like a cabbage", it's the opposite of civilized discourse.
I was taking the "you fucking suck" remark as him just being really passionate about it, possibly before his first coffee, even. I can see his point, I wouldn't word it like that (or perhaps word it at all).
Seems like the capitalist machine is doing what it's doing. Someone is going in and generating profit which is pretty much how it's supposed to be.
Now whether someone who has that specific goal in mind is better at generating profit than someone who's not soulless is a separate question. But at the end of the day it's hard to blame an individual when it's a systematic problem.
I apologize for what i said last night. I went to the Rock Health event with an open bar and had too much wine, and one should never internet under the influence :)
Sorry about that. I am, however, still passionate that the actions of Pincus and other executives like him are deplorable and in no way should they be seen as OK - even if "everyone else is doing it".
Honestly? I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run.
Seems likely. Zynga is an obvious build-to-flip. Now is the time to cash it in at peak. The original push in social gaming was based on scaling, but people are starting to demand quality and that's where Zynga is going to die.
It's not like Zynga will have another IPO in the future, or will need to promise future employees equity.
Precisely why "trust" should never be a part of an equity negotiation. When millions are on the table people will do whatever they can get away with. Zynga doesn't want another "google chef", but they took full advantage of the "google chef" when promising equity to early employees.
> It's not like Zynga will have another IPO in the future, or will need to promise future employees equity.
No, but they probably will be promising employees something - and now, everyone knows that unless that promise is in writing, in an iron-clad contract peered over by Hell's best lawyers, it's worthless at best.
Indeed, they will only have one IPO. But the PR backlash can seriously affect it, if it's made clear to everyone that the execs are crooks, and that they'll never be able to hire talents again.
The poster child here is Groupon (GRPN) and while the poor choices of their executives did negatively affect the IPO they are still (11/9) trading above their IPO price of $20 ($24.50 when I glanced).
I don't think that Groupon execs are widely perceived as crooks, whereas Zynga's ones are more than hard to defend here.
Moreover, Zynga execs' move was likely intended to increase the total worth of their shares; if they manage to claw 20% more shares, but destroy 30% of each share's value, they've hurt themselves even in the short term (figures made up for illustration, obviously).
Even if they never give out another share of equity, hiring always involves promises about the future - compensation, bonuses, security, opportunity for advancement - that can't be written into the contract. I'd have to think the discount rate for those promises just jumped significantly.
Sure, there's only one IPO. But what about things like vacation time, bonuses, raises, and promotions? As someone else said, unless I've got it written down in a contract that (at least) a couple lawyers have told me is basically unbreakable, I'm going to be worrying about them deciding that I don't deserve what we've previously agreed to just to save/hoard some money.
They don't bother much. For most these people, who are basically sales and operation guys. They are made believe in their MBA classes that if they have a brand name and atleast one successful product they will never need any technical talent to run the company. And they can sell anything every after with operations tuning they teach them during their MBA classes. And that they can virtually sell anything by marketing, advertising and brand positioning. And that engineers and technical staff is merely a commodity which just needs to be used like raw material to convert it money later.
They are basically in for cashing on pre-IPO gold rush.
For me this is more than sufficient to be cautious before working at any start up again.
IANAL. Considering the employees are going to be challenging California's "at will" employment laws and the fact that the charges against the employees is performance based, how likely is #2 to have a fighting chance?
They have a strong argument that the options deprived them of real salary that they would have earned elsewhere. It will be interesting though. The reality though is they just lost every bit of talent they ever gained. The good talent is already in talks with other organizations I can guarantee you, I personally would be looking for an exit and no one I mean no one worth their salt is going to sign up with them now.
" ... and no one I mean no one worth their salt is going to sign up with them now."
I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still) Zynga is a considered a "hot" IPO candidate and as such you will find folks who recognize that not everyone is a super star. Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way. And pre-IPO options are better than post-IPO options.
It will certainly be interesting to see if it affects their ability to recruit and retain talent. I can only hope that some of the HR people escape and can share the results with others. Too often there isn't any really definitive data post event if it was a net positive or loss for the company. This is why I think there is a lot of hand waving in the HR space, hard to get real numbers.
I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still)
Yes some but I don't think much, IT employment is very much based on trends, in the 70-80's the hot place to work was Bell Labs or DEC, in the 90-00's it was Google. If you ruin your name you loose the A-Listers interest and everyone in tech fashions themselves A-Listers. So when this happens you have to rely on finding talent that has not proven itself yet or settling for the "it's just a job crowd". The biggest draw to pre-IPO is stock and the possibility of fortunes. To me and probably quite a few others, this is a shot across the bow that they will limit the participation in the fortunes part, which kills the primary reason people join pre-IPO start-ups. I would not underestimate the gravity of this action especially in this hot of a market.
> "Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way."
Would you really classify this as "dealing with the dead wood?" If they were "dealing with the dead wood", I'd expect they would just fire them for being dead wood in the first place and get their unvested options back as a side-effect.
Trying to keep the dead wood employed, but scaring them into effectively renegotiating their contracts isn't the sort of "dealing with" that very many people are going to look upon favorably.
But it's pretty difficult to prove unless you are a protected minority and the boss shows up in a white robe and says "we are firing all the N.....s" or you fire a secretary after he/she refused to sleep with you AND you got the refusal in writing!
Usually the employee only wins because the company messed up the paperwork.
It's about an employment contract which involved compensation while an employee was working, where the employer backed out of that later and terminated the employee to keep from paying what are effectively back wages.
I am against suing to get one's job back, esp. here. However, suing to keep the unvested stock they took when dismissing you is a bigger deal.
Here's the thing:
1) Employee is promised stock for efforts
2) Company doesn't want to pay as promised
3) Employee is fired
4) Stock not paid as promised.
I don't think the fact that this occurs in an at will state has any major impact on the analysis.
Stock options vest in the future if you are still working there. The idea is that it keeps you committed - otherwise everybody cashes in on the day after an IPO and walks, and it rewards people who were the reason for the success.
You can't leave and then expect to get unvested options = otherwise people would simply sign up for every startup, stay a month and move on - then come back years later when the company is a success and ask for their million dollars.
It's abused when companies deliberately fire people before the options vest - this is relatively rare, since any sane company knows that getting rid of all your talent is a rather short term option.
This is what Oracle did when they took over Sun - they fired almost all of the VPs before the deal so they would have no share. In their case it was more justified, these people hadn't contributed to Suns future (it didn't have one) and weren't the reason for the Oracle takeover - there was no reason why they should gain from Oracle being in charge when the music stopped.
Here you aren't choosing to leave though. The company is paying you less and offering stock options, and then firing you solely so they can take those back as a deliberate policy.
With Sun and Oracle, at least the case could be made that the VP's would have been redundant during the reorganization process. But it's different from saying "Hey, give up the stock options or you are fired."
I think it's that point where you have arguable contract claims.
Zynga would be effectively firing them for being too expensive. That's probably the most common reason for any layoffs. It sucks, but I can't imagine they have a legal leg to stand on.
California does recognize a tort for constructive discharge, but only with the fairly high bar that involves violations of "fundamental California public policy" (as embodied in law or the constitution). I'm not sure this would reach that bar, though; here's an example of jury instructions that've been used: http://www.justia.com/trials-litigation/docs/caci/2400/2432....
IANAL but I'd be thinking breach of contract regarding the stock compensation would be the cause, not the termination. With luck you could be free of that corporation and still keep unvested stock :-D
"At-will"?! I had no idea that in California you could just terminate employment for no reason.
Coming from Australia where you can't fire anybody without good reason (even demoting people can be considered unfair dismissal) this just sounds insane.
Pretty much the only significant reason you can't get terminated in the US is as a direct result of being in a protected class (so you can't fire someone for being black but you can fire a black person for any other reason including no reason at all)
I'm not an Australian employment lawyer (or any kind of lawyer for that matter), but I believe companies under a certain size are exempt from unfair dismissal laws.
Yeah, of course. You might be required to give 2 weeks' notice or something and if you're contracted you might be liable for breach of contract but nobody's going to force you to work.
"At-will" means that either both the employer and employee can break it off at any time. It's the maximum freedom for everyone involved. No company is compelled to hire anyone, why should they be compelled to continue employing someone indefinitely?
It's a compelling argument, but if there wasn't "at-will" firing, this sort of underhanded "give us our shares back or we'll fire you" stuff that Zynga is purportedly doing couldn't happen without nasty court cases.
Notice how you say "maximum freedom for everyone involved", and then "no company is compelled to hire anyone". The cultural disconnect lies right there.
Corporate personhood is a funny artifact of English Common Law, and its present state in the US is almost unique. Much of the world views corporations rather differently than our (I'm assuming you're American) legal system does.
When you start from the premise that a corporation is an artificial construct that exists at the whim of, for the purposes intended by, and for the general good of, society as expressed through laws, including a corporation in words like "everyone", and speaking of its "freedom", becomes nonsensical.
Most of Europe is the same too. Employment laws are pretty onerous. This is great for employees and I think more or less works in mature industries and businesses (think of a 10 year employee, who gets a new boss that they dont get on with so the boss just fires them).
This stricter regulation does make starting businesses very difficult, and a definite advantage the US has over Europe.
I think the answer is combination of the two where there is some kind of threshold where new/small companies have more freedom to dismiss, but forces larger businesses to treat their employees fairly.
As I said below (above? Depends on how it renders), it's a valid argument. I guess the only real counterargument is that employers (by default) have a lot of power over their employees. If an employer decides to fire somebody, it'll make very little difference to the company - they'll just hire somebody else.
However, losing your job as an employee is devastating. It's financially difficult and job hunting (particularly in this economic climate) is difficult. I suppose that Australian employment laws are an attempt to make things more equal and force employers to really think before hiring/firing – it makes employees people again rather than just entries in a payroll system.
> it's a valid argument. I guess the only real counterargument is that employers (by default) have a lot of power over their employees. If an employer decides to fire somebody, it'll make very little difference to the company - they'll just hire somebody else.
However, losing your job as an employee is devastating.
I think this is illustrative of a fundamental difference in philosophy between employment in the USA versus elsewhere, and one which favors economic growth and innovation over social stability.
Requiring cause to fire someone is business-hostile at best. Business can not improve efficiency, pivot, or generally adapt to changing markets if they are not free to hire and fire at will.
The one major point most "liberals" (in the American sense) miss regarding employment security is that employers are far less likely to take risks on hiring - whether in quantity, salary, or experience - when they can not fire at-will. This leads to less employment overall, not more.
The arguments are similar to other well intentioned, but seriously deleterious policies, such as rent control and Calfornia's "Prop 13."
That said, ethics and treating people well are very important. I find Zynga's actions unethical and think there is a good chance they should be held civilly liable.
> Requiring cause to fire someone is business-hostile at best
Generally, in countries which require reasons for dismissal, there is a distinction between a redundancy and a dismissal. A redundancy means that the position someone is working in is declared not to exist (and so no one will be hired to replace the redundant employee), while a dismissal means the position continues but the employment of the employee filling that position is ended by the company.
Changing the size of a workforce to "improve efficiency, pivot, or generally adapt to changing markets" is done through redundancies, not through dismissals, and redundancies can generally happen on whatever terms are agreed to in the employment agreement.
If an employee genuinely isn't working out in a no-fire-at-will country, the employee generally has to be treated fairly and given an opportunity to correct the problems, but they can still be dismissed if they are unable to rectify the problems.
The cost of a dismissal might be slightly higher in a non-fire-at-will company, due to the time period when the employee is given a chance to correct the problems, but not significantly, and businesses can still adapt to changing conditions through redundancies. Non-fire-at-will is therefore not a significant barrier to business.
However, it protects employees against abusive practices like those of Zynga in this instance - employees who do not have anything like the same bargaining power as the companies they are working for.
Do they have a legal footing to stand on? The way I read it is: 'We consider you overpaid for the job you are doing and we no longer wish to keep you around at that compensation level'. That is a valid reason to fire someone in CA isn't it?
IT is not a valid reason to reclaim unvested stock, those are looked at like current compensation when termination is unjust. You cant terminate someone just to unvest them. That being said, I always draw a line through and contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination. IF they want to negotiate as to when the options will be awarded to ensure that I am going to do a good job before I get options that is one thing, but I never allow for a termination to unvest me after the fact.
contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination
Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?
I rewrite the contract so that all options that have been granted but not vested, vest on termination. I was bite by this one and learned my lesson, I have also been bit by dilution, you pick these things up along the way. If they do not agree to vest on termination then we go back to salary negotiation or I walk. To me if they can terminate you and snatch back millions, it's just to big of a carrot to do so, as well that's all it is, is just a carrot if they can at any time deprive you of it.
So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.
Once again, curious to hear the name of the companies. I glanced at this http://www.linkedin.com/in/kentonsmeltzer from your HN profile, and didn't find any Silicon Valley names, but I'm assuming you might not disclose everything there.
I own my own freelancing company now doing JS web apps and mobile, I am based in the Orlando Florida area, but I am part of a Vally start-up as the CTO. Sorry I have to be vague on that topic right now. That being said, I was an executive at Marriott and was in line for the CTO position before I left, I did rewire the options contract with Marriott and went through several iterations with Legal. I also built 3 start-ups from the ground up, one exited to Hotels.com, another to TUI travel and the other to EAS nutrition. I would prefer not to say which I got screwed on but one of those exits I was left with nothing but a cold hard lesson in business, ownership and options.
Got it. Yeah, someone with CTO title might bend the rules a little. Otherwise stock and option plans are generally approved by the board. Asking a company to redraw the contact essentially makes it a CEO's call to reconvene the board as it goes outside of standard grant plan - not something that they'd do for a staff employee.
I have done it on small contracts as well, granted we are talking about a sizable start-up in this thread, but never the less many first employees are in a position to renegotiate the options; most start-ups are much smaller at the time these contracts are written, even the company we are talking about in this thread was probably much smaller when most of these "big award to get them in the door" contracts where written. Many of those contracts may have been written when their where less than 20 people at the company. In those situations, contracts are very much negotiable. The second start-up I did I walked into a functional and profitable but small company, and I negotiated my options give the experience I had before. I was not at that time negotiating from the perspective of being the CTO but first technical employee.
I do this on normal contracts. Just mark out the parts you don't agree with, add things you want in there, initial all your changes, sign and date it. Sometimes it will go through without anyone noticing (so make sure you have a photocopy).
It's only the olden days until someone goes ahead and takes a swing.
I had the exact same thought about the "fraudster holding the Occupy Boston d/b/a certificate hostage" story. Especially in that kind of ground-up, loosely-couples collective action scenario, how does overt bad acting not result in a Code Red at the food tent?
They're being terminated because they are not contributing relative to the amount they are being compensated. That seems to be perfectly legal to me (although it will probably hurt them in the long run).
Right, I am fine with the part that hey we think you are overpaid and we want to renegotiate the option awards that have not been granted, but they are walking a fine line renegotiation the ones that have already been awarded but have not vested. Many companies will award a certain amount of options and those options come with a vesting schedule so for example I get awarded 4 shares that vest in one year. My contract would say that I get 4 awards of 4 shared over 4 years and those awards vest in 1 year. They are going to run into trouble if they try to claw back the awarded shared because technically I have put in the work for those shares. Now if the contract says all stocks will be awarded in 4 years then yes technically they have not earned them yet, but I would have walked from that contract the moment I saw it.
Most contracts state that you lose unvested shares upon termination. It doesn't make sense any other way.
However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.
The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
What you are talking about is no dilutional where if they split, you are not diluted and your options do not get diluted, so instead of the 4 you agreed to you get the equivalent after the split. Most contracts are dilutional, where you get 4 regardless of splits, I have never seen a contract (in my dealings) that has been non-dilutional in original form, I have always had to add non-dilutional clauses to my contracts because I have had my ownership eroded through this very mechanism.
The employee took a risk accepting equity as part of their compensation, especially at a pre-IPO company.
Zynga shouldn't be able to come back, with 20/20 hindsight, and say "turns out we did better than we thought we would so we're taking your stock back".
If they failed they certainly wouldn't be giving employees other compensation to make up for their stock being worthless.
> However after two years, and a few splits, I have 128 shares.
You're not a "4 shares employee" you're a "% of the company employee". The 4 shares are worth some percentage of the company and after all those splits they're still worth that same percentage. Splits usually happen to get the cost of the overalls hares down but a $1m holding in some stock is still worth $1m after the split.
>But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
So what! This is the point of accepting stock as compensation. They worked below what they were worth for the hope that they would win the lottery. They did win the lottery and now the company wants a redo.
Zynga used employee's jobs as a bargaining chip to get them to give up contractual rights, and that is something a legal case can likely be built on, even if Zynga would have been otherwise within their rights to terminate these employees.
Another point I wanted to make on this was that I also think the Google chef excuse is just that an excuse, I think they will target the big awarded first employees whose value was in getting them off the ground and which they should rightfully be paid for. Their value was then, when the company did not have to money to fairly pay their market price, and they had to use promises of future reward to get them to sign on. By all definitions the developers that got them off the ground are now being overcompensated to their market value, but that was the deal right, we can't afford you because you are a good programer and can get 250k in the market, we want to underpay you now with the promise that if we make it you get to participate in the windfall. So it does not matter if they are not contributing now, it was the contribution while they where being underpaid relative to the market that made them entitled to the windfall. It doe not matter if they where a chef or a developer if they agreed to take reduced compensation as a risk, with the promise of participating in the reward and are being deprived of that then they are in a very grey area.
Well, yes. But the possibility of this excess was part of equity compensation in the first place, and came with the possibility (probability!) of compensation less than their contribution.
IANAL, but if the termination is motivated by the success of the equity gamble the employee took up front, that looks more like breach of contract. Don't want to keep them? That's fine, but pay what you promised you'd pay.
The employees that get their shares stolen can sue for extortion, which is exactly how I and most people would describe this situation. Unfortunately the law generally favors those with more money and resources.
Bullshit, this is a free market economy. If I feel you are overpaid for what you contribute, I can fire you. This is not extortion, they are readjusting their compensation to the market-going rates.
Whether it is moral or whether it will hurt them in the future are different questions.
They aren't being fired for being overpaid, they're being threatened with termination unless they surrender their equity in a privately owned company.
Definiton of extortion (from wikipedia):
Extortion (also called shakedown, outwresting, and
exaction) is a criminal offence which occurs when a
person unlawfully obtains either money, property or
services from a person(s), entity, or institution, through coercion.
What Zynga is doing IS extortion. Perhaps it is a form of extortion that is legal in California.
That is an inaccurate view of the situation. Unvested shares are not equity.
You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation.
I put this in another comment:
"However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.
The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at."
I know this goes against the way it's always been in the tech industry, but it is not extortion.
The company didn't hire you to work as a 4-share employee, they hired you to work as a 4-share employee with significant upside potential. That is how early startup employees are compensated for the increased risk and lesser salary they take on.
Yes, you and your sibling threads are all correct, but it's not extortion. It's immoral and will certainly hurt them in the future, but it's not extortion.
I am simply trying to explain why this is a moral issue and not a legal issue.
This is the equivalent of saying: 'your gonna have to take a pay cut or were gonna have to let you go'. It is morally repugnant and goes against everything we believe in the startup community, but it is not illegal, nor should it be.
If we're talking about what should be illegal, I find it hard to argue that it shouldn't be. If you hire someone on the promise that they'll get a bonus at 5 years, and purposely fire them at 4 years, 11 months solely to avoid paying them the bonus, that should be illegal. In any reasonable interpretation of the contract, that isn't good-faith upholding of the contract--- you promised them something at certain milestones, and then purposely acted in a manner intended for the sole purpose of sabotaging the milestones, which is acting in bad faith.
In most other kinds of contingent pay that's tortious: if you promise a building contractor contingency bonuses upon meeting certain deadlines, and then you purposely interfere to make them miss the deadlines so you can get the work cheaper (and admit doing so!), you're probably acting illegally. Heck, even basketball players have sued over instances where a team kept them out of a few games solely to cause them to miss performance targets.
I disagree, what you describe is shady, but also pretty unrealistic. Normally there's a vesting schedule with only a 1 year cliff, and then chunks vest yearly. That's essentially pro-rata.
The standard is to have a 1 year cliff (i.e. 25% of equity vest at 1 year), and then monthly vesting of the remainder (1/36 per month for the next 36 months). NOT yearly vesting after the first year.
The exception is M&A earn out or vesting for key hires, which is often yearly, and sometimes even crazier; 1/2/3/4 where it's 10% the first year, 20% the second, 30% the third, and 40% the fourth.
Not only is it shady it is a legal term and that term is called bad faith, if you can prove the party acted in bad faith, which if what is being reported about, return it or get fired, then that one is pretty locked up, then they are in violation of the spirit of contract. Faith is one of the foundations of contract law. If you are found to have not honored the faith portion of the contract then more times than not, you will be on the loosing end of a contract dispute.
I think the fact that it continuously vests after a cliff, that it's clear in basically every options grant that you don't receive unvested options upon termination, and because employment contracts repeatedly emphasize that employment is completely at-will makes it pretty clear that you shouldn't count your unvested option chickens before they hatch, and hard to prove that you could reasonably expect to vest all options. The employees that have been there for multiple years will have already vested a big percentage of their stock regardless of what happens.
I think Zynga is repulsive, and will hopefully get punished hard on many fronts for this, but I'm not convinced that what they're doing is strictly illegal. I'm convinced they'll get sued, though.
No it isn't. A big corp I worked at in the US had a 1/7th per year vesting period. Then the dot com bubble came and they gave everyone 4-year cliff options. That is, no vesting until after 4 years. They absolutely could have fired people 3 years and 11 months in (and almost certainly did).
No matter how vehemently you keep asserting it, the promise Zynga made has value - or else Zynga wouldn't want to renege on it, duh - and making threats in order to get anyone to give you anything of value is extortion in the common law.
Imagine your company gave you a $40,000 bonus. You get 4 checks for $10k each, dated 11-Nov-2012, 2013, 2014, and 2015. If the company is still in business on those dates you can cash the checks. If you leave or quit, you hand back the uncashed checks.
Now the company says "give us back 2014 and 2015 or you're fired". What would you say?
Also more importantly they gave a $40,000 bonus as payable in the future because they wanted you to do $40,000 work now but didn't have money to pay you.
Yeah, I realized after the fact that the analogy was a little shaky there. It's not just a bonus but deferred compensation. But let's keep it simple for now. Androsynth had a problem trying to understand the idea that these options were granted in lieu of earned pay.
This analogy isn't correct with regard to future periods, vesting is concurrent with your participation (contribution and effort). The trigger for earning the bonus is not if the company is in business that year, but if you were a member of the company and contributed during that period to earn the bonus. The issue at hand is mid-stream renegotiation of the future un-earned bonuses.
Morality and legality are somewhat intertwined in business law. Every contract contains an implied duty of "good faith and fair dealing." Violations of that duty can result in contract damages.
I agree it is not extortion. Extortion typically requires the threat of unlawful force. If I way "Pay me $100 not to picket your company" and I start lawfully picketing that's not extortion. Otherwise workers strikes would all be illegal.
The larger issue though here is that of a contract. The company has in essence said "we want you to stick around and so we are giving you an incentive of stock options which vest on such and such a schedule."
Later they are saying "give up what we gave you or leave so we can take them back." It's this choice here which says clearly "we are going back on our contracts with you."
A close example might be this "We are giving you a raise and will pay you retro pay next month when this goes through but you have to work fewer hours at your hourly wage" and then the next month saying "sorry, no retro pay for you."
I think this would be a fun case. And now that class action cases have taken a few serious setbacks in the courts, it seems to me that Zynga really should be getting sued by lots and lots of employees in individual lawsuits..... One piranha may be good for dinner, but don't wade into a swarm of them.
And you are making the critical assumption that the employee or the employer in your hypothetical situation expected those four shares to remain four shares.
If I'm a small company just getting started, what do I have to attract top talent? Maybe I can't afford to pay as well as the established companies, or maybe my benefits are going to be worse (or nonexistent). But I do have stock options. If I'm a fledgling corporation, stock options can get me more talent than I could otherwise command, and if I'm a skilled engineer, I feel like I can directly affect the fortunes of this company and thus my own net worth if I am compensated heavily in stock options which, in the unlikely chance that all goes better than expected, could make me wildly rich.
Your hypothetical four-share employee certainly didn't sign on just on the strength of those four shares alone. And, quite possibly, the employer played up the possibility of those four shares becoming many more shares down the road if things go well.
Unvested shares may not be equity in the company, but they very well may be equity in the equity. They represent a promise to grant actual shares when certain conditions are met, and that promise is worth something in the present. Contriving to reneg on that promise is little different from defaulting on your debts. In a way, it actually is defaulting on a debt.
>You are acting as if they are being asked to give away something that they own
They are. They own those stock options, with the provision that they stay out the life of the vesting period. They are now being prevented from holding up their side of the contract. They would gladly stay through the vesting period if allowed to.
The "different questions" are relevant. If this were merely a question of what the company can and can't do as a capitalist enterprise, the article would not have been written. Ethics are important. Would you be as dispassionate about this if you were a Zynga employee?
All your posts here make you sound like a really ignorant person, in regards to the subject at hand. The best thing for you would probably be to stop posting and start reading instead.
I agree with this statement, and I think Zynga's actions are at best unethical.
It would be interesting to know the facts from someone in this situation but I also expect that such folks should not be blabbing to folks other than their lawyer.
My interpretation of the story was that they were asking for folks who had stock that was not vested which is to say part of some future vesting pool, to give that up their right to that stock. So if you gave someone 100K shares over 4 years, and they had been there 2 years, 50K was vested and 50k yet to vest, they are asking that you give back the 50k that have yet to vest.
This would be different than Skype's 'clawback' clause, and it would be slightly less onerous than canceling vested but not yet exercised options.
The article also suggests that choices were made based on some measure of value (and implied performance). I have seen folks who are doing ok work, but its not at the level that they are being compensated, that puts you in a tight spot. Few, if any, folks are open to a restructuring of their compensation package in a downward way (which is what Zynga is proposing it would seem). In California at least you simply ask them to leave (and the article suggested that the choice was 'accept this new lower compensation package, or leave, your choice.')
Frankly I think it would be less painful on the company oversall if they just laid off the folks they felt they had made the compensation error on. I don't see anything good coming out of this approach for the company, and I recognize they may think they are being compassionate by not firing people who, except for the size of their option grant, are doing ok.
Google's innovation here is something they call a 'Google Stock Unit' (GSU) (which is not an 'option' it is more like restricted stock) where the ratio of GSU to actual stock is fixed at the time it vests by a perfomance multiplier. That way they can offer a hot shot person 2500 shares of 'restricted' stock (market value of 1.25M$) which vests in four chunks of 625 'units' a year, and if you didn't meet your goal that year your multiplier could be less than 1.0 even 0. So they wouldn't actually have to give it to you if you weren't a hot shot inside of Google. To be fair the multiplier could, in theory, be greater than 1.0 too. The cleverness of that scheme is that the company could 'tune' the compensation of someone dynamically.
I'm guessing Zynga might be wishing they could do something similar for ISO type options.
What Zynga is doing is pretty repulsive, as I previously commented in a related thread (http://news.ycombinator.com/item?id=3219437), but it is not accurate to say that "[t]hey have to fire you for cause for you to lose your options."
The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.
What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).
If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.
If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.
If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.
To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.
A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.
Specifically of interest is the "Covenant-of-good-faith exception"(only in 11 states, CA being one of them) which I first saw referred to also by someone else here on HN.
At trial, the jury found that Kmart terminated
Ponsock to avoid having to pay him retirement benefits. As
part of his case, he claimed that Kmart’s discharge was in
“bad faith” and that, even without a contract, such a termination gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and exceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”
If I was a Zynga employee I'd definitely be talking to a Labor/Employment lawyer. "Give us back your unvested stock or be fired" sounds pretty "bad faith" to me. Zynga should have just fired the people, but I think they don't want to lose the talent, they'd rather negotiate lower compensation instead of having to find new talent which will most certainly know of Zynga's upcoming IPO & demand proper compensation.
Cause is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc.
When a company decides to terminate an early engineer because the 5% they agreed at the start is deemed too high for an engineer, usually the reason given is 'non-performance'. Even though the engineer is performing his engineering duties.
Does a company need to prove that the engineer failed to perform and document it? or is it usually the company's word against the engineer's? What stands up in the court of law as 'failure to perform duties'?
It is very hard for a company to prove willful failure to perform duties when an engineer is actually executing on assigned projects, or at least attempting in good faith to execute. Engineers who have contractual protection against termination without cause are usually well-protected against arbitrary terminations on "non-performance" grounds and the company has to do a lot more than loosely assert (in "he said / she said" fashion) that someone's performance comes up short. Moreover, in most cases, the contract clause will specify that, in order to effect a termination on this ground, the company must give notice to the employee specifying why the performance is inadequate and give the employee a window within which to cure any defects in performance. This makes it doubly difficult to terminate someone on non-performance grounds because the charges have to be detailed and there will always be an argument about whether any deficiencies were cured if the employee is actually trying to perform all assigned duties. The company can try to document such cases all it wants but will normally hold a losing hand in trying to prove "cause" on that ground in such cases.
The Zynga cases are different, however, because the employees being squeezed in those cases are almost certainly pure at-will employees who have no contractual protection against being terminated without cause. Without the contractual protection, such employees can be terminated for pretty much any reason in the normal case and, if "non-performance" is cited as the reason, the company does not need to prove anything to back this up. "Non-performance" in such cases is often nothing more than a label used to rationalize a decision made on who knows what ground (e.g., on the ground that the company just wants to get someone's potentially valuable stock back before it vests).
If you had clear reasoning that you was dismissed for a reason other than failure to perform duties, then you would have cause to sue.
FTA two people already retained council, settled and still got to keep a portion of their stock.
What Zynga is worried about is that if they're going to be publicly valued at $1 billion, the guy who owns 5% of stock because he was there from day one is going to land $50 million and walk.
I imagine that the biggest problem with IPO's for companies like Zynga (especially if they're acting douche to their employees) is that they risk losing a lot of employees. Either selling up stock to get the cash, or simply retiring to live off dividends and slow-stock sale tactics.
Why would someone want to work for a company where you have to sue to keep your job, though? That's the sad part. You could fight for your job, but then there would undoubtably be permanent and serious bad vibes in both directions.
> Sometimes you just have to sue to enforce a contract and your rights.
If you can sue. At my last job, they made me sign a binding arbitration agreement as a condition of being employed. I needed the job, so I couldn't play hardball and refuse.
it shows how greedy people can be. i cannot think of anything like this can be done by a tech company. bunch of douche bag. how the hell are going to decide what contribution is important or which one is not? This is pure greed man... I am posting this in FB let Zynga games go to hell..
The bottom line here is "You don't get to be a part of the IPO windfall." Given that the employees that are getting stung like this have accepted the risk of working at a startup, and likely have accepted lower salaries in exchange for the promise of stock options, this is morally equivalent to theft of services.
Stock as a compensation structure only works when people use it in good faith. Scummy moves like this are only going to make it harder for startups to attract talent unless they can pay full market rate right out of the gate.
Actually, given the instability of a startup, they should be paying more than market rate right out of the gate. They tried to do this by using stock options but enough crooks have found ways around it that I expect the labor market to adjust to this.
Seriosly do these execs realise what a bunch of utter douchebags they look like? I guess they don't care. Personally though I would think twice about going to work for them, whatever they offer apparently is worthless because they can change their mind and take it back off you again later.
They're also a big PHP shop, and keep in mind that this is a game company where long-hours, OT, crazy demands are "normal". Mix them together and ask yourself again if Zynga is a place you'd like to work...
These aren't options. They're RSUs (restricted stock units).
An option has a strike price (typically breakeven with the stock price on the date it was issued, sometimes not). After it vests, you can keep it around for a while, and decide when it's best to exercise (possibly pre-IPO, possibly after). A restricted stock unit is essentially a share of stock that they give you free as soon as it vests.
RSUs have some advantages and disadvantages. One advantage is that short of bankruptcy, they never really go "underwater". One disadvantage: you deal with tax implications immediately.
It's difficult to take either those away once they've vested, but it's unvested RSUs I believe we're talking about here.
380 comments
[ 3.8 ms ] story [ 308 ms ] threadSo is does Zynga's request run into the practice of extortion? It's another way of saying, give us your money or else something bad will happen.
Deeply unethical, and terrible for employee relations, and not at all in the interests of the company, but probably legal.
Firing someone to screw them out of contractual rights you both agreed to is problematic. And even if the company claims it was performance-based, which they will have to, the CEO's statements basically give the other side all the evidence they need to refute that.
All they are saying is - give back the stock and we won't fire you the day before it vests.
I think it is more akin to "we are not satisfied with your work on the contract we are taking what you have produce so far and are only going to pay you a portion of the original agreed upon amount."
http://en.m.wikipedia.org/wiki/Mark_Pincus
They also allow you to continue to do business even if the other company changes hands.
I think the point you're trying to make is that if you already don't trust someone, a contract is not going to save you. That I can agree with.
Even if they reconsider, I doubt any "top talent" will be joining them any time soon, if ever again. At least, not with a twelve-pound contract inked in blood.
Note to companies: Don't be assholes. We don't like assholes.
I kind of got out of startups for that reason. I just couldn't take working with sociopaths anymore. I have some stories. Serious f'ing stories. And no, I'm not just "player hating." A lot of it didn't even involve me. I just couldn't take working in proximity to such sleaze.
Tech's had this reputation as a place where fortunes can be made. That's going to attract a lot of ambitious and creative people, but it's also going to attract a lot of scum.
What amazes me about my personal experiences is how unsuccessful a lot of the sociopathic behavior was. It really brought home to me that these people have a mental illness. In the same way that someone with severe OCD will do things like wash their hands until the skin comes off, these people are neurotically compelled to dominate others even if doing so actually harms them. They must win their petty battles and dominate those seen as weaker, even if it means losing in the real world.
I literally watched the moment at which a pathological sociopath tanked a million-dollar opportunity because he had to try to put one over on his partner. Had to.
Pig, meet lipstick.
Like I said in another part of the thread: the stock market is the dumbest money around.
Not that there aren't still ethical people out there, it's just that the unethical ones make it so hard to see them.
http://en.wikipedia.org/wiki/Hare_Psychopathy_Checklist
I'm not making some superficial political statement either. I noticed it in myself. There were people I worked with that I completely hated yet... when they were present... it was almost like a drug. There's this "high" you get off them. You feel more confident just because they're in the room. They've got this kind of charisma that goes beyond mere confidence or enthusiasm. They were, by their actions, the most psychopathic ones.
It's like we have a genetic, predisposed tendency to follow psychopaths. I found it unbelievably disturbing. I'm a bit skeptical of evolutionary psychology, but this is one area where that kind of thinking feels like it could be right. It's like we know, on some subconscious animal level, that while these individuals are dangerous to us they're also more likely to win in a war. They will kill for us. And our genes want to be on the winning team.
Among other things, it converted me to a born-again advocate for human genetic and neurological engineering. We simply have to purge ourselves of this evolutionary legacy code or it will kill us all.
From an evolutionary psychology viewpoint, things are probably the other way around. That is - psychopathic personalities evolved to reflect, albeit in a very shallow way, the traits we're programmed to identify and follow as leaders.
I find the whole topic morbidly fascinating. In a way, it's the closest we can get to observing an alien intellect. The idea that so many executives in and around my industry could be such people just creeps me the hell out.
The term you're looking for is "nonsentient."
That said, I like technology a lot better. There are always going to be scumbags when there's money, but the difference (IME) is that: (1) there are more normal (non-scumbag) people in tech, probably 85% vs. 70%, (2) the normal people in tech are more interesting and creative, whereas decent people in finance tend to be boring, 9-to-5 types, and (3) technology has a small but sizable number of people who are decent and have entered the upper ranks, whereas there's a glass ceiling that non-scumbags experience in finance (unless they start their own trading firms).
I didn't move from finance to technology with the illusion that I'd never have to deal with another asshat. I moved because in technology, it's much more likely that I can succeed (a) in a creative way, and (b) without becoming a scumbag myself.
There are lots of underhyped startups right now that are busy disrupting other areas like enterprise software.
Key is to look at who's funding whom and executive leadership... an organization's DNA goes from top-down.
If a seemingly honest man like pg can't arrange a nice little startup conference without having at least one speaker every year who turns out to be some sort of con man, then yes, I'd have to say tech is particularly sleazy right now. I'm not faulting the Startup School organizers for this, but it's an interesting observation.
Instead, they bring scummy fast talkers and put these people up on the stage as ideals. Not only is that teaching the next generation of entrepreneurs to be scummy fast talkers, but it's setting up these kids (and many of them are kids) to look up to and follow people like this. It's setting them up to be taken advantage of, or to become abusers themselves.
Like any guru, pg only pimps the upside. He has a lot of good things to say, but at the end of the day it's basically self-help, water cooler wisdom, and motivational speaking for beginning entrepreneurs. He's not going to tell you about the filthy underbelly.
He's not going to tell you that a good 20% of the people in the startup world have a diagnosable psychosis. Psychopathy, narcissistic personality disorder, and bipolar disorder are the most common. He's not going to tell you that startup stock is basically worthless, and that if you're about to vest you are probably about to be fired unless you are in the "inner circle." He's not going to tell you that the game is rigged hugely in favor of the already-connected.
Lets all remember, PG is in business to make money. He does that by selling the upside and lifestyle as much as possible.
Earlier this year, one such sociopath latched onto my sister and she convinced me to get involved. As soon as the project looked like it was going to get released, the sociopath tried to dilute my sister's and my shares from 1/3 each to 1/20th each. He wanted to bring in partners that he had previously screwed over to make something up to them by screwing us.
That is so classic. It really does get kind of Monty Python-ish.
Like I said in my post above, I have a lot of stories. If I ever wrote a book about it, I'd have to tame them down quite a bit to make them believable.
I'm going to take a wild stab here and guess that none of their own names were on the list they came up with.
Whenever crap like this happens, pull out an org chart. You'll pretty much be able to draw a straight line that divides who shits and who eats shit.
That way the don't have to over-compensate the performers beyond what they've already promised them.
Your employer is not there to do you any favors.
Most likely, they will knife you in the back the minute they get the chance.
Let's stop with the all-employers-are-out-to-screw-you rhetoric because it's clearly not true.
Beware the shuffling of chairs, granting of titles, lateral promotions, unannounced appearance of new employees cutting back on company snacks. These are all clues that lead to a financial event where unless you're in the driver's seat, you're bound to take a hit.
For those of you with the altruistic bent, please watch the Spanish Prisoner. It's a classic example of fuckery.
If not, you have exactly two choices. One is moral, one is not. The dilemma is between your greed and your morality, not between seemingly contradictory moral imperatives.
Clean your own house, or it'll be cleaned for you.
Employers have a responsibility to maximize the profits of their shareholders/investors.
They are not there to be your friend, take care of you, or compensate you beyond the minimum that they have to. Companies that offer bonuses/'benefits' are doing so as an incentive to retain you. The minute the market indicates that they can pull any of those benefits, they will.
MegaCorp does not give a holiday bonus out of the goodness of its heart. It doesn't have a heart, it is an inanimate object. It can not possibly feel a loyalty to you. It may bullshit you by telling you this, but that is really just to embiggen your feelings of loyalty towards it.
It has rules and structures, carefully laid out towards its goal... maximizing profits. An optimally designed corporation will fire you the minute that there is a cheaper alternative to your employment. If it were human, it would be a sociopath.
Somewhat shortsighted statement for this topic, considering the people they're harming here are employees who are... shareholders.
> If it were human, it would be a sociopath.
It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.
I think it is pretty clear I was referring to the general case, rather than this particular situation. Anyway, until they vest, they technically aren't shareholders. (And after they've lost their rights to vest, they certainly aren't going to be shareholders).
> It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.
I agree completely. It is a crock of shit that corporations aren't held to the same basic moral and ethical standards that people are. (In my opinion, they should be held to greater standards, being that they are in practice immortal, and can wield greater sums of wealth than any single human being).
As an employee in the current environment, however, you have to keep the reality of how corporations are expected and allowed to behave in mind.
A corporation is a group of people. Like all groups of people there can be a mix of the full spectrum of humanity in varying percentages. Go to a protest or a concert, witness how groups of people react, especially when they are told to do something that no one wants to do. Corporations are run by people but you should not think that they are somehow different from groups of people and that group psychology somehow doesn't come into play.
Wasn't there a report some years back that showed most CEO's were sociopaths?
Well, "everything went as planned" doesn't make for a very interesting story.
Personally, I can think of three people I've met who did well at startups. One was at Google, one was at Amazon, and the third was at a company I don't remember. But I can think of an awful lot of stories of public and pre-IPO companies screwing over their employees, including myself being shafted at least three times by employers.
the manager who came up with that idea is no doubt getting a huge bonus.
Make money pressuring users to pay for virtual goods. Pressure employees to give stock for virtual jobs...
No seriously, I was just making the point as a joke that we shouldn't be surprised that a company like Zynga, who makes money through admittedly slimy means, wouldn't have the same attitude towards everything else too. I think the ScumBag meme is apt.
An army travels on its stomach. Google's chefs helped make Google the company it is today. Why is it so wrong that they be rewarded?
There's also a level of buy-in that startups demand. You're asked to make it more than "just a job." Even the guy mopping the damn floor is asked to mop it until it shines, just because "we're all in this together."
People deserve to be compensated for that if things go well. But to your stereotypical business sociopath only executive-level individuals and their cronies are real human beings. (Actually, nobody is a real human being. It's only about winning in the shortest possible term.)
And I'd be willing to wager that these particular executives were more of the empty suit, posturing, clueless, "let's do lunch," "I'll have my people talk to your people," variety. There is a negative correlation between actual merit and this kind of behavior.
Guy I used to work for said one of his proudest moments was hearing the receptionist at the company he had founded was able to buy a house outright with cash from the proceeds of her stock options.
Only soulless suits and maybe a few key nerd-slaves deserve lots of money! If anyone else gets money, it's a crime against humanity and we must take bold action to rectify it!
Runaway sociopathy is the only way to describe this behaviour.
"He signed up, however, and started easing the computer engineers into the long hours culture with innovations including free beer and fortnightly "big ass" barbecues, and breakfast specials. He converted the "googlers" to a diet that ensured they kept working after lunch and weaned them off pizzas."
(source: http://www.telegraph.co.uk/news/worldnews/1582494/Chef-lifts...)
Presumably he took stock options and was paid less than he would receive elsewhere. And the options also compensate him for career risk.
The way I read it, committing to Google was a much bigger risk for him than that of any of the programmers. What if Google had never grown beyond a handful of employees? How does that look on a resume? Instead of "sous-chef at Restaurant le Snob", "managed the cafeteria in some anonymous company in a Mountain View office park."
I'm not defending the move, but in reality the company could terminate the employees (at-will employment in California), which would terminate their further vesting anyways.
This is not the clawback scenario that Silver Lake executed with Skype.
I also can't see how employees who give up their stock and remain with the company can possibly have a healthy relationship moving forward.
Sounds like Pincus gave performance-based pay with a pretty transparent system, which should have worked well. Employees must know how management sees their performance, otherwise you're destined to have a bad breakup.
If the story is accurate (hopefully it's not as who'd want to ever work at Zynga after this?) then the lack of stock for new hires was a management issue, and should be resolved from management, the investors and the board's pockets. After all, each investor saw the cap table before putting money in.
They are talking about unvested shares. The employees do not own them or have a right to exercise them yet. Every standard contract I've ever seen also includes a clause that shares stop vesting upon employment termination for any reason.
So, they are basically saying "give up unvested shares, or else we'll make you give them up by firing you".
The law does draw distinctions based on the circumstances surrounding a termination, even in an at-will state. The employee does not yet own the unvested shares, but they do have a contractual right to them. Terminating someone just to screw them out of a contractual right you agreed to in a contract is going to give someone ammo in a lawsuit.
Given its pre-IPO situation, Zynga is in a bad leverage position in the face of such a lawsuit. They're going to have an incentive to settle just to get the claims to go away. What they probably should have done instead is to terminate the employees for performance up front with a generous severance package and a contractual agreement to not sue the company for improper termination. But they probably couldn't handle these employees leaving right now. They wanted to have their cake and eat it too.
What sort of top talent will have not read this story and decided that surely, THIS TIME, Zynga won't screw their employees?
This could end up like what happened with Activision and the CoD guys.
1. Don't resign, don't capitulate and hire a good lawyer immediately. If you don't have the cashflow, but are defending a huge pile of stock about to IPO you'll probably find a lawyer that will defer payment.
2. Start documenting everything including making timestamped notes of what was said to you verbally.
Then play it out. Read all documentation the company has given you and fully understand it. They usually have to fire you for cause for you to lose your options, so figure out what the angle is they're using and make sure they don't have cause. Be 100% professional and non-confrontational, but ask the hard questions when you need to. DO NOT treat the company's staff (including your boss) or their legal team as your own legal counsel. They will try to give you "good advice" or intimidate you. They will claim things are "standard". Get your own info and use your own lawyer.
Often simply retaining counsel lets the opposing team know you're serious and professional, and worst case it will up any settlement.
PS: I'm an exec, not an employee, so technically I'm the guy on the other side of the org chart that Micah (see below) is describing. But assuming the report is accurate, this is unacceptable behavior and I'd like to see more employees who take a risk on startups getting what they deserve and enforcing their rights.
From my perspective, this sort of thing scares me away from companies, because they might do it again in the future.
There's no way that this actually turns out to be a net positive for the Company. It's going to make it significantly harder to hire actual talent, it's going to cause morale decay and revolt from within the company, and it erodes Zynga's brand. Literally the only benefit here is that the execs end up with more stock when the IPO happens.
This is EXACTLY what is happening - anyone who thinks otherwise is deluded or plain stupid.
When Lockheed bought Savi technology, the RFID company, there were massive stock bonuses given out to the the Savi execs just prior to the sale.
Then they told all the employees who had been there less than 18 months they would get NOTHING for the shares they were hired on with as incentive.
All the other employees were given 15% of what the company had been claiming the street price of the options were.
PLUS they held some significant % of the stock value in an escrow account for some number of months should there be a legal backlash and Lockheed were sues - they were to use the escrow share money on that case...
Pincus is a very very VERY shady character.
Yet another IPO that I would never touch purely on principal alone.
Who wants to be Goldman will be taking this IPO?
Any examples of this? Not that I don't believe you, but just curious
Tells his team to steal game ideas, makes millions in the process then shafts the people who made it happen for him.
Would love to hear from someone who can paint him in a better light than the horrible individual I have in mind at the moment.
Someone is here only for the money multiplication factor. Sales, advertising, marketing and your usual MBA subjects are all about that. That is, not to care about what you are selling, but to create an illusion which gives an opportunity to amplify that seed investment. That is the time to cash on and move on.
You fucking suck.
I am not clear if youare advocating these actions or not - but let me make it very clear to you; if you are a proponent of such behavior - lets make sure we never cross paths.
This is NOT OK.
People like this are CANCER.
Sure - many instances of CEOs end up in the position of a Pincus - but it DOES NOT make it ok.
Pincus is a detriment not a person to be idolized.
And it's perfectly fine to tell people with questionable moral values to go and fuck themselves. Even though it's not always the most strategically sound way to make sure they get what they got coming in a world that is indeed not a very nice place at all.
Replying "you fucking suck" to someone taking the position that it's actually OK to go and do a job without having passion and unicorns and rainbows flow out of your ass all day is not the opposite of "taking it like a cabbage", it's the opposite of civilized discourse.
You guys are behaving disgracefully.
Now whether someone who has that specific goal in mind is better at generating profit than someone who's not soulless is a separate question. But at the end of the day it's hard to blame an individual when it's a systematic problem.
Sorry about that. I am, however, still passionate that the actions of Pincus and other executives like him are deplorable and in no way should they be seen as OK - even if "everyone else is doing it".
Seems likely. Zynga is an obvious build-to-flip. Now is the time to cash it in at peak. The original push in social gaming was based on scaling, but people are starting to demand quality and that's where Zynga is going to die.
Precisely why "trust" should never be a part of an equity negotiation. When millions are on the table people will do whatever they can get away with. Zynga doesn't want another "google chef", but they took full advantage of the "google chef" when promising equity to early employees.
No, but they probably will be promising employees something - and now, everyone knows that unless that promise is in writing, in an iron-clad contract peered over by Hell's best lawyers, it's worthless at best.
Moreover, Zynga execs' move was likely intended to increase the total worth of their shares; if they manage to claw 20% more shares, but destroy 30% of each share's value, they've hurt themselves even in the short term (figures made up for illustration, obviously).
Actually, Groupon's execs are widely perceived as crooks.
Their sales teams are apparently very aggressive but that doesn't make them crooks.
They are basically in for cashing on pre-IPO gold rush.
For me this is more than sufficient to be cautious before working at any start up again.
I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still) Zynga is a considered a "hot" IPO candidate and as such you will find folks who recognize that not everyone is a super star. Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way. And pre-IPO options are better than post-IPO options.
It will certainly be interesting to see if it affects their ability to recruit and retain talent. I can only hope that some of the HR people escape and can share the results with others. Too often there isn't any really definitive data post event if it was a net positive or loss for the company. This is why I think there is a lot of hand waving in the HR space, hard to get real numbers.
Yes some but I don't think much, IT employment is very much based on trends, in the 70-80's the hot place to work was Bell Labs or DEC, in the 90-00's it was Google. If you ruin your name you loose the A-Listers interest and everyone in tech fashions themselves A-Listers. So when this happens you have to rely on finding talent that has not proven itself yet or settling for the "it's just a job crowd". The biggest draw to pre-IPO is stock and the possibility of fortunes. To me and probably quite a few others, this is a shot across the bow that they will limit the participation in the fortunes part, which kills the primary reason people join pre-IPO start-ups. I would not underestimate the gravity of this action especially in this hot of a market.
Would you really classify this as "dealing with the dead wood?" If they were "dealing with the dead wood", I'd expect they would just fire them for being dead wood in the first place and get their unvested options back as a side-effect.
Trying to keep the dead wood employed, but scaring them into effectively renegotiating their contracts isn't the sort of "dealing with" that very many people are going to look upon favorably.
Not if they decide to take yours back so they can get more money. pre-IPO options with Zynga are worth nothing.
Usually the employee only wins because the company messed up the paperwork.
It's about an employment contract which involved compensation while an employee was working, where the employer backed out of that later and terminated the employee to keep from paying what are effectively back wages.
I am against suing to get one's job back, esp. here. However, suing to keep the unvested stock they took when dismissing you is a bigger deal.
Here's the thing:
1) Employee is promised stock for efforts
2) Company doesn't want to pay as promised
3) Employee is fired
4) Stock not paid as promised.
I don't think the fact that this occurs in an at will state has any major impact on the analysis.
You can't leave and then expect to get unvested options = otherwise people would simply sign up for every startup, stay a month and move on - then come back years later when the company is a success and ask for their million dollars.
It's abused when companies deliberately fire people before the options vest - this is relatively rare, since any sane company knows that getting rid of all your talent is a rather short term option.
This is what Oracle did when they took over Sun - they fired almost all of the VPs before the deal so they would have no share. In their case it was more justified, these people hadn't contributed to Suns future (it didn't have one) and weren't the reason for the Oracle takeover - there was no reason why they should gain from Oracle being in charge when the music stopped.
With Sun and Oracle, at least the case could be made that the VP's would have been redundant during the reorganization process. But it's different from saying "Hey, give up the stock options or you are fired."
I think it's that point where you have arguable contract claims.
Coming from Australia where you can't fire anybody without good reason (even demoting people can be considered unfair dismissal) this just sounds insane.
http://en.m.wikipedia.org/wiki/At-will_employment
Pretty much the only significant reason you can't get terminated in the US is as a direct result of being in a protected class (so you can't fire someone for being black but you can fire a black person for any other reason including no reason at all)
Corporate personhood is a funny artifact of English Common Law, and its present state in the US is almost unique. Much of the world views corporations rather differently than our (I'm assuming you're American) legal system does.
When you start from the premise that a corporation is an artificial construct that exists at the whim of, for the purposes intended by, and for the general good of, society as expressed through laws, including a corporation in words like "everyone", and speaking of its "freedom", becomes nonsensical.
This stricter regulation does make starting businesses very difficult, and a definite advantage the US has over Europe.
I think the answer is combination of the two where there is some kind of threshold where new/small companies have more freedom to dismiss, but forces larger businesses to treat their employees fairly.
If an employee can give 2 weeks notice to say they are quiting at any time for any reason, why shouldn't an employer be allowed to do the same.
However, losing your job as an employee is devastating. It's financially difficult and job hunting (particularly in this economic climate) is difficult. I suppose that Australian employment laws are an attempt to make things more equal and force employers to really think before hiring/firing – it makes employees people again rather than just entries in a payroll system.
Ah, this is a very good point!
Requiring cause to fire someone is business-hostile at best. Business can not improve efficiency, pivot, or generally adapt to changing markets if they are not free to hire and fire at will.
The one major point most "liberals" (in the American sense) miss regarding employment security is that employers are far less likely to take risks on hiring - whether in quantity, salary, or experience - when they can not fire at-will. This leads to less employment overall, not more.
The arguments are similar to other well intentioned, but seriously deleterious policies, such as rent control and Calfornia's "Prop 13."
That said, ethics and treating people well are very important. I find Zynga's actions unethical and think there is a good chance they should be held civilly liable.
Generally, in countries which require reasons for dismissal, there is a distinction between a redundancy and a dismissal. A redundancy means that the position someone is working in is declared not to exist (and so no one will be hired to replace the redundant employee), while a dismissal means the position continues but the employment of the employee filling that position is ended by the company.
Changing the size of a workforce to "improve efficiency, pivot, or generally adapt to changing markets" is done through redundancies, not through dismissals, and redundancies can generally happen on whatever terms are agreed to in the employment agreement.
If an employee genuinely isn't working out in a no-fire-at-will country, the employee generally has to be treated fairly and given an opportunity to correct the problems, but they can still be dismissed if they are unable to rectify the problems.
The cost of a dismissal might be slightly higher in a non-fire-at-will company, due to the time period when the employee is given a chance to correct the problems, but not significantly, and businesses can still adapt to changing conditions through redundancies. Non-fire-at-will is therefore not a significant barrier to business.
However, it protects employees against abusive practices like those of Zynga in this instance - employees who do not have anything like the same bargaining power as the companies they are working for.
Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?
So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.
Once again, curious to hear the name of the companies. I glanced at this http://www.linkedin.com/in/kentonsmeltzer from your HN profile, and didn't find any Silicon Valley names, but I'm assuming you might not disclose everything there.
So true. Expensive lesson for these folks.
I had the exact same thought about the "fraudster holding the Occupy Boston d/b/a certificate hostage" story. Especially in that kind of ground-up, loosely-couples collective action scenario, how does overt bad acting not result in a Code Red at the food tent?
However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.
The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
Zynga shouldn't be able to come back, with 20/20 hindsight, and say "turns out we did better than we thought we would so we're taking your stock back".
If they failed they certainly wouldn't be giving employees other compensation to make up for their stock being worthless.
You're not a "4 shares employee" you're a "% of the company employee". The 4 shares are worth some percentage of the company and after all those splits they're still worth that same percentage. Splits usually happen to get the cost of the overalls hares down but a $1m holding in some stock is still worth $1m after the split.
>But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
So what! This is the point of accepting stock as compensation. They worked below what they were worth for the hope that they would win the lottery. They did win the lottery and now the company wants a redo.
IANAL, but if the termination is motivated by the success of the equity gamble the employee took up front, that looks more like breach of contract. Don't want to keep them? That's fine, but pay what you promised you'd pay.
Whether it is moral or whether it will hurt them in the future are different questions.
Definiton of extortion (from wikipedia):
What Zynga is doing IS extortion. Perhaps it is a form of extortion that is legal in California.You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation.
I put this in another comment: "However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.
The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at."
I know this goes against the way it's always been in the tech industry, but it is not extortion.
I am simply trying to explain why this is a moral issue and not a legal issue.
This is the equivalent of saying: 'your gonna have to take a pay cut or were gonna have to let you go'. It is morally repugnant and goes against everything we believe in the startup community, but it is not illegal, nor should it be.
It is the equivalent of saying 'you need to take a cut in pay or you will be laid off'.
In most other kinds of contingent pay that's tortious: if you promise a building contractor contingency bonuses upon meeting certain deadlines, and then you purposely interfere to make them miss the deadlines so you can get the work cheaper (and admit doing so!), you're probably acting illegally. Heck, even basketball players have sued over instances where a team kept them out of a few games solely to cause them to miss performance targets.
The exception is M&A earn out or vesting for key hires, which is often yearly, and sometimes even crazier; 1/2/3/4 where it's 10% the first year, 20% the second, 30% the third, and 40% the fourth.
That latter vesting is pretty crazy - with each year, each point is usually getting nonlinearly more valuable as well.
Not only is it shady it is a legal term and that term is called bad faith, if you can prove the party acted in bad faith, which if what is being reported about, return it or get fired, then that one is pretty locked up, then they are in violation of the spirit of contract. Faith is one of the foundations of contract law. If you are found to have not honored the faith portion of the contract then more times than not, you will be on the loosing end of a contract dispute.
I think the fact that it continuously vests after a cliff, that it's clear in basically every options grant that you don't receive unvested options upon termination, and because employment contracts repeatedly emphasize that employment is completely at-will makes it pretty clear that you shouldn't count your unvested option chickens before they hatch, and hard to prove that you could reasonably expect to vest all options. The employees that have been there for multiple years will have already vested a big percentage of their stock regardless of what happens.
I think Zynga is repulsive, and will hopefully get punished hard on many fronts for this, but I'm not convinced that what they're doing is strictly illegal. I'm convinced they'll get sued, though.
Now the company says "give us back 2014 and 2015 or you're fired". What would you say?
It's not at all clear-cut. See sections 5-6 of this article: http://www.bernabeipllc.com/pdfs/stockoptions.pdf
The larger issue though here is that of a contract. The company has in essence said "we want you to stick around and so we are giving you an incentive of stock options which vest on such and such a schedule."
Later they are saying "give up what we gave you or leave so we can take them back." It's this choice here which says clearly "we are going back on our contracts with you."
A close example might be this "We are giving you a raise and will pay you retro pay next month when this goes through but you have to work fewer hours at your hourly wage" and then the next month saying "sorry, no retro pay for you."
I think this would be a fun case. And now that class action cases have taken a few serious setbacks in the courts, it seems to me that Zynga really should be getting sued by lots and lots of employees in individual lawsuits..... One piranha may be good for dinner, but don't wade into a swarm of them.
If I'm a small company just getting started, what do I have to attract top talent? Maybe I can't afford to pay as well as the established companies, or maybe my benefits are going to be worse (or nonexistent). But I do have stock options. If I'm a fledgling corporation, stock options can get me more talent than I could otherwise command, and if I'm a skilled engineer, I feel like I can directly affect the fortunes of this company and thus my own net worth if I am compensated heavily in stock options which, in the unlikely chance that all goes better than expected, could make me wildly rich.
Your hypothetical four-share employee certainly didn't sign on just on the strength of those four shares alone. And, quite possibly, the employer played up the possibility of those four shares becoming many more shares down the road if things go well.
They are. They own those stock options, with the provision that they stay out the life of the vesting period. They are now being prevented from holding up their side of the contract. They would gladly stay through the vesting period if allowed to.
What they are doing is like hiring a salesman on low salary + commission and then firing them the day before the commission is paid.
It would be interesting to know the facts from someone in this situation but I also expect that such folks should not be blabbing to folks other than their lawyer.
My interpretation of the story was that they were asking for folks who had stock that was not vested which is to say part of some future vesting pool, to give that up their right to that stock. So if you gave someone 100K shares over 4 years, and they had been there 2 years, 50K was vested and 50k yet to vest, they are asking that you give back the 50k that have yet to vest.
This would be different than Skype's 'clawback' clause, and it would be slightly less onerous than canceling vested but not yet exercised options.
The article also suggests that choices were made based on some measure of value (and implied performance). I have seen folks who are doing ok work, but its not at the level that they are being compensated, that puts you in a tight spot. Few, if any, folks are open to a restructuring of their compensation package in a downward way (which is what Zynga is proposing it would seem). In California at least you simply ask them to leave (and the article suggested that the choice was 'accept this new lower compensation package, or leave, your choice.')
Frankly I think it would be less painful on the company oversall if they just laid off the folks they felt they had made the compensation error on. I don't see anything good coming out of this approach for the company, and I recognize they may think they are being compassionate by not firing people who, except for the size of their option grant, are doing ok.
Google's innovation here is something they call a 'Google Stock Unit' (GSU) (which is not an 'option' it is more like restricted stock) where the ratio of GSU to actual stock is fixed at the time it vests by a perfomance multiplier. That way they can offer a hot shot person 2500 shares of 'restricted' stock (market value of 1.25M$) which vests in four chunks of 625 'units' a year, and if you didn't meet your goal that year your multiplier could be less than 1.0 even 0. So they wouldn't actually have to give it to you if you weren't a hot shot inside of Google. To be fair the multiplier could, in theory, be greater than 1.0 too. The cleverness of that scheme is that the company could 'tune' the compensation of someone dynamically.
I'm guessing Zynga might be wishing they could do something similar for ISO type options.
The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.
What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).
If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.
If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.
If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.
To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.
A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.
(First time I have heard the phrase "slap them upside the head" used in an informed legal opinion.)
http://www.bls.gov/opub/mlr/2001/01/art1full.pdf
Specifically of interest is the "Covenant-of-good-faith exception"(only in 11 states, CA being one of them) which I first saw referred to also by someone else here on HN.
At trial, the jury found that Kmart terminated Ponsock to avoid having to pay him retirement benefits. As part of his case, he claimed that Kmart’s discharge was in “bad faith” and that, even without a contract, such a termination gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and exceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”
If I was a Zynga employee I'd definitely be talking to a Labor/Employment lawyer. "Give us back your unvested stock or be fired" sounds pretty "bad faith" to me. Zynga should have just fired the people, but I think they don't want to lose the talent, they'd rather negotiate lower compensation instead of having to find new talent which will most certainly know of Zynga's upcoming IPO & demand proper compensation.
When a company decides to terminate an early engineer because the 5% they agreed at the start is deemed too high for an engineer, usually the reason given is 'non-performance'. Even though the engineer is performing his engineering duties.
Does a company need to prove that the engineer failed to perform and document it? or is it usually the company's word against the engineer's? What stands up in the court of law as 'failure to perform duties'?
The Zynga cases are different, however, because the employees being squeezed in those cases are almost certainly pure at-will employees who have no contractual protection against being terminated without cause. Without the contractual protection, such employees can be terminated for pretty much any reason in the normal case and, if "non-performance" is cited as the reason, the company does not need to prove anything to back this up. "Non-performance" in such cases is often nothing more than a label used to rationalize a decision made on who knows what ground (e.g., on the ground that the company just wants to get someone's potentially valuable stock back before it vests).
> [...] Kmart’s discharge was in 'bad faith' and that, even without a contract, such a termination gave rise to tort liability. The court agreed [...]
FTA two people already retained council, settled and still got to keep a portion of their stock.
What Zynga is worried about is that if they're going to be publicly valued at $1 billion, the guy who owns 5% of stock because he was there from day one is going to land $50 million and walk.
I imagine that the biggest problem with IPO's for companies like Zynga (especially if they're acting douche to their employees) is that they risk losing a lot of employees. Either selling up stock to get the cash, or simply retiring to live off dividends and slow-stock sale tactics.
If you can sue. At my last job, they made me sign a binding arbitration agreement as a condition of being employed. I needed the job, so I couldn't play hardball and refuse.
The bottom line here is "You don't get to be a part of the IPO windfall." Given that the employees that are getting stung like this have accepted the risk of working at a startup, and likely have accepted lower salaries in exchange for the promise of stock options, this is morally equivalent to theft of services.
Stock as a compensation structure only works when people use it in good faith. Scummy moves like this are only going to make it harder for startups to attract talent unless they can pay full market rate right out of the gate.
An option has a strike price (typically breakeven with the stock price on the date it was issued, sometimes not). After it vests, you can keep it around for a while, and decide when it's best to exercise (possibly pre-IPO, possibly after). A restricted stock unit is essentially a share of stock that they give you free as soon as it vests.
RSUs have some advantages and disadvantages. One advantage is that short of bankruptcy, they never really go "underwater". One disadvantage: you deal with tax implications immediately.
It's difficult to take either those away once they've vested, but it's unvested RSUs I believe we're talking about here.