Ooh, I think thinking twice about the Google chef is to accept Zynga's "pray I don't alter your option plan any further," take on things, i.e. the argument's already lost.
I'm not usually a get out the E-Pitchfork type guy, but this subject has really gotten under my skin. I got stiffed on an exit so you can take my view as biased if you would like. It most likely is given my irritation at the subject, I generally don't get worked up over stuff so it has certainly hit a nerve.
But the part that really gets me is it has absolutely nothing to do with the role these people played and every bit to do with the longer hours, reduced compensation risk and how long a person takes that risk for. If they came in on the ground floor then have been riding the roller-coaster and getting paid dirt for longer then they deserve those early and current options, I just cannot understand the attitude that is being displayed where the CEO feels that later employees that are "now" more strategic to the company (read executives) are more deserving of that equity given their worth to the current goals of the company. That is such a warped perspective, it has nothing to do with the future and everything to do with how much risk and how long those early employes took that risk for.
We are talking about unvested shares to be earned in the future. There is not much risk in working at Zynga from here moving forward - no more than any large company. They're not taking back shares people earned during the risky period. They're saying, now that the company exploded we'd prefer to pay you differently from here on out. You have the choice to stay or go. Nothing that already happened is being rescinded except that 2 years ago we put together a plan to keep you highly motivated for 4 years, and now that we know what the stock is worth, it's not equitable to trade the latter half for 2 more years of your work. We could fire you to preserve this capital, but we're offering you a regular compensation package instead.
No, we are not really talking about unvested shares to be earned in the future. We're talking about unvested shares. These are shares that employees have already been paid. This payment is contingent upon the employee continuing to work at the company. Zynga is in effect blackmailing these employees. They are telling them "Give us this money we promised you, or we'll fire you."
The idea behind putting together a plan to keep early employees highly motivated is that you all work hard to grow the company, and in return for the risk and hard work you stand to make a lot of money. That's the whole idea behind tech startups. To grow the company and then tell these employees they don't get the rewards promised them the entire time they have worked there is ridiculous. It violates the entire idea behind vesting shares, which if it is unclear, is that you have already earned those shares. It's merely a matter of when you gain access to them.
I've always thought Zynga was a huge waste of space/energy/life/etc, and I hope no engineer with any other job opp ever joins again, but it goes against the whole definition and point of vesting to say that unvested shares are already yours. If you quit or are fired, you rightfully only get the ones that have vested, that's the whole reason they gradually vest - so that neither party is completely bilked if you leave after a year and a half. They're not handing over that percentage of the company on the day you join. That would be silly.
It's disturbing that Zynga is doing this, and it's a shitty thing to reneg on salary promises, but that's basically what vesting options are - uncertain salary promises. What they're doing is saying "We promised you a salary based on company worth, but we're now growing so fast in value that there's no way you're worth this much to us, so take a pay cut from now on, or we're firing you". If those people have been there for three years, they should already have 3/4 of their stock vested, assuming they're following the typical valley vesting schedule.
I think the main reason people are so vocal about this is because there's generally an implicit understanding that options are different from salary, more set in stone. Comparatively few people join companies based on promises to be paid 2*x salary the following year. This is upsetting a big part of the natural order of things.
Hopefully this won't impact more upstanding companies.
I think it is mistaken to view options as equivalent of salary. When you are granted those options, you have no clue what they will be worth on the day they vest, and neither does the company. This is why the options have to be valued at their worth on the day of the grant.
Options are used as an incentive for employees to stick around with the company and to work harder in the hopes that their hard work will result in 2-4 years in a higher stock price (or high IPO), which benefits both the employee and the company.
Attempting to take back options which were promised in the past because the company currently thinks the employee doesn't deserve them is aptly named "claw back", because that's exactly what it is.
Imagine a company asking someone in 2011 to give back a part of their 2009 salary, or be fired.
I agree that the connotations are different, but the way the vesting is written into these contracts, it is essentially a periodic stock grant, which ends as soon as employment does, and with no guarantee that it will continue. In that way it's very much like a salary, despite how it's typically viewed. Perhaps the expectation part of things is strong enough that this could be considered bad faith, but my understanding has always been that if someone doesn't work out as an employee for any reason, they have no claim to the unvested stock.
It is perfectly reasonable to have shares that vest conditionally based on future performance. Obviously this needs to be clear up front though (and the definition of "future performance" also needs to be clear).
The latter half of your comment reveals Zynga's deceit in pulling this, and why it's not just another case of grudgingly correct capitalism. Zynga used the promise of unvested shares as motivation for its workers. Taking it away now is akin to promising delicious, gourmet cheese to a mouse while it runs on a wheel for a few years, then saying, "Hey, thanks, but a renewed evaluation of your performance indicates you're more deserving of some more bread crumbs every year, no cheese." You can't reneg on valuation made during the early stage.
I'm pretty disappointed to see a YC founder taking Zynga's point of view on this Joey. You can finesse this however you want, some basic trust has been undermined, and this hurts entrepreneurs like yourself as much as anyone. Good luck on your next (or current) venture trying to convince a prospective developer or technical co-founder that you're "not like Pincus."
I'm still shaking my head -- really, Joey? You? You have to see how undermining the "Google Chef" narrative hurts guys like you probably more than anyone. It wasn't too long ago that you were looking for experienced Rails and Mongo devs to help with Earbits. If you were starting today the dynamics would be very different.
I understand that from your perspective as a CEO/Founder there are nuances here that make the business ethics not so cut-and-dried. But for the vast majority of talented devs, the take-away from all this will be a simple story:
Once upon time the "Google Chef" could become a millionaire.
I'm not saying I support this practice, just that there is more than one way to look at it. And I should have realized a better way to do that earlier, which is: Nobody would be pissed if an employee with a 4 year stock plan left after 2 years because he saw the company was going nowhere. Seems to be the same. The employer and they agreed on a 4 year compensation plan that was supposed to keep the employee motivated to stay. When the company is doing poorly, that's not enough. When the company is doing phenomenally well, it's too much. If you're going to complain when the company skyrockets and they don't need to pay $10M to motivate an employee to stay on two more years, then you also have to complain when every employee leaves a dying company while they still have stock to vest.
Again, not saying I agree with or would ever do what Zynga has done, but how can you not look at these two scenarios the same way?
If you want to ensure that your new hire will stay with the company for four years, you put that in the contract. You then negotiate a compensation package that factors in the opportunity cost to the employee of granting you an exclusive right to their services for the next four years. This compensation will consist not of "maybe-someday-we'll-all-be-super-rich-won't-it-be-grand dollars", but instead "we're-a-startup-and-we-don't-have-many-of-these dollars". This will be expensive.
Fortunately for you, dear founder, there's an alternative (at least there was, until these guys ruined it for everyone). Instead of requiring the employee to commit up front to stay for four years, you structure the compensation package in such a way that the employee has an incentive to stay, but isn't required to do so. These packages are often called "golden handcuffs" because they bind an employee to an employer for a number of years, the result you're after, in a way that relies on a large signing bonus of "maybe-someday-we'll-all-be-super-rich-won't-it-be-grand dollars" that is to be disbursed annually over the life of the agreement.
You and the employee both hope those dollars will eventually be worth something, but right now all you know for sure is that you have a lot of them. It's a trade that works for both parties; you keep your employee if those dollars prove valuable enough to compensate for the opportunity cost incurred by the employee in continuing to work for your company, and the employee has the freedom to move on if they don't. It's the "golden" part that keeps the employee around, not the "handcuffs". And remember that it was you, the employer, that chose to do the deal this way. You would have preferred regular handcuffs, but didn't have enough "we're-a-startup-and-we-don't-have-many-of-these dollars" to afford them.
I think the two scenarios are similar, but in the first case, the employee's ability to leave was de-facto -- of course she can leave any time she wants. That's part of the risk the employer takes. But if you want to balance that equation the other direction, that needs to be just as explicit up front. The possibility of a company 'exploding' is precisely the possibility the employee is hoping for. If you want to put a cap on that, fine, just make that cap explicit up front.
I did not say I would ever do this. I just really hate the polarization that happens on these forums over any issue, really. I am not arguing that it's right, fair, or nice. Just that there is more than one way to look at it.
But, ethics and nuance aside, I do think the implications in the long run, esp for founders and entrepreneurs who actually need the 'Google Chef' story, will be a simplistic account in the minds of developers that will make it harder to recruit them.
Wow. Why in the world would you post this as a founder? It's like saying, "Watch out, anyone who works for Earbits, I'm a big fan of screwing people out of options!"
In his defense he has been pretty consistent on the, we are being one sided on this, which HN can do, we have a strong technical co-founder/first employee bias, we see a lot of I got screwed on options stories and many of us have been thorough it. His viewpoint is that from a purely logic standpoint, the contract allows for this behavior, he has said that he is not weighing in on the morals of it, but that the contract allows for it and that the employee has earned some but not all of the agreed upon compensation. Given that it was agreed to in the future, that according to the contract (not morality) that the company can do so. The funny part is I tend to agree with the owner/founder point of view 80% of the time, but not on this one, I have stated that I am probably biased because I have been thorough my obligatory get screwed on an options dues.
I have read every comment of yours on this thread, and in an effort to be charitable, I have taken a few days to digest your points regarding the status of unvested shares.
It occurs to me that in multi-founder situations, founder shares typically vest as well. As a founder, if your startup made it beyond the "risky period" before you were fully vested, would you think of it in the same way if your unvested shares were clawed back? I'm willing to bet dollars to donuts that the answer is no. And this is why your position is immoral, reprehensible, and hypocritical. It's not "one way to look at it", it is being self-serving and twisting facts to justify altering the deal, Vader style.
I'm sure you've made it onto more than one "people/companies I'd never work for" list.
"Charlie didn't make $20M for cooking, he made $20M for taking the risk that the company he was joining would fail" This succinct sentence sums it up for me perfectly. His ability and contribution aside, a gamble was made and it paid off.
Who determines who is actually worthy 20 million or a billion? In every case there is a tremendous amount of good fortune, luck, and incredible timing.
Anyone who thinks they deserve that much more money than someone else because they are just a better human being needs to get a reality check. Its really about being fortunate. The Chef certainly has just as much right to his 20 mil as all the other guys that cashed out. Again, its not about just talent or brains, its about luck.
The Chef took a risk that may have impacted his career negatively. That's not necessarily luck, that's an investment that payed off. And if you don't want the Chef to get rich, then don't offer him any stock - but then you do need to pay a higher salary.
It's funny that Zynga tries to paint this negative picture of Google's IPO, when clearly at Google everybody won tenfold, including founders and investors and being good employers is partly the reason for that. Zynga will never be Google and it starts with their attitude towards their employees.
There are a million great people people out there that you don't know who aren't lucky. Having money doesn't make you great, being great makes you great.
I do think that the harder you work and the the more opportunity you give yourself to get lucky the better your chances are to be successful. But believe me, luck plays a huge part in everyones life no matter how smart or great you think you are.
Yes, but the odds of having 20 million drop from the sky in front of you are zero. Even people winning the lottery have to buy a ticket first and even then, the chances are greater for being hit by a car the next day.
So there's a huge difference between that and investing your time and skill in something based on making educated guesses. Which is why I wouldn't call it luck.
Also, wealth is relative. Some people simply don't care that much about money if they earn enough to live comfortably, especially since pursuing money is in general painful for everybody.
So there's a huge difference between that and investing your time and skill in something based on making educated guesses. Which is why I wouldn't call it luck.
That's an absurd definition of luck. What you have to do is look at the distribution of outcomes in the population. If those outcomes are widely distributed, it depends on luck. The characteristics of the underlying population are irrelevant.
I don't soeak for anyone else, but I've always thought that an ocassional witty comment was fine, it's just lazy joking that's reviled. So for example, pun threads amd lowbrow memes are discouraged.
The guidelines for submissions speak to piquing intellectual curiousity. If there was such a guideline for cracking a joke, it might be "anythng that uses humour to sneak an insight into the conversation."
The post above made me laugh and certainly makes a point about the morale at Zynga. Well done!
p.s. There is another kind of wit that is explicitly discouraged, the "witty reply." That is a special case where a comment tries to make fun of another comment. As a general rule, this lowers the tone of the discussion by emphasizing rhetoric over ideas. This isn't the case here, making fun of Pincus is not the same thing as making fun of a comment or making fun of the OP.
It's ludicrous that it's even necessary to paint the archetypical "Google chef" as someone who daringly sacrifices for their scrappy company for them to be worthy of windfall profits. If you compensate employees with options, they deserve whatever they end up being worth. Period. That's the whole point of options. If there were an asterisk attached that said, "...but only if people agree in retrospect that you deserve the money," nobody would accept them as payment.
Yeah. I find it humourous that they say they are clawing them back so they "could attract more top talent with the promise of stock." What? By demonstrating how they'll screw them out of that stock when the time comes?
there are always people willing to believe that they won't be screwed out of their options because they deserve them more than those lazy early employees.
Exactly. If they didn't want early people to have disproportionate gains, they should have paid them with money. This just looks like what it is - regret that they didn't keep more, now that Zynga is successful. Cheap bastards.
Absolutely. But I somewhat see this as a growing trend. That some "social concerns" are increasingly trying to reduce the rewards of taking a risk.
Ironically this is somewhat reflected already here in the discussion in regards that the chef earned that by physically working hard. He would have had to do the same at any other restaurant job. But the real issue here is that he was willing to take the risk of working as the chef for some unknown company without knowing what is going to happen, while most of his colleagues were going for much saver options.
Zynga and Groupon just seem to have shot themselves in the foot right before their IPOs for stupid reasons. It's a shame how greed and stupidity in leadership have negatively impacted the payout for the people who toiled to make the dream possible.
My sister's a french trained chef and I've been writing software most of my life. She works probably 3X harder than any geek I know including me. It's brutal. She arrives 8am to prep and leaves 11pm after service, 6 days a week when she was working for someone else. 7 now that she's opening her own place. She's on her feet all day. The job is both time critical and requires constant teamwork. If you or anyone else drops the ball the angry customer is right there, including the angry wait staff and angry team mates. It's very high pressure.
She's now busy opening her own restaurant and it's a far cry from writing software once and kicking back while each incremental copy sold costs you zero effort or money. Every incremental product a chef sells is hand-made and has to have its raw ingredients bought without any certainty it'll actually get sold. What's worse is many ingredients have a shelf life of mere days.
Every product is hand made to a customer's specifications and delivered in real-time with immediate feedback. If a product is rejected, it's expected to be replaced immediately without interrupting the flow of products heading out to new customers. And of course the tools of the trade are not a keyboard, but sharp knives and open flames.
So yeah, the "google chef scenario" comment bugged me too.
There's a metaphor, I believe by Stallman, about programs being much like recipes that just came back to mind. Probably that's what makes this comparison so vivid.
No, he's correct. RMS uses the recipe analogy often, though he uses it as a free software analogy (i.e. cooks have freedom with recipes, recipes are like programs, why can't users have a similar freedom with programs).
When I can hand the user source code and they can experiment on their own and they don't come back and blame me the engineer who created it for doing something wrong.
There is an inherent disconnect between cooking and programming. In cooking; experimenting and throwing in an extra ingredient or leaving an ingredient out most likely won't cause anything bad to happen to the outcome and it will most likely still be edible.
In programming if the end user leaves out a line of code or doesn't have the correct logic the program will most likely do something it wasn't supposed to and could destroy the users files, could cause them to lose countless hours of work.
Burnt chicken can be thrown out, and you can try again, if your hard drive has been formatted it is going to take a while to get going again. Also, since when is programming, compiling, linking as easy as following a recipe?
Analogies are usually meant to serve a particular purpose. In this case, RMS is using an analogy to make a point about sharing. Do you think that anyone here really confuses cookery with programming?
That reminds me of a local family-run bakery I frequent. They work long days, six days a week as well, and the head pâtissier there has been doing this for practically his entire life.
So plenty of chefs are entrepreneurs too. Including Charlie Ayers, who has his own restaurant.
What annoyed me is not the suggestion that the chef is in someway less entitled to the money than other employees, or that he didn't work as hard.
It is that it is just factually wrong. How many great people joined Google when it was an up and coming start up who loved the emerging culture and the idea of having a great chef.
To expand on your point: I remember that pre-IPO articles about Google always mentioned the great working conditions, including the amazing meals in the cafeteria. Recruitment material from Google touted the chef as a major reason for working there. People talked about Google as the de-facto model for treating your employees well "look they even have a good chef". Given how much that chef played a role in Google's name making, he certainly deserved every penny he made.
In general, in startups, aren't people compensated based on the value their skills provide?
I'm not taking anything away from chefs, but Google is an engineering, product, and advertising company, so chef isn't a core skillset and should probably be compensated thusly.
You are making the same mistake as the original Zynga article does, and the one that this article is attempting to correct:
You assume that because a person's job is not in the company's "core skillset" that their contribution must inherently be less than that of an employee whose job is in that "core skillset".
This is the incorrect perception that the author here is attempting to fix. From the sound of his experience at early day's in Google, your assumption is flat-out wrong.
All I'm saying is that you have to evaluate each employees contributions and a chef is less likely to be as valuable as an engineer in an engineering company, for a variety of reasons, and then should be compensated accordingly.
a chef is less likely to be as valuable as an engineer in an engineering company
based on what?
You are assuming something about an individual's contribution to a group of people based on nothing but the job title.
Based on actual evidence from an early Google employee, this guy's contribution was huge. Will all chefs at company's have similarly large contributions? Not likely. But it doesn't change what this guy contributed and to assume something like this seems really unfair and useless.
Meanwhile I've seen and heard of plenty of personal assistants (nobody uses the term secretary any more) share in the upside of the company through substantial annual bonuses. Often these come directly from their boss's personal funds.
A great PA, and a great person in any position, will make everyone's life better, and help the people on the front line perform to their capability.
You're also missing the fact that joining an early phase startup carries non-trivial risk, and part of the reason early equity grants are large is to compensate for the risk one assumes by joining.
What exactly do you mean by compensation? If you mean salary, then the chef has a lower salary than an engineer.
If you mean stock options, then employees aren't given stock options based on their skill sets. They are given options commensurate with the risk they undertook. That's why early employees have higher stock options.
The Google chef got $20 million worth of stock options not because of his cooking skills, it was compensation for the risk he took, by cooking for the engineers of a firm that might have folded in months.
It's getting off-topic, but being a chef in a restaurant is a different kettle of fish from being a chef in a corporate canteen setting.
I used to work in the latter as a temp kitchen-hand, and most of the chefs there specifically quoted sane hours and working environment in general as reasons for preferring that over a restaurant.
Buying is is easier as you typically know fairly precisely how many mouths you have to feed. If you do end up with too much of something, then there's a stew on the buffet the next day. Said mouths are also less particular. If you arrive at the end of service and the lasagna is a bit dry, you don't send it back, you eat it anyway or pick something else.
I was an apprentice chef, and it is true what you're saying, but it's still hard physical work no matter where you are. Kind of slightly more physical in canteen style settings (or the ones i was in) because you're cooking/carrying far bigger quantities of food, and still have fairly tough time constraints.
It's not bad at all for keyboard wielding persons to be reminded every now and then that in 'the real world' people have to work very hard for their money.
And that's not just limited to chefs either, try being a car mechanic for a couple of years (your back will be shot), a bricklayer or a person cleaning stuff.
We get comparatively large sums of money for relatively easy (in a physical sense) work.
It’s good to be reminded of this from a standpoint of empathy, but at the same time I think it’s missing the fact of the matter: we don’t get paid more money because we work harder. That’s just a remnant of the Puritan work ethic. The economic fact is that we get paid more money because there are fewer people available to do what we do. Generally speaking, anyone can be a line cook, a bricklayer, or a janitor. When (more or less) anyone can do a job, it doesn’t pay as well because the available workforce is ample. If a software developer got paid as much money as a line cook, then software developers would be deployed at tasks that don’t warrant their more valuable time given their (relative) scarcity in the workforce. Deploying scarce resources in a suboptimal fashion is bad for everyone in an economic sense. It’s like using copper during the war effort to make brass bathroom fixtures instead of wiring for airplanes—it’s a poor (and potentially disastrous) use of the resource.
You can see this at work in NYC right now: the relative ease at acquiring financing means there are a lot of really dumb startups here right now with stupid ideas and no real market that are tying up valuable engineering talent which makes recruiting harder for legitimate startups that are genuinely creating value. Imagine if all the engineers who worked at Google during the early days were instead tied up working for Pets.com and Webvan such that Google was never really able to get off the ground and folded. That would have been bad for everyone, because Google ended up creating a lot of real value and Pets.com did not.
This same reasoning, I think, applies to the question of why CEOs get paid such astronomical salaries. The answer is that the kind of people with the skills to run a large company are extremely few and far between. Sure, a lot of them do fail at their jobs despite getting paid so much money; but that's not a reason for a hew and cry about how much they’re paid—it’s (usually) simply a testament to how hard the job actually is to pull of successfully. (Incidentally, it’s a common lament that the people at the top get paid disproportionately more than everyone else. But that’s just because the scale doesn't increase linearly—it grows exponentially. I'm not sure what the outrage against such a fact is—if you’ve taken differential equations you’ll remember that myriad complex mechanical, electronic, chemical, astronomical, biological, economic, etc. systems have nonlinear characteristics.)
So the idea is that salaries for scarcer resources are generally higher such that only enterprises creating sufficient value (i.e., profits, or at least a general confidence in future profits) to pay for them are the ones who get them. It’s certainly arguable whether this is what occurs in practice; and—while there are always exceptions, transients, and outliers—I think by and large it’s a good approximation.
This is kind of tangential to @jacquesm’s point, I know, because he’s simply pointing out that we should be cognizant that we get paid more for arguably easier work—but all the same I think it’s important to keep in mind that making things more ostensibly ‘fair’ may not always be in everyone’s best interests in a larger sense.
Maybe anyone can be a line cook, but not everyone can be a chef. Chef school is brutal. And not everyone can plan and run a large meal plan for a large group of people with sporadic hours and special meals, either.
And, as somebody else pointed out, the chef's existence -- and the supreme quality of his work -- was one of the big draws for tech talent to come to Google.
And, furthermore, by freeing the tech talent from having to worry about food or leave work to get it, he contributed to the value they created.
Your argument is basically a straw man. You set up "line cook" or "brick layer" -- jobs everyone can agree are not special or meritorious. Then you shoot it down. Very impressive.
Sure, not everyone can be a chef—I completely agree. I spent my summers working in restaurants growing up, so I’ve seen firsthand just how brutal the work is and how much skill it takes. But certainly there is no doubt in my mind that more people can be good chefs than can be good software engineers.
And, as somebody else pointed out, the chef's existence -- and the supreme quality of his work -- was one of the big draws for tech talent to come to Google. And, furthermore, by freeing the tech talent from having to worry about food or leave work to get it, he contributed to the value they created.
I didn’t set up a straw man, but I did draw some hyperbolic distinctions for the sake of exposition. (In fact, I worked as a line cook one summer and I wasn’t very good at it—so not everyone can even be a line cook.) There is obviously a spectrum, and if we’re going to point out fallacies then you’ve set up a false dichotomy: that there’s either things everyone can be or things few people can be. This isn’t true, and I’m simply saying that software engineers are a scarcer resource than chefs. I don’t disagree that the chef at Google legitimately contributed to the value the company created, but I think there are plenty more chefs that could have done so than there were software engineers who could have built the core technology the company was built on. My point is that the salaries are, broadly speaking, a reflection of supply and demand and not difficulty of work.
I'll wager there are fewer trained chefs than software engineers. And you can't outsource it to India. Google could've hired a decent fry cook instead of a chef and given him fewer options. They didn't, so clearly they believed he added value.
Even if we postulate that it's more difficult to become a chef, or that fewer people are capable of becoming chefs, the economics of software - the borderline-nonexistent inventory and marginal cost of goods sold - conspire to make software engineers generally better paid than chefs. It's difficult to draw conclusions about how important the skill of this particular chef was to the success of Google, because we don't have a lot of data about "successful startups with chefs as early employees", but we do have a lot of data about "successful startups with talented engineers as early employees".
> This same reasoning, I think, applies to the question of why CEOs get paid such astronomical salaries.
That I'm much more skeptical of, especially seeing how things have transformed recently. I think a lot of it boils down towards a principal/agent problem, where top executive ranks have been captured by an in-group that hires each other. This is true even in universities; when a university is looking for a President, the search committee, made up of high-up university execs, looks at other university execs. This leads to an artificially restricted supply pool as execs hire each other (often, literally, since the execs are on each others' boards). Sometimes the pay is even formalized; they want to pay "competitive market rate", often defined as something like 10% above average, which leads inevitably to an upward wage spiral, since by definition everyone can't pay 10% above average. When political backlash results, they just quote the policy.
I don't think it's necessarily conscious nefariousness, either, but more of a cultural thing: they really do think that their social peers are the only people who could possibly do the job, regardless of whether they have evidence for that, and they really do think that they and their peers are worth the money that they're voting themselves.
At the very least, the opposite hypothesis---that they earn their pay by providing shareholder value---has been extremely hard to show empirically. There is, if anything, a slight negative correlation between CEO pay and shareholder returns. Tellingly, at closely held companies where a family or relatively few people personally control the company rather than diffuse set of shareholders, CEO pay tends to be much lower, after adjusting for the company's size. The hypothesis of what to make of that correlation is that when owners are vigilant, as in closely held firms, they don't pay CEOs as much, because they don't believe that the CEOs aren't worth that much. When owners are asleep at the wheel, though, you get the HP case--- pissing away tens of millions on ineffective CEOs' golden parachutes.
Sometimes the pay is even formalized; they want to pay "competitive market rate", often defined as something like 10% above average, which leads inevitably to an upward wage spiral, since by definition everyone can't pay 10% above average.
What you are describing is a bidding war for a scarce resource. This happens for all sorts of people, not just CEO's. See, for example, programmers.
...they really do think that their social peers are the only people who could possibly do the job...
What's the "social peer" of a CEO? Other CEO's and upper management?
I certainly think that only my "social peers" (read: other programmers) can do the job of programming.
At the very least, the opposite hypothesis---that they earn their pay by providing shareholder value---has been extremely hard to show empirically.
This is hard to show for most fields. When a job consists of building organizational capital (e.g., CEO, programmer, manager) rather than directly producing outputs (e.g., cook, assembly line worker, doctor), it's very difficult to empirically measure the contribution of any individual.
This is doubly true if you are trying to generate macro-level statistics (e.g., compare CEO performance across companies, or programmer performance across projects).
Listen to this podcast interview of Kaplan, he describes his new paper where he disputes the idea that CEOs are "gaming" the system by hiring each-other. The data is pretty convincing that CEO pay rates are increasing at the same rate as other skilled labor (lawyers, doctors, bankers, software engineers, etc).
I do siding, soffit, fascia and eavestrough on mainly renovations.
I work most of my life 2/3 stories above the ground with no safety equipment, generally because fastening the anchors in a workable place is 10 times more dangerous than just not using the safety equipment (generally because you're supposed to have the fall protection in place because we're just barely above the requirement, but to get it into place we have to essentially go double the requirement height or more to place the anchor - so we're talking the difference between a fall that might break your arm or leg to a fall that might put you in the ICU).
The part of my job I like is figuring out the solution simply to get set up to do the job. Just recently I had to figure out how to get our staging poles up in a 3ft gap between houses to do a dormer. The only problem is it was about 26ft in the air and at best I'm supposed to have the bottom of my ladder out 9 feet and I can only manage 2 to be able to get past the eave. In the end I had to use 2 ladders simply to get onto my ladder as you have to keep your weight past the centre of balance otherwise your ladder will pull back and then bad shit generally ensues.
I have the utmost respect for the keyboard cowboys because my brother is a developer and I've seen how hard he works. Back in the day I used to develop, but I didn't have the interest to pursue it. I know the jobs are hard, and I've seen my brother come home and spend a few hours working on his own code after he's already done 8 hours of company code.
I, however, don't have respect for the developers that think their job is the only "real job" out there or that they're the only ones who work hard.
In my experience I see people across the board who are extremely hard workers from people doing minimum wage jobs in walmart to doctors. I've also seen lazy people across the board from walmart to hospitals. People are people, some are hard workers and some are lazy fucks. It would be nice to see the hard workers in jobs rewarded far more than the lazy, regardless of what job they're doing.
Great post because sometimes we forget how easy some of our jobs are.
One thing that bothered me about the article and your post, however, is the "google chef" comment is bugging you for the wrong reason.
You and the OP are in agreement with Pincus implicitly, if you believe that merit and contributions as an employee is what justifies the rewards of equity appreciation.
That's not how the world works. Warren Buffett did not lift a finger building railroads, soda pop, and newspapers. That's not why he is rich.
Pincus wants you to think of this portion of your compensation as an employee, instead of an investor. Charlie made money because he became an investor, not because he was a chef.
> You and the OP are in agreement with Pincus implicitly
No they aren't. They're arguing independently of that. In fact, the OP explicitly mentions that he's not commenting on that. What the OP was arguing was that _if_ you were to give compensation to people based on their contribution to the company, it would be absolutely absurd, and insulting, to claim that the original Google Chef did not contribute substantially to the company.
We are using two different interpretations of what they meant by 'contributions to the company'. In terms of well-being and quality of life to the staff, the chef made tremendous contributions, sure.
But in economic terms (what I believe Pincus/Zynga meant), no, the chef did not contribute substantially to revenue/profits the way engineers and sales people did.
I don't think Pincus is saying chefs are not important in the qualitative sense (that their contributions don't matter as much as engineers) - I believe he's saying they do not contribute enough economic value to generate a 20 million dollar pay day. And he's right - the labor markets don't pay chefs anywhere near that much.
But he's wrong for lumping economic contributions as an employee (charlie the chef) and asset appreciation (charlie the investor) together.
> the labor markets don't pay chefs anywhere near that much.
Well, they did at least once.
And how do we know that the Google Chef didn't contribute enough economic value to generate $20 million? You can't say that just because he's one level farther removed from the final product. If he helped enable the company to recruit talent and helped enable that talent to produce then he very easily could have been worth $20 million.
>But in economic terms (what I believe Pincus/Zynga meant), no, the chef did not contribute substantially to revenue/profits the way engineers and sales people did.
It seems that this is the point that you disagree with the OP then. The OP's point was that what the Chef did to build the value Google was equal to that of any engineer of the company.
"As someone who was there in the early days I can tell you that Charlie Ayers contributed more to Google's success than I did, and I was a senior software engineer."
But in economic terms (what I believe Pincus/Zynga meant), no, the chef did not contribute substantially to revenue/profits the way engineers and sales people did.
I think you and Pincus are lumping together the typical market value of a chef, on average, with the specific contribution of this particular chef in this particular situation. Ron has argued pretty forcefully that Charlie did, in fact, contribute very substantially. His contribution was indirect, okay, but lots of people's contributions are indirect, including senior management's!
Look at the picture at the time Charlie was hired. It's true, Google could probably have hired any number of mediocre or even pretty good chefs without offering them stock options. But somehow they determined that Charlie was exceptional, and they decided it was worth offering him options to get him on board. There are, after all, some chefs in the world who own several restaurants and are fairly wealthy.
But he's wrong for lumping economic contributions as an employee (charlie the chef) and asset appreciation (charlie the investor) together.
Anyone who joins a startup be it a chef or masseuse (Bonnie Brown) who take a risk by joining a startup deserves to be compensated accordingly if the startup succeeds. Just because they are not developers doesn't mean they didn't contribute to Google's success.
Glad that I am not alone in thinking that the "Google Chef" deserves what he gets.
All I can say is Ayer's restaurant serves really amazing food at an affordable price. So he's giving something back to the community. He's hiring people and building a business. Is he less of a contributor to Google's success than the worst programmer who made $20M on their IPO?
What I don't get is the zero-sum thinking here. They're worried that someone in their organization might get rich, and maybe they didn't deserve to get so rich. So what? They should worry about their company, not be squabbling over percentages.
Reminds me of the end of "Treasure of the Sierra Madre." The prospect of real money seems to drive some people insane.
They're not worried about whether someone gets rich who doesn't deserve it. They no longer need to pay someone $10M to keep them working there because the risky part of the journey is over. So, they're saying, you earned X already for the risky portion, you can keep that, and you can keep your job, but we're not going to keep paying you a startup equity share for you to work at a big company with total stability, benefits, vacation, etc. We need to scale it back, and we want you to stick around for what is probably a competitive comp package if you look at it objectively.
The deal was x amount of shares for the risk of working for a startup.
Renegging that to x/2 amount of shares in hindsight is evil.
It's a construct in which an early employee can only lose, if the startup fizzles, he gets nothing, if the startup booms he is screwed out of half of what he and his employer agreed on.
no, you're missing the point. here's how it works:
zynga: want to be an early employee in our risky little venture?
emp: um - the salary is kind of low and there's no job security
zynga: but we're tossing in 100,000 options. potentially worth $10M if our stock hits $100 in the ipo
emp: okay, that sounds better. i'm in
zynga: of course, to prevent you from just exercising the options and leaving, they'll vest over four years
emp: works for me.
so basically the entire chunk of options was the employee's payment for joining the company when there was low salary and job security. the vested part is payment for sticking around to help zynga succeed. and the implicit contract is that the unvested part is an already made promise that his compensation for each year of work will be $x in salary + $y in incrementally vested options. since employers tend to have disproportionate leverage in these matters, there are of course a whole range of clauses stating that he could be fired for any or no reason and lose his unvested stock just as if he'd resigned, but that's harking back to the letter rather than the spirit of the agreement. abusing that leverage is a scummy thing to do, regardless of the technical legality of it all.
In case that explanation was still too technical (it was accurate though, good job zem), consider it this way:
You win the lottery. You choose to have the money earned over your lifetime, instead of a lump sum. However, after a few years, the state reneggs on the original offer, and gives you the lump sum, dramatically less than what you had contractually signed for. It's that simple. You're offered x, with the understanding x matures (like a government bond). The potential worth of x is immutable, but Zynga turned around and offered x/2.
That is one of two ways to look at it. Most employers do not think of the initial stock as a grant that you have earned for signing on and then four years of dragging out payment. They look at the stock as four years of payment that, along with your salary, is designed to keep you motivated the entire time. So, the other is:
zynga: want to be an early employee in our risky little venture?
emp: um - the salary is kind of low and there's no job security
zynga: we'll toss in 25,000 options per year for the first four riskiest years. potentially worth $2.5M per year if our stock hits $100 in the ipo
emp: okay, that sounds better. i'm in
2 years later
zynga: hey, looks like you did pretty good the last two years, but the trajectory of the company has changed, there is no longer any risk in it for you, and it doesn't make fiscal sense for us to pay you $2.5M a year in stock anymore. We'd like you to stay on, though, and you'll still get a competitive salary and benefits plan. If you don't think that it is competitive, we understand.
What you're saying would be true except that if the employee saw that the company was headed nowhere and they left after 2 years, nobody would say, "Hey! But you agreed to a 4 year plan. We have paid you all of this stock that you haven't vested yet."
The problem is structural. The spirit of a 4-year vest is that you should keep the employee (if they are good) and let them vest at the original rate. But if the company suddenly becomes massively more valuable and less risky, the incentive is to fire that employee and hire someone else, because you can.
I think it is incumbent on us, the startup world, to call this out as bad faith, which is what it is. Legal or not, companies that do this should be forced to walk down the hall of shame. Their founders, if they are around and party to it, should be unwelcome in our midst after reneging on the social contract that makes this whole thing workable.
They are shitting on the commons, and spoiling the fields for all of us, by making the decision to work for a startup that much riskier.
Just the fact that Ayers was stylized as a "Google chef" and not by his name is demoralizing. It just gets worse when they speak of his success as something a company should avoid if at all possible. It's manipulative to hire someone, offer them stock options, then decide they're not worth it later on. Just don't offer them in the first place!
Fortunately, Pincus' attempt to paint Ayers with this brush _is_ backfiring. Ayers is getting tons of free publicity, while Pincus is utterly failing at what he was trying to accomplish.
Just the fact that Ayers was stylized as a "Google chef" and not by his name is demoralizing. It just gets worse when they speak of his success as something a company should avoid if at all possible.
Last time I checked, Google has multiple high-quality products that users love, and it's not hurting because of the "Google chef". Zynga has... what, exactly? A bunch of shitty games that die (and have to be reinvented) as soon as the novelty wears off.
Who the fuck is Mark Fucking Pincus to decry the "Google chef"? Zynga will never achieve 1/100 of what Google achieved. Pinky should learn from Google, not trash it on no basis whatsoever.
I'm not sure if you should really be demoralized by it - this is one of those textbook actions where how person A treats person B tells you all you need to know about them. I don't think this incident has revealed some ugly aspect of our culture, but it has revealed a ton about the people that run Zynga and the "others in the Valley" that think this way.
Couldn't agree more. I'd expect a comment/attitude like this from people on wall street but not in the world of tech. It's sad that they could even pervert the phrase "Google Chef" into something negative or something that should be avoided.
Exactly, thats the best way to see it and makes the "Give back our stock" more ridiculous: employees get les money in cash because they decided to invest some part of their salaries in the company shares, so, if the company go to IPO and they get rich they are not geting rich because of how much value they provide to the company, they get rich because they could recognize a great company in the early days and invest on it.
Is like saying to an angel you didn´t help me so much in your mentoring so give me your shares back.
I kind of understand why they want to stop giving them shares, as they no longer need funding from little people.
But it seems a lot like tearing up a term sheet 5 minutes from signing the final contract, just because you managed to shop for a better deal. It might be legal, but it's just not done.
That's the best way to look at it. All the talk of what is 'fair' misses the point - remuneration is not inherently fair, never has been. You can point to market forces or regulations or whatever, but there's no real and fair basis for most differences in income.
What we can be fair about is how we treat people, if we give them shares and later we wish we hadn't we should live with that gracefully. We can give them bonuses for both self-interested (motivate employees) or altruistic reasons (it happens!).
Begrudging the 'Google chef' is taking the effects of market forces that influence the relative pay of chefs and software developers, and trying to apply them by sheer assertion to the stock option lottery. The mechanics that influence pay are completely separate from the mechanics that make early employees rich. If a CEO honestly believed that certain workers should not have any chance of getting rich, the consistent thing would be not to offer them options in the first place.
This issue also reeks of the Just-World Fallacy. Individual early employees of wildly successful companies don't get rich because it's fair, even if it sort of works out that way on average. They get rich because someone gave them options, and then the stock skyrocketed. Efforts to explain it in terms of justice are mostly post-hoc rationalization.
Right, and the problem is that everyone wants to be a captain of industry, but no one wants to clean the toilets. So they promise wealth to someone who cleans their particularly promising toilets, but they don't really believe in the worth of that job, otherwise, they'd probably be doing it themselves (I think most programmers would sooner learn a new sector of information technology than give themselves a position as a cook on the side). It becomes "I don't want to do y, I'm much too busy with important x" ----> "Eureka, pay someone for necessary evil y" -------> "Wow, look at all this money, hey wait, my company is selling x, not y!" The fallacy is revealed when it's simplified.
At this point the only question worth asking about this situation is whether anybody on Zynga's board has the balls and integrity to tell Pincus to go fuck himself.
They can't. Pincus isn't an obstacle in the way of the company. Pincus is the reason Zynga is successful.
Without the aversion of innovation, the complete disregard for ripping others off, and partnerships with incredibly shady companies, Zynga would not be anywhere close to where they are today.
A business in the theme of Zynga needs the unscrupulous head honcho who can't care less about what's right, only what's profitable. Get rid of Pincus and Zynga sinks like a rock.
Let's be honest, if you take Zynga's games, strip out the blatantly psychologically manipulative bits, inject some real fun into there, and actually spend some money on innovation... none of it would be profitable.
Lets not forget, the basis of their business is that they found a way to replicate the economics of a slot machine without falling under gambling regulation and without ever having to pay out real dollars.
It is still the same business though.
As a former game developer I am shocked by the fact that people buy their image as a gaming company. They have about as much to do with computer games as roulette has to do with Settlers of Catan.
IMO the more important question is: does Zynga need anybody worth their salt anymore?
I suspect the answer is no. The really hard scalability problems have been solved. There's not a creative bone in that company's body. The psychological tropes that they play with to reach that nirvana of inescapable treadmilling and spending is already determined - and given all the Zynga games I've seen, past and present, they don't seem very intent on changing the formula.
Not only that, social gaming of Zynga's variety is on the decline. There was a time when everybody and their grandma was playing FarmVille, but the world is quickly catching onto their addictive-but-empty nature. Not only that, but Facebook is moving in and slamming the door shut on the feed-spam that these games practically need to survive. I would not be surprised if these games' usage numbers have already peaked and are on the decline. Profitability is destined to follow player sentiment.
All in all, IMO Zynga's best days have come and gone. The world has its infatuation with that formula, and like the Tamagotchi and everything else that came before it, will tire of it soon enough. The only thing remaining now is for the execs to secure as much stock as they can and take it public, and let the general population ride the stock on its way down. They only need employees insofar as to keep the lights on and look alive - certainly nothing that calls for the tippy top talent.
Bingo. In the long run, this IPO is going to be as depressing and fruitless as Zynga's games.
What pisses me off is the collateral damage that Zynga has done to other entrepreneurs who will now have a harder time attracting talent and raising capital because of this idiocy. Pincus didn't just fuck over his employees; he fucked a technology startup ecosystem that is, after a decade-long slumber, trying to get on its feet again.
Its not about chef or a Janitor or whatever. Why are these people acting as though only a few have the right to be rich?
Why can't a Janitor be rich? Why can't a chef be rich? What really is so wrong with it? This attitude is so despicable! So anybody who doesn't go to a big Ivy league, or some one who doesn't have an MBA next to his name or hasn't worked at a investment bank can't be rich?
Which in case, what this really turns out to be is alternate form of slavery where a selected few have to resign themselves to a lesser standard of life to serve the remaining self chosen elite and act in every way such that the elite are benefiting.
If you want some job to be done and you are ready to pay for it, money/stock or whatever. And you promise and the contract so. You just need to pay up. That's it, it ends there.
You don't get the work done, squeeze the juice out of the employees. Then one fine day realize that what you promised is now worth a lot of money. So you suddenly dump them, loot all the money yourself and say that they don't deserve it.
You had promised that it was worth paying something for some one from some work. So now when it is time to pay up. Just pay.
Also, I think most people are not doing anything useful at all while they rake in the money. That probably irks me the most, or rather, I think it is a pity because of all the wasted productivity.
Ivy League MBA here.
I completely agree.
And so far we are missing the two other points - fairness and fun.
It's simply the right thing to do to get everyone onto the bus, to let everyone share in the upside of a start-up. Sure the amounts of options can vary between employees, but it's just not fair to be stuck on a salary while everyone else around you gets millions from an exit.
The second reason is fun. Isn't it a whole lot more fun to come to work where everyone has a stake in the company? Wouldn't it be wild fun if your company did an exit or IPO and everyone came to work with a huge smile on their face?
For the sake of giving up a little bit of founder equity we can create an environment that is not only a lot more fun to be in, but is potentially life-changing for everyone and their families. Thinking anything else can lead to the situation that Wall Street is in now.
Here's an oversimplified example that mirrors the classic Trolley problem:
Suppose the company consists of three people: The founder, the engineer and the chef. The founder can't raise more money from investors and she realizes that if she fires the chef it'll free up 200K ISOs which can be used to recruit a sysadmin. Without a sysadmin the startup will fail. If the founder gives up her own shares, she loses control of the company to one of the investors, who she knows will sell the company to cash out immediately. If she stays in control, the founder aspires to grow the business to 20x its current size. Should the founder fire the chef?
What small detail would have to change in order to quell the ire of all of the people claiming that Pincus is acting unethically?
The fact that in this case the founder alone has 20% of the stock (after multiple investments & dilution), has 40% of the vote share, and is probably talking about < 5% given to early employees. And his investors are gaga about him, and super unlikely to take control away from him.
If he gives away 5%, he will still have 15% of the equity, 30% of the voting share, and retain complete control of the company. Or he could issue 5% addn shares and dilute everyone equally by 5%.
Like I said earlier, how about keeping your own side of the bargain?
Remember the 'useless' chef already got you to where you are presently. The place where you need to raise more money.
Why then did you hire the chef in the first place? If the chef has started cooking poorly, you sack him/her. Just like your board would fire you for poor performance.
That this is even up for debate is baffling.
PS: Grandalf, so I suppose the stock people receive in your project 'Dandelion Labs' do not really have any worth because two years down the line the people canget disposed if the founder needs to free some stock without getting diluted
I'm not making an argument here, just comparing the situation with a Trolley problem and wondering what details are most troublesome for people.
I think it was probably a stupid decision by Pincus to do this, but not necessarily an unethical one. ISOs with a vesting period are not money in the bank, and anyone who thinks of them that way has been foolish.
I have no idea why you're bringing some contorted-beyond-recognition Trolley problem into this.
The situation is more like:
1) Founder hires an employee at a depressed salary using the possibility of making it big via vested options to compensate for lost income.
2) Employee works first, second, and third years performing to satisfaction.
3) Before IPO, founder goes "I can make that employee give up their money through a threat of firing them."
Actually, isn't that pretty much the situation?
If we really want to talk analogies, it's like if someone took a health insurance policy, but when they get really sick and the "big payout," the insurance company cuts them off because they haven't contributed enough to merit the million dollar payout.
The answer here is dilution. Issue enough added stock to solve the problem and everyone ends up with a smaller stake in a more valuable company (if only because it's no longer doomed). You don't single out an employee and mug them, at the very least because then the sysadmin would have to be an idiot to believe it couldn't happen to him during the next crisis. For this to be a trolley problem, the chef would have to be holding a supermajority of the equity—more than the founder and the investors put together.
You might fare better if you conceived of a more realistic scenario. The idea that you would hire a chef in a three person company before a sysadmin is unbelievable.
No, the founder is incompetent and should be fired himself or go out of business. If he gave too much money to positions he doesn't even care about he has no business being responsible for share holders' money.
To be honest here, the fact that you don't find this unethical sends up very large red flags about doing business with you.
People think that the noble founder in your story is firing the chef because she can make more money hiring a different chef, not because the future of the company directly depends on it.
You seem to think it is clear that Zynga can't afford to attract 'top talent' without the clawbacks. Other people, in the face of a billion dollar IPO, think that is silly.
There was a chef of similar capabilities at my first company. Ten years later, me and my ex-colleagues still rave about his food and the inspiration it gave us.
What really stinks about "not creating a Google chef" scenario is the implicit belief that the chef should not become rich and should not be able to participate in the success of your company. Why the arrogance? If an employee (Chef, Janitor, Developer or CEO) played a part in the success, exactly why is it that they should not participate in the payoff
Also the food comes up pretty high on the list of incentives for working at Google. Who knows how many talented people now work at Google because of their chefs.
Also consider opportunity cost. The chef could have opened a restaurant instead and perhaps also earn a lot of money that way.
According to BusinessWeek, new restaurants are not quite as risky as people perceive. Only 60% of new restaurants fail or are sold in three years[1], which is a bit higher but similar rate to any new business.[2]
I can't find any good numbers on tech startups with some Googling other than the oft-quoted 90%. This is hard to compare, because you might earn some sort of salary while the startup is in operation, but it closes down because it fails to meet growth targets.
But on balance it seems to me the startup is still riskier.
This Zynga position is the reason why most Nigerian politicians have second wives.
A poor young man finds a woman wo will marry him a starter in life, poor with fair education.
20 years down the line after the woman has bore him kids, supported his career, this man becomes a Governor. Then aha! He realizes his mid aged wife is not really educated, not fit for the position of a first lady.
He does not want the situation of a high school educated first lady.
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[ 3.2 ms ] story [ 210 ms ] threadBut the part that really gets me is it has absolutely nothing to do with the role these people played and every bit to do with the longer hours, reduced compensation risk and how long a person takes that risk for. If they came in on the ground floor then have been riding the roller-coaster and getting paid dirt for longer then they deserve those early and current options, I just cannot understand the attitude that is being displayed where the CEO feels that later employees that are "now" more strategic to the company (read executives) are more deserving of that equity given their worth to the current goals of the company. That is such a warped perspective, it has nothing to do with the future and everything to do with how much risk and how long those early employes took that risk for.
The idea behind putting together a plan to keep early employees highly motivated is that you all work hard to grow the company, and in return for the risk and hard work you stand to make a lot of money. That's the whole idea behind tech startups. To grow the company and then tell these employees they don't get the rewards promised them the entire time they have worked there is ridiculous. It violates the entire idea behind vesting shares, which if it is unclear, is that you have already earned those shares. It's merely a matter of when you gain access to them.
It's disturbing that Zynga is doing this, and it's a shitty thing to reneg on salary promises, but that's basically what vesting options are - uncertain salary promises. What they're doing is saying "We promised you a salary based on company worth, but we're now growing so fast in value that there's no way you're worth this much to us, so take a pay cut from now on, or we're firing you". If those people have been there for three years, they should already have 3/4 of their stock vested, assuming they're following the typical valley vesting schedule.
I think the main reason people are so vocal about this is because there's generally an implicit understanding that options are different from salary, more set in stone. Comparatively few people join companies based on promises to be paid 2*x salary the following year. This is upsetting a big part of the natural order of things.
Hopefully this won't impact more upstanding companies.
Options are used as an incentive for employees to stick around with the company and to work harder in the hopes that their hard work will result in 2-4 years in a higher stock price (or high IPO), which benefits both the employee and the company.
Attempting to take back options which were promised in the past because the company currently thinks the employee doesn't deserve them is aptly named "claw back", because that's exactly what it is.
Imagine a company asking someone in 2011 to give back a part of their 2009 salary, or be fired.
I understand that from your perspective as a CEO/Founder there are nuances here that make the business ethics not so cut-and-dried. But for the vast majority of talented devs, the take-away from all this will be a simple story:
Once upon time the "Google Chef" could become a millionaire.
Now he can't.
The End.
Again, not saying I agree with or would ever do what Zynga has done, but how can you not look at these two scenarios the same way?
Fortunately for you, dear founder, there's an alternative (at least there was, until these guys ruined it for everyone). Instead of requiring the employee to commit up front to stay for four years, you structure the compensation package in such a way that the employee has an incentive to stay, but isn't required to do so. These packages are often called "golden handcuffs" because they bind an employee to an employer for a number of years, the result you're after, in a way that relies on a large signing bonus of "maybe-someday-we'll-all-be-super-rich-won't-it-be-grand dollars" that is to be disbursed annually over the life of the agreement.
You and the employee both hope those dollars will eventually be worth something, but right now all you know for sure is that you have a lot of them. It's a trade that works for both parties; you keep your employee if those dollars prove valuable enough to compensate for the opportunity cost incurred by the employee in continuing to work for your company, and the employee has the freedom to move on if they don't. It's the "golden" part that keeps the employee around, not the "handcuffs". And remember that it was you, the employer, that chose to do the deal this way. You would have preferred regular handcuffs, but didn't have enough "we're-a-startup-and-we-don't-have-many-of-these dollars" to afford them.
But, ethics and nuance aside, I do think the implications in the long run, esp for founders and entrepreneurs who actually need the 'Google Chef' story, will be a simplistic account in the minds of developers that will make it harder to recruit them.
It occurs to me that in multi-founder situations, founder shares typically vest as well. As a founder, if your startup made it beyond the "risky period" before you were fully vested, would you think of it in the same way if your unvested shares were clawed back? I'm willing to bet dollars to donuts that the answer is no. And this is why your position is immoral, reprehensible, and hypocritical. It's not "one way to look at it", it is being self-serving and twisting facts to justify altering the deal, Vader style.
I'm sure you've made it onto more than one "people/companies I'd never work for" list.
There are lots of CEOs with bags of dirty tricks. But it's not hard to imagine why YCombinator is trying to get the word out!
The best way to stop Pincus' insanity is to make this as big a news story as possible.
A company that produces what I think are pretty scummy products is acting scummy? Why would anyone be surprised, especially the people working there?
Anyone who thinks they deserve that much more money than someone else because they are just a better human being needs to get a reality check. Its really about being fortunate. The Chef certainly has just as much right to his 20 mil as all the other guys that cashed out. Again, its not about just talent or brains, its about luck.
The Chef took a risk that may have impacted his career negatively. That's not necessarily luck, that's an investment that payed off. And if you don't want the Chef to get rich, then don't offer him any stock - but then you do need to pay a higher salary.
It's funny that Zynga tries to paint this negative picture of Google's IPO, when clearly at Google everybody won tenfold, including founders and investors and being good employers is partly the reason for that. Zynga will never be Google and it starts with their attitude towards their employees.
I do think that the harder you work and the the more opportunity you give yourself to get lucky the better your chances are to be successful. But believe me, luck plays a huge part in everyones life no matter how smart or great you think you are.
So there's a huge difference between that and investing your time and skill in something based on making educated guesses. Which is why I wouldn't call it luck.
Also, wealth is relative. Some people simply don't care that much about money if they earn enough to live comfortably, especially since pursuing money is in general painful for everybody.
That's an absurd definition of luck. What you have to do is look at the distribution of outcomes in the population. If those outcomes are widely distributed, it depends on luck. The characteristics of the underlying population are irrelevant.
The guidelines for submissions speak to piquing intellectual curiousity. If there was such a guideline for cracking a joke, it might be "anythng that uses humour to sneak an insight into the conversation."
The post above made me laugh and certainly makes a point about the morale at Zynga. Well done!
p.s. There is another kind of wit that is explicitly discouraged, the "witty reply." That is a special case where a comment tries to make fun of another comment. As a general rule, this lowers the tone of the discussion by emphasizing rhetoric over ideas. This isn't the case here, making fun of Pincus is not the same thing as making fun of a comment or making fun of the OP.
That's exactly the message that Zynga is sending out now.
Ironically this is somewhat reflected already here in the discussion in regards that the chef earned that by physically working hard. He would have had to do the same at any other restaurant job. But the real issue here is that he was willing to take the risk of working as the chef for some unknown company without knowing what is going to happen, while most of his colleagues were going for much saver options.
She's now busy opening her own restaurant and it's a far cry from writing software once and kicking back while each incremental copy sold costs you zero effort or money. Every incremental product a chef sells is hand-made and has to have its raw ingredients bought without any certainty it'll actually get sold. What's worse is many ingredients have a shelf life of mere days.
Every product is hand made to a customer's specifications and delivered in real-time with immediate feedback. If a product is rejected, it's expected to be replaced immediately without interrupting the flow of products heading out to new customers. And of course the tools of the trade are not a keyboard, but sharp knives and open flames.
So yeah, the "google chef scenario" comment bugged me too.
There is an inherent disconnect between cooking and programming. In cooking; experimenting and throwing in an extra ingredient or leaving an ingredient out most likely won't cause anything bad to happen to the outcome and it will most likely still be edible.
In programming if the end user leaves out a line of code or doesn't have the correct logic the program will most likely do something it wasn't supposed to and could destroy the users files, could cause them to lose countless hours of work.
Burnt chicken can be thrown out, and you can try again, if your hard drive has been formatted it is going to take a while to get going again. Also, since when is programming, compiling, linking as easy as following a recipe?
So plenty of chefs are entrepreneurs too. Including Charlie Ayers, who has his own restaurant.
It is that it is just factually wrong. How many great people joined Google when it was an up and coming start up who loved the emerging culture and the idea of having a great chef.
I'm not taking anything away from chefs, but Google is an engineering, product, and advertising company, so chef isn't a core skillset and should probably be compensated thusly.
You assume that because a person's job is not in the company's "core skillset" that their contribution must inherently be less than that of an employee whose job is in that "core skillset".
This is the incorrect perception that the author here is attempting to fix. From the sound of his experience at early day's in Google, your assumption is flat-out wrong.
based on what?
You are assuming something about an individual's contribution to a group of people based on nothing but the job title.
Based on actual evidence from an early Google employee, this guy's contribution was huge. Will all chefs at company's have similarly large contributions? Not likely. But it doesn't change what this guy contributed and to assume something like this seems really unfair and useless.
based on what?
Why do you think engineers get paid more than secretaries, on average? There's your answer.
But that does not mean that an engineer's contribution is inherently greater than that of a secretary based on nothing but their job title.
There are a broad variety of roles within a company.
If you mean stock options, then employees aren't given stock options based on their skill sets. They are given options commensurate with the risk they undertook. That's why early employees have higher stock options.
The Google chef got $20 million worth of stock options not because of his cooking skills, it was compensation for the risk he took, by cooking for the engineers of a firm that might have folded in months.
Startup Economics 101.
I used to work in the latter as a temp kitchen-hand, and most of the chefs there specifically quoted sane hours and working environment in general as reasons for preferring that over a restaurant.
Buying is is easier as you typically know fairly precisely how many mouths you have to feed. If you do end up with too much of something, then there's a stew on the buffet the next day. Said mouths are also less particular. If you arrive at the end of service and the lasagna is a bit dry, you don't send it back, you eat it anyway or pick something else.
And that's not just limited to chefs either, try being a car mechanic for a couple of years (your back will be shot), a bricklayer or a person cleaning stuff.
We get comparatively large sums of money for relatively easy (in a physical sense) work.
You can see this at work in NYC right now: the relative ease at acquiring financing means there are a lot of really dumb startups here right now with stupid ideas and no real market that are tying up valuable engineering talent which makes recruiting harder for legitimate startups that are genuinely creating value. Imagine if all the engineers who worked at Google during the early days were instead tied up working for Pets.com and Webvan such that Google was never really able to get off the ground and folded. That would have been bad for everyone, because Google ended up creating a lot of real value and Pets.com did not.
This same reasoning, I think, applies to the question of why CEOs get paid such astronomical salaries. The answer is that the kind of people with the skills to run a large company are extremely few and far between. Sure, a lot of them do fail at their jobs despite getting paid so much money; but that's not a reason for a hew and cry about how much they’re paid—it’s (usually) simply a testament to how hard the job actually is to pull of successfully. (Incidentally, it’s a common lament that the people at the top get paid disproportionately more than everyone else. But that’s just because the scale doesn't increase linearly—it grows exponentially. I'm not sure what the outrage against such a fact is—if you’ve taken differential equations you’ll remember that myriad complex mechanical, electronic, chemical, astronomical, biological, economic, etc. systems have nonlinear characteristics.)
So the idea is that salaries for scarcer resources are generally higher such that only enterprises creating sufficient value (i.e., profits, or at least a general confidence in future profits) to pay for them are the ones who get them. It’s certainly arguable whether this is what occurs in practice; and—while there are always exceptions, transients, and outliers—I think by and large it’s a good approximation.
This is kind of tangential to @jacquesm’s point, I know, because he’s simply pointing out that we should be cognizant that we get paid more for arguably easier work—but all the same I think it’s important to keep in mind that making things more ostensibly ‘fair’ may not always be in everyone’s best interests in a larger sense.
And, as somebody else pointed out, the chef's existence -- and the supreme quality of his work -- was one of the big draws for tech talent to come to Google.
And, furthermore, by freeing the tech talent from having to worry about food or leave work to get it, he contributed to the value they created.
Your argument is basically a straw man. You set up "line cook" or "brick layer" -- jobs everyone can agree are not special or meritorious. Then you shoot it down. Very impressive.
And, as somebody else pointed out, the chef's existence -- and the supreme quality of his work -- was one of the big draws for tech talent to come to Google. And, furthermore, by freeing the tech talent from having to worry about food or leave work to get it, he contributed to the value they created.
I didn’t set up a straw man, but I did draw some hyperbolic distinctions for the sake of exposition. (In fact, I worked as a line cook one summer and I wasn’t very good at it—so not everyone can even be a line cook.) There is obviously a spectrum, and if we’re going to point out fallacies then you’ve set up a false dichotomy: that there’s either things everyone can be or things few people can be. This isn’t true, and I’m simply saying that software engineers are a scarcer resource than chefs. I don’t disagree that the chef at Google legitimately contributed to the value the company created, but I think there are plenty more chefs that could have done so than there were software engineers who could have built the core technology the company was built on. My point is that the salaries are, broadly speaking, a reflection of supply and demand and not difficulty of work.
That I'm much more skeptical of, especially seeing how things have transformed recently. I think a lot of it boils down towards a principal/agent problem, where top executive ranks have been captured by an in-group that hires each other. This is true even in universities; when a university is looking for a President, the search committee, made up of high-up university execs, looks at other university execs. This leads to an artificially restricted supply pool as execs hire each other (often, literally, since the execs are on each others' boards). Sometimes the pay is even formalized; they want to pay "competitive market rate", often defined as something like 10% above average, which leads inevitably to an upward wage spiral, since by definition everyone can't pay 10% above average. When political backlash results, they just quote the policy.
I don't think it's necessarily conscious nefariousness, either, but more of a cultural thing: they really do think that their social peers are the only people who could possibly do the job, regardless of whether they have evidence for that, and they really do think that they and their peers are worth the money that they're voting themselves.
At the very least, the opposite hypothesis---that they earn their pay by providing shareholder value---has been extremely hard to show empirically. There is, if anything, a slight negative correlation between CEO pay and shareholder returns. Tellingly, at closely held companies where a family or relatively few people personally control the company rather than diffuse set of shareholders, CEO pay tends to be much lower, after adjusting for the company's size. The hypothesis of what to make of that correlation is that when owners are vigilant, as in closely held firms, they don't pay CEOs as much, because they don't believe that the CEOs aren't worth that much. When owners are asleep at the wheel, though, you get the HP case--- pissing away tens of millions on ineffective CEOs' golden parachutes.
What you are describing is a bidding war for a scarce resource. This happens for all sorts of people, not just CEO's. See, for example, programmers.
...they really do think that their social peers are the only people who could possibly do the job...
What's the "social peer" of a CEO? Other CEO's and upper management?
I certainly think that only my "social peers" (read: other programmers) can do the job of programming.
At the very least, the opposite hypothesis---that they earn their pay by providing shareholder value---has been extremely hard to show empirically.
This is hard to show for most fields. When a job consists of building organizational capital (e.g., CEO, programmer, manager) rather than directly producing outputs (e.g., cook, assembly line worker, doctor), it's very difficult to empirically measure the contribution of any individual.
This is doubly true if you are trying to generate macro-level statistics (e.g., compare CEO performance across companies, or programmer performance across projects).
http://www.econtalk.org/archives/2011/11/kaplan_on_the_i.htm...
(The "gotcha" is hedge fund managers, which have skyrocketed past everyone else)
I work most of my life 2/3 stories above the ground with no safety equipment, generally because fastening the anchors in a workable place is 10 times more dangerous than just not using the safety equipment (generally because you're supposed to have the fall protection in place because we're just barely above the requirement, but to get it into place we have to essentially go double the requirement height or more to place the anchor - so we're talking the difference between a fall that might break your arm or leg to a fall that might put you in the ICU).
The part of my job I like is figuring out the solution simply to get set up to do the job. Just recently I had to figure out how to get our staging poles up in a 3ft gap between houses to do a dormer. The only problem is it was about 26ft in the air and at best I'm supposed to have the bottom of my ladder out 9 feet and I can only manage 2 to be able to get past the eave. In the end I had to use 2 ladders simply to get onto my ladder as you have to keep your weight past the centre of balance otherwise your ladder will pull back and then bad shit generally ensues.
I have the utmost respect for the keyboard cowboys because my brother is a developer and I've seen how hard he works. Back in the day I used to develop, but I didn't have the interest to pursue it. I know the jobs are hard, and I've seen my brother come home and spend a few hours working on his own code after he's already done 8 hours of company code.
I, however, don't have respect for the developers that think their job is the only "real job" out there or that they're the only ones who work hard.
In my experience I see people across the board who are extremely hard workers from people doing minimum wage jobs in walmart to doctors. I've also seen lazy people across the board from walmart to hospitals. People are people, some are hard workers and some are lazy fucks. It would be nice to see the hard workers in jobs rewarded far more than the lazy, regardless of what job they're doing.
One thing that bothered me about the article and your post, however, is the "google chef" comment is bugging you for the wrong reason.
You and the OP are in agreement with Pincus implicitly, if you believe that merit and contributions as an employee is what justifies the rewards of equity appreciation.
That's not how the world works. Warren Buffett did not lift a finger building railroads, soda pop, and newspapers. That's not why he is rich.
Pincus wants you to think of this portion of your compensation as an employee, instead of an investor. Charlie made money because he became an investor, not because he was a chef.
No they aren't. They're arguing independently of that. In fact, the OP explicitly mentions that he's not commenting on that. What the OP was arguing was that _if_ you were to give compensation to people based on their contribution to the company, it would be absolutely absurd, and insulting, to claim that the original Google Chef did not contribute substantially to the company.
But in economic terms (what I believe Pincus/Zynga meant), no, the chef did not contribute substantially to revenue/profits the way engineers and sales people did.
I don't think Pincus is saying chefs are not important in the qualitative sense (that their contributions don't matter as much as engineers) - I believe he's saying they do not contribute enough economic value to generate a 20 million dollar pay day. And he's right - the labor markets don't pay chefs anywhere near that much.
But he's wrong for lumping economic contributions as an employee (charlie the chef) and asset appreciation (charlie the investor) together.
Well, they did at least once.
And how do we know that the Google Chef didn't contribute enough economic value to generate $20 million? You can't say that just because he's one level farther removed from the final product. If he helped enable the company to recruit talent and helped enable that talent to produce then he very easily could have been worth $20 million.
Indeed. It'd be like arguing that an engineer who goes into management is now contributing less to the company since they are no longer writing code.
It seems that this is the point that you disagree with the OP then. The OP's point was that what the Chef did to build the value Google was equal to that of any engineer of the company.
"As someone who was there in the early days I can tell you that Charlie Ayers contributed more to Google's success than I did, and I was a senior software engineer."
I think you and Pincus are lumping together the typical market value of a chef, on average, with the specific contribution of this particular chef in this particular situation. Ron has argued pretty forcefully that Charlie did, in fact, contribute very substantially. His contribution was indirect, okay, but lots of people's contributions are indirect, including senior management's!
Look at the picture at the time Charlie was hired. It's true, Google could probably have hired any number of mediocre or even pretty good chefs without offering them stock options. But somehow they determined that Charlie was exceptional, and they decided it was worth offering him options to get him on board. There are, after all, some chefs in the world who own several restaurants and are fairly wealthy.
But he's wrong for lumping economic contributions as an employee (charlie the chef) and asset appreciation (charlie the investor) together.
This point I agree with.
Glad that I am not alone in thinking that the "Google Chef" deserves what he gets.
What I don't get is the zero-sum thinking here. They're worried that someone in their organization might get rich, and maybe they didn't deserve to get so rich. So what? They should worry about their company, not be squabbling over percentages.
Reminds me of the end of "Treasure of the Sierra Madre." The prospect of real money seems to drive some people insane.
Renegging that to x/2 amount of shares in hindsight is evil.
It's a construct in which an early employee can only lose, if the startup fizzles, he gets nothing, if the startup booms he is screwed out of half of what he and his employer agreed on.
zynga: want to be an early employee in our risky little venture?
emp: um - the salary is kind of low and there's no job security
zynga: but we're tossing in 100,000 options. potentially worth $10M if our stock hits $100 in the ipo
emp: okay, that sounds better. i'm in
zynga: of course, to prevent you from just exercising the options and leaving, they'll vest over four years
emp: works for me.
so basically the entire chunk of options was the employee's payment for joining the company when there was low salary and job security. the vested part is payment for sticking around to help zynga succeed. and the implicit contract is that the unvested part is an already made promise that his compensation for each year of work will be $x in salary + $y in incrementally vested options. since employers tend to have disproportionate leverage in these matters, there are of course a whole range of clauses stating that he could be fired for any or no reason and lose his unvested stock just as if he'd resigned, but that's harking back to the letter rather than the spirit of the agreement. abusing that leverage is a scummy thing to do, regardless of the technical legality of it all.
You win the lottery. You choose to have the money earned over your lifetime, instead of a lump sum. However, after a few years, the state reneggs on the original offer, and gives you the lump sum, dramatically less than what you had contractually signed for. It's that simple. You're offered x, with the understanding x matures (like a government bond). The potential worth of x is immutable, but Zynga turned around and offered x/2.
zynga: want to be an early employee in our risky little venture?
emp: um - the salary is kind of low and there's no job security
zynga: we'll toss in 25,000 options per year for the first four riskiest years. potentially worth $2.5M per year if our stock hits $100 in the ipo
emp: okay, that sounds better. i'm in
2 years later
zynga: hey, looks like you did pretty good the last two years, but the trajectory of the company has changed, there is no longer any risk in it for you, and it doesn't make fiscal sense for us to pay you $2.5M a year in stock anymore. We'd like you to stay on, though, and you'll still get a competitive salary and benefits plan. If you don't think that it is competitive, we understand.
emp: works for me. (OR) doesn't work for me.
I think it is incumbent on us, the startup world, to call this out as bad faith, which is what it is. Legal or not, companies that do this should be forced to walk down the hall of shame. Their founders, if they are around and party to it, should be unwelcome in our midst after reneging on the social contract that makes this whole thing workable.
They are shitting on the commons, and spoiling the fields for all of us, by making the decision to work for a startup that much riskier.
Zynga is bleeding valuation right now.
Last time I checked, Google has multiple high-quality products that users love, and it's not hurting because of the "Google chef". Zynga has... what, exactly? A bunch of shitty games that die (and have to be reinvented) as soon as the novelty wears off.
Who the fuck is Mark Fucking Pincus to decry the "Google chef"? Zynga will never achieve 1/100 of what Google achieved. Pinky should learn from Google, not trash it on no basis whatsoever.
I'd stay away from these folks at all costs.
Maybe. Or how about this:
Charlie didn't make $20M for cooking. He effectively made a normal chef's salary, some of which he effectively invested into Google shares.
What's the issue? That a chef (unlike a banker or programmer) helps fund a company, and gets shares for it?
Is like saying to an angel you didn´t help me so much in your mentoring so give me your shares back.
But it seems a lot like tearing up a term sheet 5 minutes from signing the final contract, just because you managed to shop for a better deal. It might be legal, but it's just not done.
What we can be fair about is how we treat people, if we give them shares and later we wish we hadn't we should live with that gracefully. We can give them bonuses for both self-interested (motivate employees) or altruistic reasons (it happens!).
This issue also reeks of the Just-World Fallacy. Individual early employees of wildly successful companies don't get rich because it's fair, even if it sort of works out that way on average. They get rich because someone gave them options, and then the stock skyrocketed. Efforts to explain it in terms of justice are mostly post-hoc rationalization.
Without the aversion of innovation, the complete disregard for ripping others off, and partnerships with incredibly shady companies, Zynga would not be anywhere close to where they are today.
A business in the theme of Zynga needs the unscrupulous head honcho who can't care less about what's right, only what's profitable. Get rid of Pincus and Zynga sinks like a rock.
Let's be honest, if you take Zynga's games, strip out the blatantly psychologically manipulative bits, inject some real fun into there, and actually spend some money on innovation... none of it would be profitable.
If I know someone is going to rip me off sooner or later. I am not going to do business with him.
I suspect the answer is no. The really hard scalability problems have been solved. There's not a creative bone in that company's body. The psychological tropes that they play with to reach that nirvana of inescapable treadmilling and spending is already determined - and given all the Zynga games I've seen, past and present, they don't seem very intent on changing the formula.
Not only that, social gaming of Zynga's variety is on the decline. There was a time when everybody and their grandma was playing FarmVille, but the world is quickly catching onto their addictive-but-empty nature. Not only that, but Facebook is moving in and slamming the door shut on the feed-spam that these games practically need to survive. I would not be surprised if these games' usage numbers have already peaked and are on the decline. Profitability is destined to follow player sentiment.
All in all, IMO Zynga's best days have come and gone. The world has its infatuation with that formula, and like the Tamagotchi and everything else that came before it, will tire of it soon enough. The only thing remaining now is for the execs to secure as much stock as they can and take it public, and let the general population ride the stock on its way down. They only need employees insofar as to keep the lights on and look alive - certainly nothing that calls for the tippy top talent.
What pisses me off is the collateral damage that Zynga has done to other entrepreneurs who will now have a harder time attracting talent and raising capital because of this idiocy. Pincus didn't just fuck over his employees; he fucked a technology startup ecosystem that is, after a decade-long slumber, trying to get on its feet again.
Why can't a Janitor be rich? Why can't a chef be rich? What really is so wrong with it? This attitude is so despicable! So anybody who doesn't go to a big Ivy league, or some one who doesn't have an MBA next to his name or hasn't worked at a investment bank can't be rich?
Which in case, what this really turns out to be is alternate form of slavery where a selected few have to resign themselves to a lesser standard of life to serve the remaining self chosen elite and act in every way such that the elite are benefiting.
If you want some job to be done and you are ready to pay for it, money/stock or whatever. And you promise and the contract so. You just need to pay up. That's it, it ends there.
You don't get the work done, squeeze the juice out of the employees. Then one fine day realize that what you promised is now worth a lot of money. So you suddenly dump them, loot all the money yourself and say that they don't deserve it.
You had promised that it was worth paying something for some one from some work. So now when it is time to pay up. Just pay.
The second reason is fun. Isn't it a whole lot more fun to come to work where everyone has a stake in the company? Wouldn't it be wild fun if your company did an exit or IPO and everyone came to work with a huge smile on their face?
For the sake of giving up a little bit of founder equity we can create an environment that is not only a lot more fun to be in, but is potentially life-changing for everyone and their families. Thinking anything else can lead to the situation that Wall Street is in now.
Here's an oversimplified example that mirrors the classic Trolley problem:
Suppose the company consists of three people: The founder, the engineer and the chef. The founder can't raise more money from investors and she realizes that if she fires the chef it'll free up 200K ISOs which can be used to recruit a sysadmin. Without a sysadmin the startup will fail. If the founder gives up her own shares, she loses control of the company to one of the investors, who she knows will sell the company to cash out immediately. If she stays in control, the founder aspires to grow the business to 20x its current size. Should the founder fire the chef?
What small detail would have to change in order to quell the ire of all of the people claiming that Pincus is acting unethically?
If he gives away 5%, he will still have 15% of the equity, 30% of the voting share, and retain complete control of the company. Or he could issue 5% addn shares and dilute everyone equally by 5%.
Now he just looks like as ass.
Remember the 'useless' chef already got you to where you are presently. The place where you need to raise more money.
Why then did you hire the chef in the first place? If the chef has started cooking poorly, you sack him/her. Just like your board would fire you for poor performance.
That this is even up for debate is baffling.
PS: Grandalf, so I suppose the stock people receive in your project 'Dandelion Labs' do not really have any worth because two years down the line the people canget disposed if the founder needs to free some stock without getting diluted
I think it was probably a stupid decision by Pincus to do this, but not necessarily an unethical one. ISOs with a vesting period are not money in the bank, and anyone who thinks of them that way has been foolish.
The situation is more like:
1) Founder hires an employee at a depressed salary using the possibility of making it big via vested options to compensate for lost income.
2) Employee works first, second, and third years performing to satisfaction.
3) Before IPO, founder goes "I can make that employee give up their money through a threat of firing them."
Actually, isn't that pretty much the situation?
If we really want to talk analogies, it's like if someone took a health insurance policy, but when they get really sick and the "big payout," the insurance company cuts them off because they haven't contributed enough to merit the million dollar payout.
No, the founder is incompetent and should be fired himself or go out of business. If he gave too much money to positions he doesn't even care about he has no business being responsible for share holders' money.
To be honest here, the fact that you don't find this unethical sends up very large red flags about doing business with you.
You seem to think it is clear that Zynga can't afford to attract 'top talent' without the clawbacks. Other people, in the face of a billion dollar IPO, think that is silly.
There was a chef of similar capabilities at my first company. Ten years later, me and my ex-colleagues still rave about his food and the inspiration it gave us.
EVERY employee counts.
Does it matter if the money allotted to the barber down the road becomes worth $100m?
If he kept his part of the deal, you should.
A rising tide should lift all boats, not the boats they specifically select with hindsight.
Also consider opportunity cost. The chef could have opened a restaurant instead and perhaps also earn a lot of money that way.
I can't find any good numbers on tech startups with some Googling other than the oft-quoted 90%. This is hard to compare, because you might earn some sort of salary while the startup is in operation, but it closes down because it fails to meet growth targets.
But on balance it seems to me the startup is still riskier.
[1] http://www.businessweek.com/smallbiz/content/apr2007/sb20070...
[2] http://www.newventurelab.com/resources/blog.php?id=261
Would he have profited millions, on top of his salary? I read routinely about hugely popular top-rated restaurants going under (eg. https://www.nytimes.com/2011/04/27/dining/27zakarian.html?re...) or nearly going bankrupt (http://tmagazine.blogs.nytimes.com/2011/08/16/gordon-ramsay-...). When we're considering risk, let's remember the upside to an option on a restaurant is small, and the risk is practically startup levels.
A poor young man finds a woman wo will marry him a starter in life, poor with fair education.
20 years down the line after the woman has bore him kids, supported his career, this man becomes a Governor. Then aha! He realizes his mid aged wife is not really educated, not fit for the position of a first lady.
He does not want the situation of a high school educated first lady.