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Wow this should be straight up illegal and yet: "One lawyer said that over the past year, he has heard executives of three social-media sites discuss the possibility of clawing back equity from some employees. Another lawyer, who has handled stock-compensation issues with technology companies for decades, said he never saw a company try to take equity from employees until about two years ago, but has since seen three…
I think it is really important that people understand that stuff like this can happen even when you win the 100 to 1 bet that you are working for the next Zynga and not the next $NAME_A_STARTUP_RANDOMLY.
Another potential gotcha is the post-IPO sales lockout period. I don't know if it's the same in software, but in a previous life I was a chemist in a biotech startup that had an initially successful IPO. The rank and file were prohibited from cashing out options for six months after the IPO but somehow all the execs were exempt and got rich while the stock was enjoying a post-IPO high. Needless to say, by the time we…
On the other, in any company as big as Zynga there are people who coast along and don't really earn their shares. Zynga isn't trying to take back what's vested, just clamping down on future shares for people who aren't doing a great job, maybe playing a lesser role than they were originally hired for. That seems like a perfectly valid thing to do -- in fact it's only fair to the employees who are pulling their weight.
If you read the article, you'll see that what's happening at Zynga is not "Taking Back" stock, instead it's talking about _future_ compensation. Every time I've been through a Compensation Review - one item that is made very clear to my manager, is how much _unvested_ stock I have in the company. That plays a role when they reviewing my salary and bonus, because Unvested Stock is a component of my forward-looking annual salary.
All Pincus is doing - is looking at his executives, and saying, "Hey, You are going to make $10 Million dollars NEXT YEAR, but you aren't doing $10 Million dollars worth of work - we're going to have to bring your NEXT YEAR's salary down to $1 Million" - He isn't talking about stock already owned by the employee.
California is an At-Will employment state, Zynga is located in California - Pincus could just fire these people and be done with it - as long as he wasn't discriminating unfairly (Based on Age, Race, Ethnicity, Marital status, or any of the other protected classes) - it would be completely legal, and, if these people weren't performing, completely rational, albeit really quite brutal.
In the scheme of "How can my company screw me on stock" - I put this in the 50 percentile category.
With all that said - dick move. I wouldn't want to work for someone who would do this to me.
I think it is really important that people understand that stuff like this can happen even when you win the 100 to 1 bet that you are working for the next Zynga and not the next $NAME_A_STARTUP_RANDOMLY.
Yes. As another example: Several hardware companies did reverse splits + share issuance (to holders of preferred) right before IPO. Atheros comes to mind iirc.
So their CEO has a list of executives that he feels did so little he considers them "missing in action". If that were the case, why didn't he just fire them for cause? That would have stopped the vesting clocks on their options. Or was he paying so little attention to who was and was not contributing that firing them didn't occur to him at the time? In that case, who's really "missing in action" here? If I were going…
Believe it or not, there will be a coterie of investors who will get behind that. (They will perceive that their interests are aligned with the CEO after IPO.)
Wow this should be straight up illegal and yet: "One lawyer said that over the past year, he has heard executives of three social-media sites discuss the possibility of clawing back equity from some employees. Another lawyer, who has handled stock-compensation issues with technology companies for decades, said he never saw a company try to take equity from employees until about two years ago, but has since seen three…
To be fair, people are asked to take cash pay cuts all the time. They're talking about unvested stock (future compensation). It's tough to defend this, though. I would assume that it would be a breach of contract, but I'm no lawyer.
So Pincus should be willing to essentially write futures contracts on the proceeds from his own shares and trade those with employees, who should be willing to accept them in trade, even at precisely equal expected value.
Earlier quoted context omitted.
Another potential gotcha is the post-IPO sales lockout period. I don't know if it's the same in software, but in a previous life I was a chemist in a biotech startup that had an initially successful IPO. The rank and file were prohibited from cashing out options for six months after the IPO but somehow all the execs were exempt and got rich while the stock was enjoying a post-IPO high. Needless to say, by the time we…
Thats what put options are for.
On the one hand, it's kind of a classic dick move by Mark, pretty typical of his bloody mindedness. (He's more of a bulldog than Zinga ever was.) On the other, in any company as big as Zynga there are people who coast along and don't really earn their shares. Zynga isn't trying to take back what's vested, just clamping down on future shares for people who aren't doing a great job, maybe playing a lesser role than the…
The fact that this is happening right before launch is pretty reminiscent of Skype's fiasco prior to exit (sale to MSFT). In fact, both of these companies have one VC that's in common, Silver Lake Partners: http://www.silverlake.com/partners/investments.php?page=inve...