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Zynga Chief Seeks to Claw Back Stock

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Re: Zynga Chief Seeks to Claw Back Stock

#41

Post by staunch »

gergles wrote: post #31
ghshephard wrote: post #24

I'm going to take a slightly controversial position here - so please read through my logic before you downvote me into oblivion. 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 co…

I have to respectfully disagree with your logic. If you read the article, what is actually happening is they are retroactively trying to reduce restricted stock grants that were already made . So, if I say "come work for me for free, and in exchange I will give you 10,000 RSU that vest over 4 years", then 3 years down the line say "just kidding, you don't get these last 2,500, but you get to keep working here", that…

Look at it from his perspective. He knows what the IPO is going to value the company at now. He's looking at some low-performing employees and calculating that they're simply not worth keeping around if it means giving them $20 million (or whatever) in the IPO.

If it's ethical to fire these people (in which case they lose all unvested shares) then it stands to reason it would be ethical to renegotiate a deal that both parties think is fair.

Re: Zynga Chief Seeks to Claw Back Stock

#42

Post by staunch »

jpdoctor wrote: post #29
jamiequint wrote: post #22

Earlier quoted context omitted.

Thats what put options are for.

Puts don't start trading immediately after the IPO. (There are also lockout/reporting requirements on derivatives, but I've always wondered how enforceable/detectable such transactions are.)

There are ways to hedge though, right?

Re: Zynga Chief Seeks to Claw Back Stock

#43

Post by harryh »

smokinn wrote: post #10

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…

They're not saying "you give us some of your compensation back", they're saying "your future compensation will be less than you expected."

It's kinda like if someone gets you to join their company by offering to pay you 100k/year, but then 6 months in drops your pay to 50k/yr.

And really it's not even that. It's "you got hired at 100k/yr, but then the company was WILDLY SUCCESSFUL and you then expected to make 10M over the next year but they're dropping your pay to 1M for that year"

Skeezy? Definitely to some degree. Theft/Illegal? I don't think so.

Re: Zynga Chief Seeks to Claw Back Stock

#44

Post by jwatte »

jaekwon wrote: post #40
jwatte wrote: post #37

Earlier quoted context omitted.

The typical option agreement says that the stock you may purchase is subject to a right of repurchase by the company, and that right (by the company) lapses over time. So, I imagine that is totally negotiable until such time that that right lapses. It means going back on your word from the time of hire, but corporations go back on their word all the time, usually because it's believed to increase value for shareholde…

By 'right of repurchase', are you referring to the right of the company to purchase your vested shares, should you choose to sell them? If so, it's not related to this issue.

No, i am referring to how vesting is actually expressed (at least in some grants I've seen). Another way to say it: "like it or not, unvested shares are re-negotiable." Get in early and vest as much as you can, if that's important!

Re: Zynga Chief Seeks to Claw Back Stock

#45

Post by jamiequint »

jpdoctor wrote: post #29
jamiequint wrote: post #22

Earlier quoted context omitted.

Thats what put options are for.

Puts don't start trading immediately after the IPO. (There are also lockout/reporting requirements on derivatives, but I've always wondered how enforceable/detectable such transactions are.)

I just remember there being a famous story of Mark Cuban buying out of the money puts on Yahoo stock after the acquisition of Broadcast.com. Obviously a different scenario, but always reminded of this whenever IPO lockup talk comes up.

Re: Zynga Chief Seeks to Claw Back Stock

#47

Post by prodigal_erik »

hristov wrote: post #38
qq66 wrote: post #19

Grellas, PG, or others with experience in this field -- is there a legal document that I can make, as a startup CEO, that prevents my company from doing this in the future? I would never do something like this but I want that to be legally "handcuffed" so that no employee can ever think that we would/could do this.

It seems that Zynga is using a provision that says that all unvested stock grants are returned if the employee is fired. This is a pretty common provision from the contracts I have seen. They then seem to be saying "give us back some of the stock voluntarily or we will fire you and you will lose it all." If you want to make this impossible you can make your contracts such that unvested stock is not lost when one is f…

Employees can't rely on your decency because the investors might put someone else's finger on the trigger if that time comes. I wish there were a way to ensure everyone gets paid or screwed together, but tactics like share classes and dilution and liquidity preferences seem to be so strongly customary that I wonder if a VC would lose interest in a firm that relinquished the power to selectively starve that VC's rivals at the banquet.

Re: Zynga Chief Seeks to Claw Back Stock

#48

Post by ghshephard »

gergles wrote: post #31
ghshephard wrote: post #24

I'm going to take a slightly controversial position here - so please read through my logic before you downvote me into oblivion. 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 co…

I have to respectfully disagree with your logic. If you read the article, what is actually happening is they are retroactively trying to reduce restricted stock grants that were already made . So, if I say "come work for me for free, and in exchange I will give you 10,000 RSU that vest over 4 years", then 3 years down the line say "just kidding, you don't get these last 2,500, but you get to keep working here", that…

They can't touch the shares that have vested - I think we both agree here. They could just fire the non-performing executive, and put an end to the vesting schedule.

Here is the thing - Firing Non-Performing executives at startups with huge stock allocations happens ALL the time at _every_ company. It's not at all unusual - I've never been at a company where it hasn't happened. And frequently. It's absolutely business as usual.

I don't understand why Pincus didn't just fire these people and move on. That's the weird part of this entire thread.

Re: Zynga Chief Seeks to Claw Back Stock

#49

Post by jpdoctor »

staunch wrote: post #42
jpdoctor wrote: post #29

Earlier quoted context omitted.

Puts don't start trading immediately after the IPO. (There are also lockout/reporting requirements on derivatives, but I've always wondered how enforceable/detectable such transactions are.)

There are ways to hedge though, right?

Not usually, you need someone on the other side of the transaction. And even if the options were available, the volatility would make the spread very costly.
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