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Zynga Chief Seeks to Claw Back Stock

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Re: Zynga Chief Seeks to Claw Back Stock

#71

Post by harryh »

smokinn wrote: post #70
harryh wrote: post #43

Earlier quoted context omitted.

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 ov…

The difference between a pay cut and a stock restriction is that pay is regular and vesting is not. Let's say you renegotiate down 50% like you suggested. That means from now on you make 50% and before you made 100%. A vesting schedule though almost always accelerates towards the end. So if you renegotiate down 50% towards the end you may in fact be likely losing 75% or more. That's the problem with renegotiating sto…

> A vesting schedule though almost always accelerates towards the end.

Really? That's hasn't been my experience. In every situation I've seen (or even heard of) vesting has been on a regular schedule with the exception of a cliff at the beginning of employment (generally 1 year).

If the zynga situation involves people who have not yet reached their 1 year cliff the skeeziness factor would go WAY UP imho.

Re: Zynga Chief Seeks to Claw Back Stock

#72

Post by ohashi »

nirvana wrote: post #69

I've seen people get cheated out of compensation this way, in some cases where they took greatly reduced salaries, in exchange for shares, but the shares vested, and after creating the major innovation the company wanted, they were fired without cause before the first vesting cliff. I think vesting, as a mechanism, is problematic. Especially when you make a founder vest stock they've already bought and paid for (with…

Viewed from an employers' point of view, the cliff means you've got to put in some real sweat into it before the shares become worth anything. How long do you think it takes for a new employee to be truly adding value? Perhaps it's not a year, but I suspect many eat a lot of time and slow things down for a while until they get comfortable. I think the cliff is just a balancing of those interests.

The last round+dollar per share seems silly. First because shares are somewhat arbitrary, it's the % of the company that matters. Also if there is a down round, why should the employee benefit? The whole company is struggling, why should there be a bonus for leaving/getting fired?

It seems to me that if you want to work for a startup and are taking equity compensation you should understand the RISK involved. You should be prepared to accept the pay and be comfortable knowing that your equity, real or imagined, could be worth nothing.

That said, the cliff issue could probably be negotiated more favorably for employees and screwing over your employees seems like a horrible policy in a world where every tiny detail of your life could possibly be published and forever archived publicly.

Re: Zynga Chief Seeks to Claw Back Stock

#73

Post by maaku »

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.

Vest regularly, as often as you send paychecks. My co-founders have monthly vesting setup in our stock purchase agreements.

What's unfair about this situation is if you are fired just before reaching your next vesting event, you see none of it (but oddly, you will still be given back-pay). If I had the legalese to vest continuously, I would.

Re: Zynga Chief Seeks to Claw Back Stock

#74

Post by dman »

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 guess the employee equivalent of this rational valuation would be to wait for the most critical part of the project and then ask for a major raise.

Re: Zynga Chief Seeks to Claw Back Stock

#75

Post by harryh »

mlinsey wrote: post #61

Anytime you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit. Renegotiating so that you can get a portion of that stock and stay employed is perhaps, if this were an isolated incident, a much better deal for the employee than getting fired. Where this…

I wish I could upvote this twice. Best analysis & explanation in the thread. By far.

Re: Zynga Chief Seeks to Claw Back Stock

#76

Post by grellas »

mlinsey wrote: post #61

Anytime you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit. Renegotiating so that you can get a portion of that stock and stay employed is perhaps, if this were an isolated incident, a much better deal for the employee than getting fired. Where this…

The oddball thing here is not that people are being let go so that a startup can recapture their unvested stock (as you note, this happens all the time, for reasons both good and bad) but that a company would create what amounts to a "hit list" in order to systematically pressure employees to surrender shares on threat of being fired. The company-wide message to employees is, in effect, "we lured you to join us with promises of a high upside via this stock grant in case we succeeded but, now that this has come to pass, we think you are getting a windfall and want a good part of it back." Since employment is at will, this tactic can be effective in reducing the equity base and maximizing value for other shareholders in the company. But at what price? This effort is being driven by a CEO who is clearly dominant, holding almost 40% of the voting power in the company and using it, for example, to cause the company to buy back nearly $110M worth of his personal stock pre-IPO. The overall effect, then, is one of a leader who appears arbitrary and unfair to those who were there early on. While cashing in for himself, he is "clawing back" on others. It might be legal but it just plain looks bad and would hardly seem to be a good way to motivate people or to keep strong people in your company for the long term.

Re: Zynga Chief Seeks to Claw Back Stock

#77

Post by teflonhook »

mlinsey wrote: post #61

Anytime you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit. Renegotiating so that you can get a portion of that stock and stay employed is perhaps, if this were an isolated incident, a much better deal for the employee than getting fired. Where this…

I quit as CEO of my last company because some of my venture capitalists were intimating they wanted to do this.

Re: Zynga Chief Seeks to Claw Back Stock

#78

Post by rmc »

This sounds like a good example of why 'at-will' employment should be abolished and why there should be more employee rights.

There is a power inbalance here. Companies give stock, but that can be taken away if the company fires you. Even if you work hard and are a good worker, the dollar price of what they get if they fire you might be too high. The best way to stop this is rebalance the power. Prevent the company from being able to fire you for no reason.

Re: Zynga Chief Seeks to Claw Back Stock

#79

Post by rmc »

mlinsey wrote: post #61

Anytime you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit. Renegotiating so that you can get a portion of that stock and stay employed is perhaps, if this were an isolated incident, a much better deal for the employee than getting fired. Where this…

you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit.

I do not understand why you need at-will employment. If an employee is behaving badly or underperforming, then you have an excuse to fire them. If you got rid of at-will employment, you can still fire bad employees. Abolishing at-will employment will just make it hard for companies to screw over employees unfairly. This is not a bad thing IMO.

Re: Zynga Chief Seeks to Claw Back Stock

#80

Post by coreyrecvlohe »

mlinsey wrote: post #61

Anytime you have both vesting schedules and at-will employment, your employer can fire you at any time and you will not get any unvested stock. Startups need to do this all the time when employees are underperforming or a bad fit. Renegotiating so that you can get a portion of that stock and stay employed is perhaps, if this were an isolated incident, a much better deal for the employee than getting fired. Where this…

"I don't know anything about the internals of Zynga"

You said it.

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