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Zynga Chief Seeks to Claw Back Stock

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Re: Zynga Chief Seeks to Claw Back Stock

#81

Post by OstiaAntica »

rmc wrote: post #79
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 f…

If the startup is struggling or making a pivot, it might need to lay off employees who are performing fine.

Of course, the reverse is true also. Employees can leave at any time for any reason as well.

Overall, at-will employment keeps companies and labor markets flexible.

Re: Zynga Chief Seeks to Claw Back Stock

#82

Post by Aetius »

3am wrote: post #17
sbov wrote: post #14

How much of Pincus' stock is getting clawed back? If this really is a problem, isn't it afterall, his fault in the first place? So shouldn't he suffer?

He's an enormous holder - the article cites almost 20%, and almost double that in voting rights. It's hard to believe his contribution is worth $4B (1/2 of what Steve Job's net worth was) if the $20B valuation holds up in the IPO. Disgraceful.

Steve Jobs infamously sold all bout $1 of his initial stake in Apple, depriving him of untold riches. Pincus has been adamant about retaining as large a stake personally as possible and dictatorial control over the board.

Re: Zynga Chief Seeks to Claw Back Stock

#83

Post by rmc »

OstiaAntica wrote: post #81
rmc wrote: post #79

Earlier quoted context omitted.

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 f…

If the startup is struggling or making a pivot, it might need to lay off employees who are performing fine. Of course, the reverse is true also. Employees can leave at any time for any reason as well. Overall, at-will employment keeps companies and labor markets flexible.

If the startup is struggling or making a pivot, it might need to lay off employees who are performing fine.

Then you make those positions redundant (or in british english terminology, you 'let them go'). It's perfectly legal (in EU which doesn't have this at-will stuff) to say "We no longer need a Django programmer, since we're moving to Ruby on Rails now, we know you're a great django programmer, but we're letting you go". You don't need 'at-will employment' to have this advantage. There are some limitations, like you actually have to make the position redundent, you can't hire your brother as a django developer the next day. But that's the point, it balances out the power.

Re: Zynga Chief Seeks to Claw Back Stock

#84

Post by ovi256 »

teflonhook wrote: post #77
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.

Ouch. Hope you have better luck next time. Don't give up.

Re: Zynga Chief Seeks to Claw Back Stock

#85

Post by davweb »

damoncali wrote: post #15
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…

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.

Usually people are asked to take pay cuts because the company isn't doing well, often with the understanding that pay will go back up if things get back on track.

Here it seems people are being asked to take a pay cut not because their company is having problems buts because is doing very well indeed.

Re: Zynga Chief Seeks to Claw Back Stock

#86

Post by rmc »

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…

or you're fired and lose it all

Take note white collar workers & high paying professional programmers, at-will employment and lack of employee rights can screw you too.

If it was illegal to fire someone "for no reason", then it would be much harder for a company to screw employees like this.

Re: Zynga Chief Seeks to Claw Back Stock

#87

Post by rmc »

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.

Part of the problem in this case is that the company can fire someone for no reason, even if they are working well and doing their job. This is 'at-will employment' and is common in USA, but outright illegal in, say, the EU. If the employee was able to sue the company (potentially getting compensation) for a wrongful dismissal, then the company would not be able to fire people who didn't agree to the new vesting options.

IANAL, but there are a few ways you could lock yourself into this. Could you have your company in an EU member state, hence making yourself abide by EU law? Could you put something in employment contracts saying that you never will hire someone 'at will'? etc.

I applaud your attitude of making your company a good place.

Re: Zynga Chief Seeks to Claw Back Stock

#88

Post by marcf »

grellas wrote: post #76
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…

I wonder if there is case for a lawsuit here especially if there is no across the board performance issue with all of these employees who are being asked to surrender stock.

I would argue that they were promised something that the company is failing to deliver and it is thus engaging in fraud, but I am not a lawyer thus I am unsure how to make this into an effective legal argument.

Re: Zynga Chief Seeks to Claw Back Stock

#89

Post by cletus »

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…

Here's the problem with your position.

If the employer says "You're only providing $X in value (where your RSUs amount to $X+Y so now we're going to fire you or you'll agree to only take $X in RSUs" then, by working at a startup, you have a significant downside (the startup could well go belly up) but no upside.

Why no upside? Because your capital gain on the shares you took a pay cut for might at any time (for unvested stock) be reduced to your market value... which you could've simply earned elsewhere by taking that as a salary.

It's risk versus reward. What we see here, if true, is that the risk remains the same but the reward has been significantly chopped.

Dustin Markowitz [1] is a billionaire, largely by virtue of the "skill" of being Mark Zuckerberg's Harvard roommate. He "earned" ~$5 billion from Facebook, which if memory serves, is less than Steve Jobs made from Apple's second stint (where he, you know, turned a company on the verge of bankruptcy into a $300+ billion juggernaut with $80+ in cash and $100+ billion in annual revenue). Did Muskowitz provide comparable value? Of course not.

But he did take a gamble, like anyone joining (or founding) a startup. If this pseudo-clawback [2] behaviour becomes commonplace, it undermines the entire startup scene (IMHO).

[1]: http://whoownsfacebook.com/

[2]: I say "pseudo-clawback" because "clawback" has a far more evil meaning. Just look at Skype. http://blogs.reuters.com/felix-salmon/2011/06/27/skypes-evil...

Re: Zynga Chief Seeks to Claw Back Stock

#90

Post by bigbird »

rmc wrote: post #87
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.

Part of the problem in this case is that the company can fire someone for no reason, even if they are working well and doing their job. This is 'at-will employment' and is common in USA, but outright illegal in, say, the EU. If the employee was able to sue the company (potentially getting compensation) for a wrongful dismissal, then the company would not be able to fire people who didn't agree to the new vesting opti…

It's actually pretty easy to make an employee friendly "deferred compensation" program in the U.S. as evidenced by the way most financial firms structure stock grants. Under these plans, the stock continues to vest, even if the employee is laid off. The only way to lose unvested shares is to quit or get fired for cause.

This type of program is really good for retaining highly paid employees in established companies, but might not be ideal for startups.

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