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Zynga Chief Seeks to Claw Back Stock

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Re: Zynga Chief Seeks to Claw Back Stock

#101

Post by HelgeSeetzen »

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's actually fairly straightforward to achieve. What you want is a structure that rewards people linearly for the time that they contributed to the company relative to the "duration" of the company. To achieve this you only need two mechanism: 1. All incentive equity goes away if the employee is terminated for cause or leaves during probation (some number of months, we use 3). 2. For all other scenarios the employee gets to keep TE/TC shares (the rest are re-purchased if you are using reverse vesting or don't vest if you use options).

TC = Time of the Company from founding to liquidity event in days (or weeks as long as the unit is small relative to the expected duration of the company)

TE = Time in days that the employee worked at the company

It's actually really that simple. Obviously other factors like impact, performance, seniority, etc. play a role but those get adjusted by the magnitude of the stock grant and not the vesting process. We use a reverse vesting shares to give employees tax advantages but the same concept could work for vesting options.

The advantage of this approach is that everything is nice and linear (expect the 3 months probation cliff). A lot of sneaky behaviour is just not worth it when things are linear. Remember, lack of alignment is the big killer of start-ups.

Re: Zynga Chief Seeks to Claw Back Stock

#102

Post by ootachi »

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…

As mentioned, there's a very simple solution as mentioned below: vest monthly. IMO startup employees, especially engineers in this market, should start demanding it during negotiations -- it's a very simple way to defend yourself as an employee.

Re: Zynga Chief Seeks to Claw Back Stock

#103

Post by jpdoctor »

tsotha wrote: post #65
jpdoctor wrote: post #27

Earlier quoted context omitted.

It communicates to IPO investors: CEO is such a dick that he will happily screw over employees in order to enrich himself. 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.)

As an investor what this tells me is the CEO has no personal integrity, and I begin to doubt the veracity of his IPO filings.

You shouldn't believe them anyway, because they are selling you something.

Re: Zynga Chief Seeks to Claw Back Stock

#104

Post by pak »

jamiequint wrote: post #22
cageface wrote: post #20

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.

If the derivatives market expects the value of the stock to settle downward post-IPO rush, then anybody selling you a put option would charge that expected difference and you still don't make any money.

Re: Zynga Chief Seeks to Claw Back Stock

#105

Post by mikeryan »

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…

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

Actually California's At-Will employment is a bit different then standard At-Will. It's got an "Covenant of good faith and fair dealing" exception. Taking back option grants may be in breach of this (though it would have to be tested in court). Point being Pincus can't just fire these folks arbitrarily for not giving back shares with no risk involved.

Re: Zynga Chief Seeks to Claw Back Stock

#106

Post by freshfunk »

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…

No one should be surprised that this is coming from Mark "I Did Every Horrible Thing In The Book Just To Get Revenues" Pincus.

It not just looks bad. It IS bad. Arbitrarily deciding who does and who does not deserve to vest is ridiculous. If the person is not performing, let them go. They are an at-will employee.

By negotiating them to keep their job by giving stock options back, they are simply trying to keep that employee at a cheaper rate. The employees must be performing effectively if they want to keep them. The notion that these people are doing nothing and still employed by Zynga is disingenuous.

The naivete (or CEO apologism) around here is astounding. I understand keeping an unbalanced and impassionate point of view but at some point if it sounds like a duck and looks like a duck it IS a duck.

Re: Zynga Chief Seeks to Claw Back Stock

#108

Post by gujk »

ghshephard wrote: post #60

None of these employees who have had their stock (possibly millions of dollars of compensation) "clawed back" will be likely to do any productive work whatsoever for Zynga - so why not fire them and get it over with? After all - that would have the effect of instantly canceling all future vesting - no discussion or agreement with the employee required whatsoever, and zero controversy. After some deeper thought on thi…

Bingo. If a company stops paying you as much, stop working as much. If you are annoyed that you aren't getting paid for as much as you were contributing before, you learn for next time to pay attention and adjust course before waiting a whole year for a payday.

Re: Zynga Chief Seeks to Claw Back Stock

#110

Post by joshhart »

ww520 wrote: post #68
jamiequint wrote: post #22

Earlier quoted context omitted.

Thats what put options are for.

You cannot buy put options during the lockout period. It's specifically spelled out in the option agreement. It's pretty airtight.

Yep. I'm one of the locked up employees at LinkedIn and I can't buy options (puts or calls) as part of my agreement. So there's no way to hedge.

I should note though that the executives and venture capitalists are ALSO locked out, which is why you don't see LinkedIn stock entering the market currently.

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