Zynga to employees: Give back our stock or you'll be fired

http://news.cnet.com/8301-13506_3-57322150-17/zynga-to-employees-give-back-our-stock-or-youll-be-fired/

by rbanffy • 15 years ago

1120 370 15 years ago

news.cnet.com

Company stock is basically ownership, and there's a dollar value attached to it.

So is does Zynga's request run into the practice of extortion? It's another way of saying, give us your money or else something bad will happen.

tghw2• 15 years ago

Not quite, since it's unvested shares they're taking back. The company has promised to give those shares to the employees when they hit certain tenure milestones, but the company still owns them in the meantime. If they fire the employee, the company keeps those shares.

davorak2• 15 years ago

The fact that it is unvested shares changes little. The employees where lead to believe that if they meant a certain milestones they would receive stock. Now the milestones have been changed. The employees must now also meet new criteria for productivity to receive stock. They signed up for one deal and are now being served another.

shad0wfax2• 15 years ago

This is extortion of sorts right? I mean, yes they could fire the employee for genuine reasons, but if there is a way to prove that the conversation did occur, where the execs did tell the employee to return the unvested stocks in order to keep the job, its pure blackmailing. I wish there was someway to expose these crooks and bring them to justice.

skmurphy2• 15 years ago

CA law provides for at will employment but if the original option was not contingent on specific performance beyond what is needed to continue as an employee, and they are willing for the employee to continue working there provided they surrender their stock they may be in more of a gray area. It's in the nature of a targeted pay cut but it doesn't seem to involve a demotion or change in position, they are effectively approach certain employees and telling them, "we are paying you too much, accept a reduction in your total compensation or we will terminate you."

nobody31415925• 15 years ago

Doesn't matter if it's unvested stock. They simply fire you without cause the day before your stock vests.

All they are saying is - give back the stock and we won't fire you the day before it vests.

davorak2• 15 years ago

I would agree with the analogy if the stock compensation was payed out along the way.

I think it is more akin to "we are not satisfied with your work on the contract we are taking what you have produce so far and are only going to pay you a portion of the original agreed upon amount."

danssig20• 15 years ago

Wrong. They're saying "I know I gave you this, and put a lock in so you had to stay, but now it's worth more than I think you deserve so I'm going back on my agreement. Sorry you worked here so long for below market wages".

Karunamon• 15 years ago

How is this not extortion?

gm• 15 years ago

Old news, see here for comments: http://news.ycombinator.com/item?id=3218774

cienrak• 15 years ago

yeah complete rehash.

lukejduncan• 15 years ago

"Although Zynga's decision might be met with some criticism, the firm's executives reportedly justified their strategy by saying it was best for the company. With the unvested shares, the executives believed they could attract more top talent with the promise of stock."

prodigal_erik• 15 years ago

And now we know what a promise from Zynga is worth. It's hard to see a bet that won't be permitted to pay off as anything other than a way to lure and then defraud employees. I think it's time to start insisting on accelerated vesting if you want anyone to take your option offer seriously.

wavephorm4• 15 years ago

  With the unvested shares, the executives believed they could 
  attract more top talent with the promise of stock.

Not anymore they won't.

alex4nder• 15 years ago

The new hires will just need 'no takebacks' written into their contracts.

cheald3• 15 years ago

The only way that happens is if they're hired with vested stock, which is just not going to happen.

maeon32• 15 years ago

But still then mark pincus would find another way to cheat his developers. The only way to deal with little lucifers like this is to completely avoid and ignore them.

http://en.m.wikipedia.org/wiki/Mark_Pincus

rcthompson• 15 years ago

They would also have to remember to put "no callbacks times infinity".

api22• 15 years ago

Never sign a contract with someone for whom you think a contract is necessary.

betterlabs• 15 years ago

I couldn't agree more. Even if we assume there is a justifiable reason or perhaps its happening only to employees who have not performed (which I doubt can be the case considering those employees could not have lasted this long any way), this probably has done irreparable damage to their reputation in the eyes of current and prospective employees. I hope all this bad PR makes them reconsider it, if not anything else.

pavel_lishin5• 15 years ago

> I hope all this bad PR makes them reconsider it, if not anything else.

Even if they reconsider, I doubt any "top talent" will be joining them any time soon, if ever again. At least, not with a twelve-pound contract inked in blood.

davidtyleryork2• 15 years ago

Honestly at this point I think the damage is long done. I'm just glad that they got to eat their dog food after being so nasty to their employees

whackedspinach• 15 years ago

I know several top-tier CS school classmates who are seniors and had interviewed with Zynga. They were considering working there. Not anymore.

Note to companies: Don't be assholes. We don't like assholes.

jwhitlark• 15 years ago

"Friends don't let friends work at Zynga" was something I heard floating around a while back...

simplekoala3• 15 years ago

I was told my many folks I respect that Zynga is a sweat shop, and discouraged me going there. Now, with the options scandal, Zynga shot themselves in their foot. What is surprising is, Bing Gordon is on KP's board and an honorable, great chap. Wonder why didn't he advise Pincus against this. Pincus openly admitted that Bing is a great friend and mentor. It is a poor reflection on KPCB, the venerable VC firm.

cageface3• 15 years ago

Is it just me or is tech particularly sleazy right now?

api22• 15 years ago

Very. It's bad.

I kind of got out of startups for that reason. I just couldn't take working with sociopaths anymore. I have some stories. Serious f'ing stories. And no, I'm not just "player hating." A lot of it didn't even involve me. I just couldn't take working in proximity to such sleaze.

Tech's had this reputation as a place where fortunes can be made. That's going to attract a lot of ambitious and creative people, but it's also going to attract a lot of scum.

What amazes me about my personal experiences is how unsuccessful a lot of the sociopathic behavior was. It really brought home to me that these people have a mental illness. In the same way that someone with severe OCD will do things like wash their hands until the skin comes off, these people are neurotically compelled to dominate others even if doing so actually harms them. They must win their petty battles and dominate those seen as weaker, even if it means losing in the real world.

I literally watched the moment at which a pathological sociopath tanked a million-dollar opportunity because he had to try to put one over on his partner. Had to.

nickpinkston3• 15 years ago

Here you're allowed to hate the players, and their games...

pavel_lishin5• 15 years ago

Would you be willing to do an anonymous AMA, or write up some of your experiences?

winter_blue• 15 years ago

Would you be interested in putting your e-mail on your profile, or writing more about this. I would like to hear more on it.

cageface3• 15 years ago

I'm not willing to go into specifics, but I will say that I saw worse things in the biotech industry. Having something in the pipeline for human clinical trials really boosts the IPO, even if maybe it doesn't belong there.

fragsworth2• 15 years ago

Looking at their products and how they treat their users I would have expected them to be sleazy in other ways too. I think it's just Zynga.

danssig20• 15 years ago

And Facebook... and Skype, etc.

wccrawford• 15 years ago

It's not tech. It's anything that can make money. People have stopped considering others and only do what they can to make money.

Not that there aren't still ethical people out there, it's just that the unethical ones make it so hard to see them.

itg• 15 years ago

I think this is spot on. I have friends who left the finance industry because they absolutely hated the toxic personalities that it attracts. The ones who went into tech say it isn't much different. Anywhere there is fast money to be made will attract scumbags.

zem• 15 years ago

well, zynga in particular has been sleazy from day one. if any other company had done this, i bet people would have been a lot more taken aback - here it's still shocking, but at some level it's in line with their general business ethic.

tlear• 15 years ago

That was my reaction as well, Zynga doing it is not surprising at all

jccodez• 15 years ago

Nothing new here: "Later, in 1982 when Allen had been diagnosed with cancer, Allen is reported to have said he overhead Gates and current chief executive Steve Ballmer discussing Allen's lack of recent contributions to the young company, and talking about how to dilute Allen's stock allocation."

danssig20• 15 years ago

People often forget what a scumbag company MS was. I would be shocked if they didn't have tons of such stories.

r00fus• 15 years ago

Overhyped tech startups are sleazy.

There are lots of underhyped startups right now that are busy disrupting other areas like enterprise software.

Key is to look at who's funding whom and executive leadership... an organization's DNA goes from top-down.

philwelch• 15 years ago

I went to Startup School in 2009 and 2010, but not this year. In 2009, Mark Pincus was one of the speakers. In 2010, Andrew Mason was one of the speakers. It looks like Pincus spoke again this year.

If a seemingly honest man like pg can't arrange a nice little startup conference without having at least one speaker every year who turns out to be some sort of con man, then yes, I'd have to say tech is particularly sleazy right now. I'm not faulting the Startup School organizers for this, but it's an interesting observation.

api22• 15 years ago

I would fault the Startup School organizers for this. They are creating a community that is catering largely to people who are young, talented, but not experienced. They need to be educating people about how to avoid the pitfalls and scams of the startup world as well as about how to succeed.

Instead, they bring scummy fast talkers and put these people up on the stage as ideals. Not only is that teaching the next generation of entrepreneurs to be scummy fast talkers, but it's setting up these kids (and many of them are kids) to look up to and follow people like this. It's setting them up to be taken advantage of, or to become abusers themselves.

Like any guru, pg only pimps the upside. He has a lot of good things to say, but at the end of the day it's basically self-help, water cooler wisdom, and motivational speaking for beginning entrepreneurs. He's not going to tell you about the filthy underbelly.

He's not going to tell you that a good 20% of the people in the startup world have a diagnosable psychosis. Psychopathy, narcissistic personality disorder, and bipolar disorder are the most common. He's not going to tell you that startup stock is basically worthless, and that if you're about to vest you are probably about to be fired unless you are in the "inner circle." He's not going to tell you that the game is rigged hugely in favor of the already-connected.

Tangurena• 15 years ago

Tech all over.

Earlier this year, one such sociopath latched onto my sister and she convinced me to get involved. As soon as the project looked like it was going to get released, the sociopath tried to dilute my sister's and my shares from 1/3 each to 1/20th each. He wanted to bring in partners that he had previously screwed over to make something up to them by screwing us.

api22• 15 years ago

"He wanted to bring in partners that he had previously screwed over..."

That is so classic. It really does get kind of Monty Python-ish.

Like I said in my post above, I have a lot of stories. If I ever wrote a book about it, I'd have to tame them down quite a bit to make them believable.

redditmigrant• 15 years ago

I dont think my experience is at a similar scale, but it sure is immoral. I interviewed with a SF based YC startup recently. I already had plans of being in the area during the time they wanted to "fly me in" and I asked them if they could just reimburse me. They said yes, and then I got there, things didnt work out and they said they werent going to make me an offer. Thats all good, but then they said "their accountant" had told them they cant reimburse me the measly amount of $200. It just surprised me that people would swoop to such cheap behavior.

MicahWedemeyer• 15 years ago

In order to determine which employees would be asked to give stock back, Pincus and his executives tried to pinpoint workers whose contributions to Zynga--in the execs' eyes--didn't necessarily justify the potential cash windfall they could receive when the company went public

I'm going to take a wild stab here and guess that none of their own names were on the list they came up with.

Whenever crap like this happens, pull out an org chart. You'll pretty much be able to draw a straight line that divides who shits and who eats shit.

jsavimbi2• 15 years ago

This happens everywhere. Employers let the flotsam sit around for months, even years, configuring servers or generating a slide deck and when time comes to shell out cash as either a reward or through compensated attrition, they'll pull out that long-dormant knife and stick it into an unsuspecting recipient's back.

That way the don't have to over-compensate the performers beyond what they've already promised them.

ohyes4• 15 years ago

This is totally true.

Your employer is not there to do you any favors.

Most likely, they will knife you in the back the minute they get the chance.

api22• 15 years ago

What a bunch of assholes. Seriously.

maeon32• 15 years ago

Get people to work like hell having given them stock options... Then take it away from all but the top 20% or face termination?

the manager who came up with that idea is no doubt getting a huge bonus.

nickpinkston3• 15 years ago

Scumbag Zynga?

Make money pressuring users to pay for virtual goods. Pressure employees to give stock for virtual jobs...

lbarrow• 15 years ago

This isn't reddit.

nickpinkston3• 15 years ago

Yes, this is SPARTA!

No seriously, I was just making the point as a joke that we shouldn't be surprised that a company like Zynga, who makes money through admittedly slimy means, wouldn't have the same attitude towards everything else too. I think the ScumBag meme is apt.

saalweachter• 15 years ago

I wonder if any early Google employees begrudge Charlie (he's the "early Google chef", right?) his millions.

An army travels on its stomach. Google's chefs helped make Google the company it is today. Why is it so wrong that they be rewarded?

api22• 15 years ago

There is risk associated with working for a startup. Risk that you will suddenly lose your job. Risk that you will lose your health insurance two days before one of your kids requires an operation. It's a level of risk that doesn't exist if you work for the government or some big mega-corp.

There's also a level of buy-in that startups demand. You're asked to make it more than "just a job." Even the guy mopping the damn floor is asked to mop it until it shines, just because "we're all in this together."

People deserve to be compensated for that if things go well. But to your stereotypical business sociopath only executive-level individuals and their cronies are real human beings. (Actually, nobody is a real human being. It's only about winning in the shortest possible term.)

And I'd be willing to wager that these particular executives were more of the empty suit, posturing, clueless, "let's do lunch," "I'll have my people talk to your people," variety. There is a negative correlation between actual merit and this kind of behavior.

goatforce5• 15 years ago

> Even the guy mopping the damn floor is asked to mop it until it shines, just because "we're all in this together."

Guy I used to work for said one of his proudest moments was hearing the receptionist at the company he had founded was able to buy a house outright with cash from the proceeds of her stock options.

forensic5• 15 years ago

The elitism openly displayed by Zynga blows my mind. Chefs are somehow too lowly to have their contracts honoured? It's somehow morally wrong that Chefs should make millions?

Only soulless suits and maybe a few key nerd-slaves deserve lots of money! If anyone else gets money, it's a crime against humanity and we must take bold action to rectify it!

Runaway sociopathy is the only way to describe this behaviour.

SandB0x• 15 years ago

Or the massage therapist, Bonnie Brown. http://www.nytimes.com/2007/11/12/technology/12google.html?p...

georgekv• 15 years ago

This sounds exactly right. He was hired, in part, to make it more attractive for employees to work longer hours. He succeeded so it hardly seems unfair that he was well rewarded.

"He signed up, however, and started easing the computer engineers into the long hours culture with innovations including free beer and fortnightly "big ass" barbecues, and breakfast specials. He converted the "googlers" to a diet that ensured they kept working after lunch and weaned them off pizzas."

(source: http://www.telegraph.co.uk/news/worldnews/1582494/Chef-lifts...)

neilk2• 15 years ago

Millions, shmillions. That's not the point.

Presumably he took stock options and was paid less than he would receive elsewhere. And the options also compensate him for career risk.

The way I read it, committing to Google was a much bigger risk for him than that of any of the programmers. What if Google had never grown beyond a handful of employees? How does that look on a resume? Instead of "sous-chef at Restaurant le Snob", "managed the cafeteria in some anonymous company in a Mountain View office park."

shareme• 15 years ago

Its called Mafia Wars for a reason..now we know the reason..capice

prostoalex4• 15 years ago

Important to note this applies only to unvested stock.

I'm not defending the move, but in reality the company could terminate the employees (at-will employment in California), which would terminate their further vesting anyways.

This is not the clawback scenario that Silver Lake executed with Skype.

alex_c2• 15 years ago

Terminating employees only to avoid their stock vesting - as opposed to valid performance reasons - is just as scummy.

I also can't see how employees who give up their stock and remain with the company can possibly have a healthy relationship moving forward.

elliottcarlson• 15 years ago

Even if at-will employment, wouldn't such a threat possibly still be grounds for unlawful termination?

darrellsilver• 15 years ago

That it's the unvested portion definitely makes a difference... But to be ethical you really can't just take unvested shares from employees because they have "too much", which is how the WSJ tells the story.

Sounds like Pincus gave performance-based pay with a pretty transparent system, which should have worked well. Employees must know how management sees their performance, otherwise you're destined to have a bad breakup.

If the story is accurate (hopefully it's not as who'd want to ever work at Zynga after this?) then the lack of stock for new hires was a management issue, and should be resolved from management, the investors and the board's pockets. After all, each investor saw the cap table before putting money in.

utefan001• 15 years ago

Any lawyers care to explain the legal possibility of keeping the stock after being fired?

brk• 15 years ago

IANAL.

They are talking about unvested shares. The employees do not own them or have a right to exercise them yet. Every standard contract I've ever seen also includes a clause that shares stop vesting upon employment termination for any reason.

So, they are basically saying "give up unvested shares, or else we'll make you give them up by firing you".

rayiner5• 15 years ago

Law student about to graduate, but not yet admitted to the bar/not giving legal advice/etc:

The law does draw distinctions based on the circumstances surrounding a termination, even in an at-will state. The employee does not yet own the unvested shares, but they do have a contractual right to them. Terminating someone just to screw them out of a contractual right you agreed to in a contract is going to give someone ammo in a lawsuit.

Given its pre-IPO situation, Zynga is in a bad leverage position in the face of such a lawsuit. They're going to have an incentive to settle just to get the claims to go away. What they probably should have done instead is to terminate the employees for performance up front with a generous severance package and a contractual agreement to not sue the company for improper termination. But they probably couldn't handle these employees leaving right now. They wanted to have their cake and eat it too.

pavel_lishin5• 15 years ago

> With the unvested shares, the executives believed they could attract more top talent with the promise of stock.

What sort of top talent will have not read this story and decided that surely, THIS TIME, Zynga won't screw their employees?

fragsworth2• 15 years ago

News like this damages the startup community, especially in game development. Lots of potential employees already have a sense that stock is "worthless paper" and this Zynga stunt just exacerbates the problem.

This could end up like what happened with Activision and the CoD guys.

tzs• 15 years ago

So a company whose business model is based on the notion of ripping off actual game companies is also unethical with its own employees? What a completely unshocking development.

mtkd• 15 years ago

Stories like this reduce the value of stock for all companies who issue it - most with good intentions - and leave our community morally poorer.

So what if a chef in an early stage team made out with $20M later - an army marches on it's stomach - he probably contributed more to delivery than some of the management team at the time.

raganwald2• 15 years ago

Even if the chef didn’t contribute as much as others who took home M$20, is Pincus is really claiming that: “We don’t want to make the mistakes Google made: Look how badly things turned out for them!”

Somehow, that doesn’t seem like his best work as a CEO...

mmaunder2• 15 years ago

Sometimes you just have to sue to enforce a contract and your rights. Many employees either don't realize this or they don't have the stomach for it. If you find yourself in this position, my advice is to play the game and see it through.

1. Don't resign, don't capitulate and hire a good lawyer immediately. If you don't have the cashflow, but are defending a huge pile of stock about to IPO you'll probably find a lawyer that will defer payment.

2. Start documenting everything including making timestamped notes of what was said to you verbally.

Then play it out. Read all documentation the company has given you and fully understand it. They usually have to fire you for cause for you to lose your options, so figure out what the angle is they're using and make sure they don't have cause. Be 100% professional and non-confrontational, but ask the hard questions when you need to. DO NOT treat the company's staff (including your boss) or their legal team as your own legal counsel. They will try to give you "good advice" or intimidate you. They will claim things are "standard". Get your own info and use your own lawyer.

Often simply retaining counsel lets the opposing team know you're serious and professional, and worst case it will up any settlement.

PS: I'm an exec, not an employee, so technically I'm the guy on the other side of the org chart that Micah (see below) is describing. But assuming the report is accurate, this is unacceptable behavior and I'd like to see more employees who take a risk on startups getting what they deserve and enforcing their rights.

joshAg2• 15 years ago

as an executive, do you think that zynga's executive team gave any thought to the bad press this might generate and the talent that this might scare away?

From my perspective, this sort of thing scares me away from companies, because they might do it again in the future.

cheald3• 15 years ago

Honestly? I think this is the execs trying to grab as much stock as possible for themselves pre-IPO, so they can dump it and run.

There's no way that this actually turns out to be a net positive for the Company. It's going to make it significantly harder to hire actual talent, it's going to cause morale decay and revolt from within the company, and it erodes Zynga's brand. Literally the only benefit here is that the execs end up with more stock when the IPO happens.

johngalt3• 15 years ago

It's not like Zynga will have another IPO in the future, or will need to promise future employees equity.

Precisely why "trust" should never be a part of an equity negotiation. When millions are on the table people will do whatever they can get away with. Zynga doesn't want another "google chef", but they took full advantage of the "google chef" when promising equity to early employees.

kamaal4• 15 years ago

They don't bother much. For most these people, who are basically sales and operation guys. They are made believe in their MBA classes that if they have a brand name and atleast one successful product they will never need any technical talent to run the company. And they can sell anything every after with operations tuning they teach them during their MBA classes. And that they can virtually sell anything by marketing, advertising and brand positioning. And that engineers and technical staff is merely a commodity which just needs to be used like raw material to convert it money later.

They are basically in for cashing on pre-IPO gold rush.

For me this is more than sufficient to be cautious before working at any start up again.

thezilch• 15 years ago

IANAL. Considering the employees are going to be challenging California's "at will" employment laws and the fact that the charges against the employees is performance based, how likely is #2 to have a fighting chance?

kls13• 15 years ago

They have a strong argument that the options deprived them of real salary that they would have earned elsewhere. It will be interesting though. The reality though is they just lost every bit of talent they ever gained. The good talent is already in talks with other organizations I can guarantee you, I personally would be looking for an exit and no one I mean no one worth their salt is going to sign up with them now.

ajg1977• 15 years ago

Just because California is an "at will" state doesn't mean a company cannot be sued for wrongful termination or constructive dismissal.

alastairpat5• 15 years ago

"At-will"?! I had no idea that in California you could just terminate employment for no reason.

Coming from Australia where you can't fire anybody without good reason (even demoting people can be considered unfair dismissal) this just sounds insane.

Androsynth9• 15 years ago

Do they have a legal footing to stand on? The way I read it is: 'We consider you overpaid for the job you are doing and we no longer wish to keep you around at that compensation level'. That is a valid reason to fire someone in CA isn't it?

kls13• 15 years ago

IT is not a valid reason to reclaim unvested stock, those are looked at like current compensation when termination is unjust. You cant terminate someone just to unvest them. That being said, I always draw a line through and contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination. IF they want to negotiate as to when the options will be awarded to ensure that I am going to do a good job before I get options that is one thing, but I never allow for a termination to unvest me after the fact.

wavephorm4• 15 years ago

The employees that get their shares stolen can sue for extortion, which is exactly how I and most people would describe this situation. Unfortunately the law generally favors those with more money and resources.

ChuckMcM3• 15 years ago

I agree with this statement, and I think Zynga's actions are at best unethical.

It would be interesting to know the facts from someone in this situation but I also expect that such folks should not be blabbing to folks other than their lawyer.

My interpretation of the story was that they were asking for folks who had stock that was not vested which is to say part of some future vesting pool, to give that up their right to that stock. So if you gave someone 100K shares over 4 years, and they had been there 2 years, 50K was vested and 50k yet to vest, they are asking that you give back the 50k that have yet to vest.

This would be different than Skype's 'clawback' clause, and it would be slightly less onerous than canceling vested but not yet exercised options.

The article also suggests that choices were made based on some measure of value (and implied performance). I have seen folks who are doing ok work, but its not at the level that they are being compensated, that puts you in a tight spot. Few, if any, folks are open to a restructuring of their compensation package in a downward way (which is what Zynga is proposing it would seem). In California at least you simply ask them to leave (and the article suggested that the choice was 'accept this new lower compensation package, or leave, your choice.')

Frankly I think it would be less painful on the company oversall if they just laid off the folks they felt they had made the compensation error on. I don't see anything good coming out of this approach for the company, and I recognize they may think they are being compassionate by not firing people who, except for the size of their option grant, are doing ok.

Google's innovation here is something they call a 'Google Stock Unit' (GSU) (which is not an 'option' it is more like restricted stock) where the ratio of GSU to actual stock is fixed at the time it vests by a perfomance multiplier. That way they can offer a hot shot person 2500 shares of 'restricted' stock (market value of 1.25M$) which vests in four chunks of 625 'units' a year, and if you didn't meet your goal that year your multiplier could be less than 1.0 even 0. So they wouldn't actually have to give it to you if you weren't a hot shot inside of Google. To be fair the multiplier could, in theory, be greater than 1.0 too. The cleverness of that scheme is that the company could 'tune' the compensation of someone dynamically.

I'm guessing Zynga might be wishing they could do something similar for ISO type options.

grellas2• 15 years ago

What Zynga is doing is pretty repulsive, as I previously commented in a related thread (http://news.ycombinator.com/item?id=3219437), but it is not accurate to say that "[t]hey have to fire you for cause for you to lose your options."

The overwhelming majority of employees at startups sign documentation acknowledging that their employment is at will and can be terminated at any time by either party for any reason, with or without cause. In relatively rare cases involving founders or high-placed executives, the company will sign contracts stating that, though the employment is at-will (i.e., can be terminated at any time for any reason without liability), the employee will get accelerated vesting of one sort or another in the event of a termination "without cause" or a resignation for "good reason." "Cause" is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc. If you have an employment agreement that provides for such acceleration, then you are clearly protected against the Zynga-style threats described in this piece. If you do not, then you generally are not on firm legal footing but still may have some fighting chances.

What are those? If you can argue that an otherwise permissible at-will firing becomes impermissible because it is animated by discriminatory animus (race, sex, age, etc.), and you belong to a protected class, you could argue that the threatened firing is illegal and would subject the company to damages (which, of course, would include the value of the unvested stock that would otherwise have vested had the company not acted illegally to terminate your employment).

If you can argue that the ground of termination violates public policy, this might be a separate basis for claiming that the firing is illegal, notwithstanding that the employment relationship is at-will.

If you can argue that the company has given you implied promises that your employment would be for a certain duration, this also might take it out of the at-will category and give you fighting chances.

If you can argue that you were induced by fraudulent misrepresentations, e.g., to leave an existing employment based on the promise of equity compensation, or if the at-will language in your agreement is defectively implemented, or if any other ground might exist by which you can legally claim you got cheated or had some promise made to you breached, all this too can take this out of the pure at-will category as well and give you a basis for leverage.

To sum up, "cause" is not usually needed by an employer to terminate employment and recapture unvested equity. But you also by no means automatically lose just because your employment is at will. This is a complex area. With a lot at stake, it pays to get good legal advice to see if you can find a good angle by which to protect yourself.

A good legal case depends on legal rules that support it and, even more important, on good facts that motivate judges, juries, and anyone else looking at the case to want to go in a certain direction. Here, Zynga is providing all the good facts an employee needs to motivate people to want to slap them upside the head. That by itself is not enough. But if you find even one legal hook that gives you a sound basis upon which to attack what they are doing, then you can stand and fight. It is not easy, but sometimes you have no choice.

mmaunder2• 15 years ago

Thanks for weighing in on this in such detail. Valuable insight.

wglb• 15 years ago

Thanks for the great detail and analysis.

(First time I have heard the phrase "slap them upside the head" used in an informed legal opinion.)

mprovo1• 15 years ago

Thank you for taking the time to write this up. Greatly appreciate it!

Klinky• 15 years ago

Here's a document discussing the exceptions of "at-will" employment.

http://www.bls.gov/opub/mlr/2001/01/art1full.pdf

Specifically of interest is the "Covenant-of-good-faith exception"(only in 11 states, CA being one of them) which I first saw referred to also by someone else here on HN.

At trial, the jury found that Kmart terminated Ponsock to avoid having to pay him retirement benefits. As part of his case, he claimed that Kmart’s discharge was in “bad faith” and that, even without a contract, such a termination gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and exceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”

If I was a Zynga employee I'd definitely be talking to a Labor/Employment lawyer. "Give us back your unvested stock or be fired" sounds pretty "bad faith" to me. Zynga should have just fired the people, but I think they don't want to lose the talent, they'd rather negotiate lower compensation instead of having to find new talent which will most certainly know of Zynga's upcoming IPO & demand proper compensation.

prpon• 15 years ago

Cause is usually defined as willful failure or refusal to perform duties that continues after notice and an opportunity to cure, misappropriation or misuse of company trade secrets, commission of a felony or other action involving moral turpitude, etc. and "good reason" is typically defined as material reduction in compensation or duties, relocation to a remote area, etc.

When a company decides to terminate an early engineer because the 5% they agreed at the start is deemed too high for an engineer, usually the reason given is 'non-performance'. Even though the engineer is performing his engineering duties.

Does a company need to prove that the engineer failed to perform and document it? or is it usually the company's word against the engineer's? What stands up in the court of law as 'failure to perform duties'?

lambda• 15 years ago

> Sometimes you just have to sue to enforce a contract and your rights.

If you can sue. At my last job, they made me sign a binding arbitration agreement as a condition of being employed. I needed the job, so I couldn't play hardball and refuse.

samikc• 15 years ago

it shows how greedy people can be. i cannot think of anything like this can be done by a tech company. bunch of douche bag. how the hell are going to decide what contribution is important or which one is not? This is pure greed man... I am posting this in FB let Zynga games go to hell..

cheald3• 15 years ago

This is really, really sleazy.

The bottom line here is "You don't get to be a part of the IPO windfall." Given that the employees that are getting stung like this have accepted the risk of working at a startup, and likely have accepted lower salaries in exchange for the promise of stock options, this is morally equivalent to theft of services.

Stock as a compensation structure only works when people use it in good faith. Scummy moves like this are only going to make it harder for startups to attract talent unless they can pay full market rate right out of the gate.

danssig20• 15 years ago

Actually, given the instability of a startup, they should be paying more than market rate right out of the gate. They tried to do this by using stock options but enough crooks have found ways around it that I expect the labor market to adjust to this.

quattrofan• 15 years ago

Seriosly do these execs realise what a bunch of utter douchebags they look like? I guess they don't care. Personally though I would think twice about going to work for them, whatever they offer apparently is worthless because they can change their mind and take it back off you again later.

hello_moto2• 15 years ago

They're also a big PHP shop, and keep in mind that this is a game company where long-hours, OT, crazy demands are "normal". Mix them together and ask yourself again if Zynga is a place you'd like to work...

dustineichler• 15 years ago

Isn't there a way to buy your stock pre-vesting? I'm pretty sure there is.

sixtofour• 15 years ago

If there were, wouldn't you be liable for the capital gains post-IPO?

fennecfoxen2• 15 years ago

These aren't options. They're RSUs (restricted stock units).

An option has a strike price (typically breakeven with the stock price on the date it was issued, sometimes not). After it vests, you can keep it around for a while, and decide when it's best to exercise (possibly pre-IPO, possibly after). A restricted stock unit is essentially a share of stock that they give you free as soon as it vests.

RSUs have some advantages and disadvantages. One advantage is that short of bankruptcy, they never really go "underwater". One disadvantage: you deal with tax implications immediately.

It's difficult to take either those away once they've vested, but it's unvested RSUs I believe we're talking about here.

funkah• 15 years ago

Working for a startup (or hell, founding one) seems like an enterprise in which a person can get screwed 8 million different ways, and I only understand about four of them.

fennecfoxen2• 15 years ago

Your best defense against this is knowing and trusting the owners and co-founders. Ideally you'll have worked with them before, or some of your friends have. This is why I'm at the startup I'm at and not another.

thegorgon• 15 years ago

This is par for the course for Zynga who have made a successful company by stealing the lunches of creative companies and developers.

Don't be surprised when an evil company acts evil. Just don't work for evil companies.

celticjames• 15 years ago

I suspect that none of those employees were planning to stick around after the IPO anyway.It's sounds like a terrible place to work.

exit• 15 years ago

developers should blacklist companies like this. sort of an informal union.

with the right personalities behind it we could do serious damage to the sleazy conniving wheeler-dealers who pull this shit.

api22• 15 years ago

And you'd instantly be sued for libel, slander, and tortious interference with business relations.

alexwolfe2• 15 years ago

Last time I checked, Unions were legal. For that matter not liking a company is legal too. Not wanting to work for someone, also legal. My friend not wanting to work for someone I don't like, also legal. Not liking a companies policies, ummm also legal.

danssig20• 15 years ago

Tech needs a real union. We've been exploited for quite some time and organizing is the only way to deal with it. If movie stars took the same approach as tech people, Tom Cruise would get $30k per movie and worthless stock options.

Timothee• 15 years ago

I know that employment is at-will in California, but you can still sue for wrongful termination in some cases.

Could this be happening in this case?

I read the beginning of this page (http://www.ca-employment-lawyers.com/Wrongful-Termination.ht...) and it seems to depend highly on the contracts and employee handbook that Zynga have.

In any case, you would think that this should make hiring talents more difficult…

kls13• 15 years ago

the executives believed they could attract more top talent with the promise of stock

Not now, I would not take it, it would be an all cash deal for me after those shenanigans. Even if they don't go throw with it, they have shown their hand.

ojbyrne• 15 years ago

So I'm curious why they didn't follow the standard Valley way of dealing with this - issue enough new shares and grant them to everyone but the people on the "hit list."

cellis• 15 years ago

Probably an anti-dilution clause prevents that.

jacquesm2• 15 years ago

Regret has never been a good enough reason in the eyes of a judge to annul a contract.

If Zynga agreed to the terms as described they haven't got a leg to stand on. The time to negotiate a contract is before it is signed, not retroactively. If they use the threat of termination then they will lose even more, not only will they not get their stock back, they will also have to pay excessive severance pay due to wrongful termination and they lose their best employees (those that have options).

Prior to an IPO you make sure you don't 'rock the boat' and you make sure that your management team is seen as competent and playing by the rules.

This is neither and I really wonder who is advising them to take these steps. They are hurting themselves in just about every way that I can think of, they look incompetent and sleazy, neither of which is the kind of company that you'd want to invest in.

The IPO cake should be large enough for everybody to share, there is absolutely no need for stupid tactics like these.

tatsuke95• 15 years ago

IANAL...

...but I'm sure Zynga has some good ones. I don't think they're trying to annul the contract. Essentially, they're saying that these employees are underperforming, and thus they have the right to fire them "with cause". If they straight up fired the employees, those employees would lose out on their unvested shares. They would have nothing. Instead, Zynga is saying, "Give some back and you can stay."

Low and shady. Should we expect anything less from this company? The bright side is, they avoided a mass-firing (likely because engineering talent is still tough to find).

jacquesm2• 15 years ago

I am not a lawyer either, but saying 'give some stock back and you can stay' would make a wrongful termination suit a slam-dunk.

Announcing it (especially to multiple employees) is about as dumb as it gets.

absconditus3• 15 years ago

IANAL, but I believe that wrongful termination suits are extremely difficult to win in most of the US unless an employee is fired because of discrimination, because the employee discovered an illegal act by his or her employer or a few other situations.

todayiamme• 15 years ago

>>> This is neither and I really wonder who is advising them to take these steps. <<<

I'm not sure why people have missed this, but Silver Lake is an investor in Zynga, just like Skype...

http://www.silverlake.com/partners/investments.php?page=inve...

alexwolfe2• 15 years ago

Bad experiences with stock options happen a lot in the tech world. I believe it's one reason that working for a startup doesn't have the allure it once had. Many are busting there butts and just collecting a paycheck because their shares have been diluted or rescinded. Starting early with a company now doesn't mean nearly as much.

danilocampos3• 15 years ago

Wait a minute.

What just a damn minute, here.

Are you telling me that a company that cheerfully built itself on shady shit like un-removable browser toolbars might continue screwing anyone it wants in the furtherance of its leaders' avarice?

I am shocked.

Look, it's endearing when people have scrappy stories about their origins. We all act out of desperate vigor when we're up against the wall and far from our goals. But there's a difference between being scrappy and being a swindler. Scrappiness transmutes into strength and informs your company's values. Swindling, on the other hand, is almost always forever, and informs values in a much more negative way.

A swindler will knife you at the first lucrative opportunity. Avoid them. Do not work with them or for them. They are Aesop's scorpion. Deal with honest men and women instead. Perhaps their purses are marginally smaller – but that's because they won't go rummaging through yours when your back is turned.

raganwald2• 15 years ago

> I am shocked.

Don’t you mean “Shocked, shocked to find shady business going on in here?”

Your winnings, sir.

danilocampos3• 15 years ago

It's surely a testament to the quality of Casablanca's writing that its resulting cliches are still so satisfying after all this time.

Androsynth9• 15 years ago

Is it ever that simple? How can you know a person's moral character just through a job interview? What about if you were Zynga employee #50 and Pincus didn't even interview you, but the company wasn't big enough for TC to post about it's shadiness? What if an honest man gets tempted by 9 figures in a once in a lifetime situation?

danilocampos3• 15 years ago

It may be more simple than you guess!

If dishonesty has infused a company's DNA, that's often something you can feel. Values cluster people together, so a founder with... shall we say, ethical flexibilities, will often surround him or herself with others of similar persuasions.

So I'd say it trickles down. You get a vibe. I've met people who I'd never want to work with only because of the spidey sense tingling, you know? Nothing I could put my finger on. But unsettling enough to be a deal breaker. You gotta trust these things.

I'm not saying it's easy, or even fair. Plenty of these guys are honest folk getting screwed, I'm sure. But you must be vigilant to work with those who share your values.

On the other hand, anyone who joined Zynga after their dishonesty was laid bare should not be surprised at the outcome. Again, still not right or fair. But there was the warning.

Tichy2• 15 years ago

Just playing some of Zyngas games might provide a hint.

barefoot• 15 years ago

This was really well written, thanks.

run4yourlives• 15 years ago

Interesting to note that in Canada, this would fall under "constructive dismissal" and would mean that Zynga would be liable to pay the same severance as they would if they just decided to lay people off. Legally - 1 week's pay for every year of service, plus whatever the court thinks is fair.

Altering an existing contract and threatening to terminate said contract if the new terms aren't agreed to is a really assholish thing to do, to be honest.

If Zynga employees were smart, they'd band together and threaten to quit - immediately, with no notice - en masse. You need to negotiate from whatever positions of strength you can obtain.

Either way though the company has now been poisoned beyond repair... good luck attracting any top talent from this point forward.

bitops• 15 years ago

I was given some advice recently by someone more senior than me: "in the Valley, equity nowadays is worthless. Show me the money!".

That's played itself out as true so many times it's basically become a rule. Equity means absolutely zero for most people - salary, vacation time, health benefits - these are now the selling points for companies in my eyes.

Stuff like this just proves that equity is way too unreliable unless you're a founder or exec. And Zynga runs a slave ship to boot.

sabat2• 15 years ago

With the unvested shares, the executives believed they could attract more top talent with the promise of stock.

Not if the new hires find out about this previous action, and realize that the company may very well demand the stock back.

ggchappell• 15 years ago

One of the paragraphs in this article is mysterious:

> The Journal cited two employees--one who has left Zynga and another that still works with the company--who hired attorneys to reach a settlement that saw them give up some, but not all, of the unvested shares.

Why would a former employee give up shares? Current employees were threatened with firing. But I don't see what hold Zynga has over this person. Why not just keep all the shares?

alexmr• 15 years ago

I read that as one employee left after the threat was made, and the other stayed.

JGailor• 15 years ago

I'm a little surprised I haven't seen this on TechCrunch yet.

johngalt3• 15 years ago

Zynga is aiming squarely at their feet and firing a cannon.

Would you invest in a company where management is obviously looking for a short term cashout at the expense of the future success of the company? The future success is precisely what the investor is buying. It's like buying a car while the seller is actively pulling parts out of it.

The results of this will be reduced share values combined with lawsuits eating up any potential gains.

slavak2• 15 years ago

I was also wondering about this.

A few people here commented that this is obviously a move by the execs to claw back as much stock as possible for themselves before the IPO in order to ditch it and run. On one level, this sounds realistic. But you have to wonder: Isn't taking this kind of action so close to the IPO just going to put their stock price into free-fall? Did they simply not expect this kind of headlines, or maybe I'm overestimating the amount of exposure this is going to get outside the HN community?

johngalt3• 15 years ago

I've got no doubt the execs still make more overall, but how much more? And is the difference worth their name? We will never really know the answer to this question.

Likely they picked a minority of the employees, and there will be a lot of unfair pressure on them not to "rock the boat" from the rest of the staff. So if the employees take it lying down I don't think much will come of it.

Conversely, if it blows up into a full class action. Then Zynga could be in trouble. You'll have newspapers running statistics like "X% of people who got ripped off are convieniently minorities or women".

kls13• 15 years ago

No investors are myopically focused on short term trends, if anything this will be looked at as an opportunity to replace those positions with off-shore bodies that can further reduce price, drive up the short term and dump it. I can almost guarantee that this idea came from their IPO investment house that is handling the IPO, I will have to dig up who is handling it, but this one seems to be right out of the play book of how to drive up the short term gains. Long enough for the institutional investors to flip their holdings while the numbers are still going up, but before the product rot sets in.

api22• 15 years ago

They don't care about the long term. They are going for IPO (hand off to dumber money) and then getting out.

The game is: lie, leverage, flip.

Tichy2• 15 years ago

"With the unvested shares, the executives believed they could attract more top talent with the promise of stock"

I suppose that would be "top programming talent" but not so much "top economics and common sense talent".

NHQ• 15 years ago

Boss: Give me money or be fired.

Employee: Peace out sucka!

later

Bosses: How do we attract and keep top talent?

HiroshiSan• 15 years ago

Looks like they've been reading into Steve Jobs' biography a little too much.

muzz• 15 years ago

How did several employees have equity of more than 1% of the company??

Even in a heavily equity-based compensation package in an early stage startup, anything over 1% is usually reserved for VP-level if not C-level executives, as the entire employee pool is usually only 20-25%

Per WSJ: '"Some of these people were sitting on over $200 million and close to 1% of the company" when fully vested, said one person familiar with the list that was compiled.'

http://online.wsj.com/article_email/SB1000142405297020462190...

api22• 15 years ago

Because they made inflated stock awards to lure in the suckers, then canned it at the last minute. It's classic.

shad0wfax2• 15 years ago

Pathetic. Very disappointed to see this. This is the cancer that sets the stage for other startups as well.

How is one supposed to decide which startup to work for and at what stage in the startup to join? I liked the 37Signals principles when and IF they ever go IPO/cash out. I think the VC community needs to push for such a clean and transparent model (Wishful thinking).

Nelson69• 15 years ago

Wouldn't there be other ways to pull this scam off? Perhaps less outwardly visible ways?

Assuming the board is on board with the plan, why not do some sort of stock dilution and re-issue preferred shares or something like that? Conventional wisdom would dictate that the last thing you want going in to an IPO or M and A is some goofy accounting on the books but the last few years make me think Goldman and company are really really good at deciphering that and more than accepting of the practices.

With all the things I've heard about game companies in general and then Zynga itself, it's a wonder that the game industry keeps moving forward. There is always fresh meat though.

To the Zynga folks... I don't know that you'll be able to lawyer up and fix it, I just don't think the laws will be on your side and there are too many loopholes. However, possibly building a coalition and contacting Communication Workers of America or something similar might make a larger impact, assuming you can build a coalition... Distasteful as I think it is, I think it might be your best option.

sdh• 15 years ago

Maybe the employees of Zynga who weren't offered this deal should sue Zynga for too little compensation for the value they've created. The hammer should swing both ways.

a5seo• 15 years ago

I love that if a company implodes, the employees who took options over cash can't go back and say, "hey, I worked way harder and gave up way more than I should have, so I need to take some cash out of the founder's pocket," yet Pincus thinks it's perfectly OK to do the inverse... "Woa eh, you've made way more money than we thought, so we need to take some of your equity back."

I hope Pincus, and anything he touches, is dead to anyone with the slightest amount of common sense going forward.

It's like this guy can't help but be evil.

rhizome6• 15 years ago

It's like this guy can't help but be evil.

What are you talking about? It's the key to his success.

mzuvella• 15 years ago

Come work for ngmoco, we don't do that shit.

drivingmenuts• 15 years ago

Can I just say: fuck everything about that?

benmathes• 15 years ago

ethically: equity compensation for a lower-than-market-rate salary is effectively an investment by the employee. They give up potential funds for equity. This includes unvested equity in the investment since, in the beginning, it's _all_ unvested.

If you take back some of that equity with no commensurate repayment, then fuck you.

Powells• 15 years ago

I heard a similar thing over at airbnb

adrianscott• 15 years ago

Somebody forgot to water their crops... For those of you asking about pre-purchasing your stock, you can exercise options prior to full vesting, but the stock is still subject to vesting, so you can lose them through termination etc., afaik...

zerostar07• 15 years ago

Someone takes Mafia Wars too seriously in there...

apechai• 15 years ago

Let's give them a taste of their own medicine. They grew off exploiting the Facebook feed and twitter.

I started #boycottZynga on twitter. Please retweet. If we get the message out and convince people to stop playing before IPO, we can hurt their valuation.

Then they'll realize they can't just bully normal people.

sdizdar• 15 years ago

They can just fire non-performers with stock options? Correct?

Meaning you hire somebody and gave him/her a bunch of stock options, latter on you figure out he/she is not so good, so you fire. Simple.

Why this shenanigan?

chwahoo• 15 years ago

I think it's the dissonant claims that the employees in question are "non-performers" but those same employees would be deserving of their jobs if they were to relinquish their stock options. If they were truly "non-performers", Zynga should probably let them go. Since they don't want to do that, it seems that Zynga really just wants to claw back some money.

byrneseyeview• 15 years ago

http://news.ycombinator.com/item?id=3221693

This is a very relevant alternative view. Money quote:

At Zynga, however, Mark Pincus apparently likes to do things a bit differently. Rather than simply firing under-performing employees and handing unvested options over to the replacement, Pincus often likes to find another position within Zynga where the employee might still be able to contribute. But because that new position was often lower down the corporate totem poll, Pincus basically wanted to cut the person's compensation by reducing his or her number of unvested options (vested options were not touched).

tghw2• 15 years ago

"I have altered the deal, pray I don't alter it any further."

http://www.youtube.com/watch?v=BwF7n8WyOoU

justin_vanw• 15 years ago

What if Pincus he had just fired them, with the reason being that they were not earning their compensation? It seems reasonable to fire someone if they are not pulling their weight? Giving them a choice seems unfair, but how is it worse than just being fired?

I think this is just Pincus being a nerd and over rationalizing the situation, instead of just decisively 'pulling the trigger'.

On the other hand, these people were given an offer of X% of the company in exchange for taking lots of risk early on. They took the risk, and now that the value of the company is greater, Pincus is taking the incentive back. So Pincus offloaded personal risk (paying lower salaries + stock instead of just paying market salaries) and then when the risk was gone he is canceling his agreement. I would never trust this man.

joshz• 15 years ago

Perhaps because they were earning their compensation and new employees would just be too expensive, since Pincus didn't want bait them with anymore (possibly no longer worthless) stock. Might as well try to squeeze it out of current employees knowing that finding a new job can be a bitch.

larrys• 15 years ago

"Giving them a choice seems unfair, but how is it worse than just being fired?"

Sure but the point is the reason and the circumstance matters because of either the way laws are written or how the reason is perceived in the court of public opinion. For example you can fire someone for any reason as long as the reason that you state isn't prohibited (woman, minority you get the point) or objectionable in the eyes of the public.

In other words there is a difference in "fired because business has gone down" and "fired because your kid is sick and we need someone who isn't distracted" (by public opinion not law).

rhizome6• 15 years ago

What if Pincus he had just fired them, with the reason being that they were not earning their compensation?

Begging the question: he didn't. Why? Because they were earning their compensation. There is no other explanation.

He just wants to be a jerk, legal techniques for which are very valuable among management types.

wpietri• 15 years ago

I am entirely in favor of this. Mainly because I'm four blocks away and am trying to hire engineers.

Seriously, it's bullshit. It makes me mad not just for the people getting screwed, but for the whole industry. The whole point of giving somebody early equity is that it's a gamble. Sometimes it's worth nothing; sometimes tons. If companies start doing it in a heads-I-win-tails-you-lose fashion, then that really reduces the value of the equity as an incentive.

Zynga isn't just hurting their employees; they're hurting every early-stage startup that comes after them.

muyuu• 15 years ago

This is exactly what I was thinking.

If Pincus succeeds with this, startups as a whole and this kind of compensation in particular will look much worse.

danssig20• 15 years ago

>I am entirely in favor of this. Mainly because I'm four blocks away and am trying to hire engineers.

That should make you even madder than. If you're having trouble hiring engineers it is just because you're not paying enough. And thanks to this, the price just went up.

redthrowaway• 15 years ago

Never work for unethical people. If they lack ethics in their dealings with customers, they will inevitably lack ethics in their dealings with employees.

Zynga's product does not provide a worthwhile service, nor does it improve people's lives. It creates no value. Rather, it (cleverly and cynically) capitalizes on weaknesses of the human psyche to relieve people of their money, one dollar at a time. This is an inherently unethical position for a company to be in. As such, regardless of the compensation offered, any prospective employee of the company should ask themselves whether the ethical foundation such a company displays in relation to its customers will extend to employees.

A CEO who is comfortable fleecing customers will feel similarly comfortable fleecing employees. I learned this lesson the hard way in the trades, working for people who would jack up prices and sell material and services that the customer did not need. They would shirk responsibility for deficiencies, and usually try to do jobs for cash so as to avoid paying taxes. Invariably, this lack of professional ethics extended to myself and my coworkers. Cheques would be short, overtime would not be paid, and promises would not be kept.

The best indicator that an employer will rip you off is their willingness to rip off customers. When you see it, start lining up interviews immediately.

thesz• 15 years ago

This is so stupid it jusst hilarious.

So Zynga takes away shares from some people they considered top talent. It lets situation to became public. Then after all that moves it hopes to attract more top talent.

I cannot help myself laughing.

This really made my day. ;)

neckbeard• 15 years ago

Zynga's latest release is called Mafia Wars: Shakedown. Seems somewhat apt.

joe24pack• 15 years ago

Is Zynga's company motto "B.O.H.I.C.A." ? There is some potential rhyming there. Surely this could be turned into a lively limerick or a biting haiku.

VladRussian• 15 years ago

opening the next card the casino dealer sees that a person's bet is going to win a lot, so right before placing the card on the table the dealer asks security to remove the person until the person agrees to share the winning amount.

timdellinger• 15 years ago

I know that no one ever gets credit for "I told you so", but last year I pegged the 4-year vesting schedule as risky, and wondered why we didn't see a lot more people being fired just to recapture their stock options: http://news.ycombinator.com/item?id=1733107

To me the riskiest part is that you never know how a business is going to pivot, who might end up owning it, etc., so the idea that you'll still be working there in four years is in many ways kind of silly. It always seemed worthwhile to me to negotiate other incentive. Hopefully stories like this will help change the culture a bit so that other forms of incentive become the norm.

danssig20• 15 years ago

Well, to be honest, I'm torn between my disgust at these scumbags and my lack of pity for people who were working at Zynga. I mean, the place never tried to hide the fact that they were a bunch of scumbags as far as I know. If you know their whole business depends on customers not understanding it, why wouldn't you expect them to treat you the same? They've already shown a clear contempt for people who aren't them. Do you honestly think they see you differently?

akeck• 15 years ago

We have two option clawback stories in six months or so. These actions erode the trust relationship between entrepreneurs and the technical talent on which they depend. The expectation that startups will honor the options they give to the talent they hire is part of the social contract of the community. Reneging on that expectation will make talent wary of taking on the immense risk of working for or founding startups.

simplekoala3• 15 years ago

Is Skype the first one?

benjaminRRR• 15 years ago

It is incredibly sad, and often repeated. Greed makes people do really short-sighted, horrible things. You can't take all that cash with you when you die, but you can leave a legacy. Do you really want to be known as the guy who wasn't happy with his lazy $1.8B and needed to squeeze the little guy to find a couple million dollars. People take a risk on startups, and we should be celebrating the "google chef" phenomenon. If the chef is walking away with 8 figures then things are going very well indeed.

unreal37• 15 years ago

I think one thing that is being overlooked is that the assumption is that these employees are "underperforming". And many ask, why not just fire them if they are.

I bet they are not underperforming in the "fire them" sense. I think the better word is "undeserving". The story quotes the Google Chef examples. I bet those early Googlers did not think the Chef was "underperforming", but clearly Pinkus thinks the chef is undeserving of $20 million from the Google IPO.

So some IT worker, who started early with the company, whose main job is to install new desktops, and fix the printers, and keep the network secure is "undeserving" of $20 million from the Zynga IPO, compared to the lead game designer who designed Cafe World, who Pinkus thinks IS deserving of the same amount.

It's more about thinking certain people (janitor, secretary, HR, finance, etc.) are not as valuable to the company as the lead developer or creative director or someone whose work is public facing.

And it is despicable.

tjcrowley• 15 years ago

I worked for Pincus at tribe.net when he was letting it circle the drain, The users petitioned me to create a subscription system to save the site and the first month it raised $30,000. Of course, that all disappeared and a short while later Zynga put out their first game. What do you think happened there? It's continually flabbergasted me that anyone would invest in his company when he has a long long history of ripping people off. Nowadays he's got multiple mansions, multiple private aircraft, and multiple high priced lawyers. Our only hope is that some of these Russian investors are actually mobsters that will kneecap him when the IPO flops.

apu• 15 years ago

How much power/influence do a company's VCs have to prevent this sort of behavior? It seems like this reflects badly on all of Zynga's investors as well, most prominently Union Square Ventures, and I can't imagine that they would condone this kind of behavior.

kamaal4• 15 years ago

This is probably one the hidden chess moves any start up can make once they've used you up like tissues(to use and throw). Of course once they have sufficient money and sales oriented CEO and senior executive staff, in the name of that's better for the company they can do anything they want.

This is one of the things that scares me about working at a start up. Remember the early employee is spending his time and compromising on his salary for that stock. And pretty obviously he works his heart out to make the company successful. Dumping them just like that, once you've squeezed the juice out of them seems a very unethical thing to me. And this is one of the things that actually prevents some good folks from working at a start up.

The worry that you will used like a work horse during the tough days of the company and then later dumped when the CEO sees a he can add another million to his account by dumping you is a major worry for any good person to work at a start up.

One thing that needs to be realized that not every body in the start up area is in for passion for software or changing the world thing. You have to be careful before deciding to work at some place. Doing a little back ground check on the founders will help.

danssig20• 15 years ago

Simple solution: never make that compromise. A bird in the hand and all that.

nodata• 15 years ago

Give back our stock? Interesting phrasing. It's their stock. Give back our stock. Phrased like the employees took something that wasn't rightfully theirs.

Angostura• 15 years ago

From the article: "the firm's executives reportedly justified their strategy by saying it was best for the company. With the unvested shares, the executives believed they could attract more top talent with the promise of stock."

The answer is simple then - the executive who originally miscalculated how much stock to give away should be the person who is penalised by having their options reduced to make up the shortfall.

You know ... for the good of the company.

netcan2• 15 years ago

Zynga executives were especially concerned with not creating a "Google chef" scenario.

That reference relates to Google's 2004 IPO when one of the company's chefs, who was hired in the firm's early days, walked away with $20 million worth of stock after the shares went public.

This is something to take note of. You might be able to see the reality of a chance to make $X being worth a small fraction of X, but don't expect everyone else to see it after the fact. If you are relying on executives, judges or anyone else to see that you were compensated with a lottery ticket worth $1000 and lucked into $20m rather then that you were just somehow compensated $20m especially if they have an interest in seeing it the latter way, you need to take into account that they might not.

tzury• 15 years ago

This story brought up to memory the scam-ville post by arrington from 2 years ago http://techcrunch.com/2009/11/06/zynga-scamville-mark-pinkus...

netcan2• 15 years ago

The outcome here may become a clarification of what vested shares means. If I'm not mistaken, vested shares evolved out of the practice of just giving shares to employees at the start in order to guarantee that they wouldn't just take the shares and run.

If this is deemed legal it will probably eventually become standard and vested shares will become negotiable. If this happens, what are vested shares anyway? What would be the difference between vested shares and just issuing shares (or options) periodically?

noncents• 15 years ago

The thing that is not clear to me is why nobody has seen fit to call Fred Wilson out on this. For all of the "scruples beyond reproach" of what I think I know about Fred (and what I still hope to be true, despite this evidence), this one flies in the face of reasonable behavior. I doubt that something like this could (or should) be done so close to IPO that the board didn't know about it. I'm certain that Fred can't say anything today, due to the sensitivity of the timing, but that should not prevent people from asking the question - "where was the board in all this?".

Good God Fred, is this what a reasonably responsible company would do?

simplekoala3• 15 years ago

I would add, Bing Gordon from KPCB, to this list. Why would KPCB want to tarnish their image like this.

fredwilson• 15 years ago

hi noncents - i can't really get into this Zynga thing due to quiet period issues. but i am not on the Zynga board and never have been. when we made our Series A investment in Zynga, my good friend Brad Feld took the Series A board seat representing both our firms on the board.

scott_meyer• 15 years ago

Stock options have always been valued at the discretion of the board. Zynga is perhaps guilty of coming up in "innovative" ways of manipulating value but the end result: optionees get less money than they thought, is the same.

Choose your employer carefully because the treatment you will receive is a pure test of professional ethics: how someone with power treats someone without.

beachgeek• 15 years ago

This is unreal. If the employees weren't "adding as much value" why not just fire them? California is an at-will employment state anyway.

dsimms• 15 years ago

I have to agree that the reporting was really unclear if the ask was to forgo unvested options, forgo unexercised but vested options, or give back stock from already vested options. I assume it's the unvested options under consideration, since the latter two seem impossible.

Then I've seen no discussion of AMT anywhere. Say you have vested but exercised options but for currently illiquid stock, and that someone threatens you with dismissal. You can exercise but then owe a bunch on AMT that you might not have the resources to cover. Does that make you more likely to go along?

This makes it seem like an even more hardball move to me.

jlars3• 15 years ago

Pincus and his financial backers were looking for ways to maximize their own wallets without having the Skype fallout of firing people before the IPO. This was simply the reason for the clawback.

If he just fired the people there would have been a big blowback like what we heard happen when Skype fired a group of employees before the Microsoft acquisition was a done deal.

Pincus is a ruthless and shrewd businessman. From the co-opted game designs of others to cutting out some employees from the IPO's rewards, he is definitely not someone who can totally be trusted. He will do what's best for him.

Skype, Groupon, and Zynga are showing a more cutthroat way of doing business in SV. The high valuations that their investors entered into these deals are demanding ways to squeeze out as much of return as possible.

Google, Apple, Microsoft, Yahoo, and the old guard were all about maximizing both investor and employee shareholder value. Now it seems its mostly about the investors and some "worthy" "chosen" few.

Be careful!

jlars3• 15 years ago

Pincus and his financial backers were looking for ways to maximize their own wallets without having the Skype fallout of firing people before the IPO. This was simply the reason for the clawback.

If he just fired the people there would have been a big blowback like what we heard happen when Skype fired a group of employees before the Microsoft acquisition was a done deal.

Google, Apple, Microsoft, Yahoo, and the old guard were all about maximizing both investor and employee shareholder value. Now it seems its mostly about the investors and some "worthy" "chosen" few.

Be careful!

UPDATE - Come to find out that Silver Lake, the guys behind the SKYPE firing fiasco, are also investors of Zynga. Please blackball working with any of their portfolio companies http://www.silverlake.com/partners/content.php?page=team-par...

Jim Davidson Co-Founder and Co-Chief Executive Menlo Park Glenn Hutchins Co-Founder and Co-Chief Executive New York David Roux Co-Founder and Chairman Menlo Park Alan Austin Managing Director Menlo Park Mike Bingle Managing Director New York Eric Chen Managing Director Hong Kong, Shanghai Egon Durban Managing Director Menlo Park Charles Giancarlo Managing Director and Head of Value Creation Menlo Park Kenneth Hao Managing Director Menlo Park and Hong Kong Christian Lucas Managing Director London Greg Mondre Managing Director New York Joe Osnoss Managing Director London Sean Delehanty Director New York Stephen Evans Director London Tony Ling Director Menlo Park Todd Morgenfeld Director Menlo Park Simon Patterson Director London Zheng Wang Director Hong Kong Masao Yoshikawa Director Tokyo Joerg Adams Principal Menlo Park Jonathan Durham Principal London John Flynn Principal London Adam Karol Principal New York Karol Niewiadomski Principal London Jason White Principal Menlo Park Lee Wittlinger Principal Menlo Park Phillip Wood-Smith Principal New York Jason Young Principal

jlars3• 15 years ago

Interestingly enough, these bozos were also backing Groupon as well. We've got the trifecta - Groupon, Skype, & Zynga.

With the shortage of talent, we have no need to work at company backed by these guys. Do so at your own risk!

Zynga to employees: Give back our stock or you'll be fired

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