

Way to build employee morale, Zynga - junioreven
http://www.itworld.com/software/223167/way-build-employee-morale-zynga

======
Gaussian
Pincus is attempting to make it sound as if he wants to claw back equity from
employees who don't do their jobs. But if they aren't doing their jobs, why
not fire them?

No, it seems to me that Pincus is looking at some people, perhaps they're
middle-level employees, and saying, "you know, that guy might be doing his
job, but he isn't worth $50 million."

Yeah, no shit he's not worth $50M. Few people are. But that's how the fucking
game works. The fact that a Google chef got $20M -- why is that bad? It's not
bad; it's cool. How many Microsoft stories are there about secretaries that
made off with $10 million? Those aren't _bad_ stories; those are good stories.

I'm sorry that Pincus fails to see things that way. And I'm sorry that he's
decided to shit on a paradigm that's helped build Silicon Valley.

~~~
noonespecial
The truth is that that middle manager _really isn't_ worth that $50mil. Its
not about what he's actually worth. Its the back side of the fact that when he
came to work at Zynga, _it wasn't worth working for_.

Its like the gas station attendant who sold you your lottery ticket showing up
on your front lawn demanding it back once it turned out that it was a winner.

~~~
yzhengyu
You can say hypothetical middle manager got lucky, but it isn't. We will never
know whether Zynga would have succeeded without hypothetical middle manager or
the other 'undeserving employees'.

This is just dickish behavior from Pincus. Given his past record, no one
should be surprised. What you are saying here is just part of the process
known as 'rationalization' and then 'accepting' this behaviour. You can stop -
wildly successful entrepreneurs are not saints. I think Steve Jobs is an even
clearer example of this.

And I am glad to see the employees affected taking legal action. There's no
point in reinforcing dickish behavior by quietly accepting it.

~~~
kamaal
>> _You can stop - wildly successful entrepreneurs are not saints. I think
Steve Jobs is an even clearer example of this._

This is a very valid point. In fact there is a statement from Steve Jobs's
biography, that he wasn't too much for loyalty in fact more like he was anti
loyalty. There is nothing great about this thing.

Screwing people just because they can, for absolutely no mistake of theirs has
often been the quality of a lot of people with power. This sort of a attitude
comes because they think they are invincible, powerful and can do anything
they can and get away with it.

And we are responsible for some extent too. We keep idolizing bad boys so
much. Ultimately being bad begins to look cool.

------
wyclif
This. And yet, every week here we're regaled with pitiful cries from founders
that "we can't recruit and hire enough talent!"

Once faith in the offering of early shares against under-market salaries
erodes, good luck in hiring those "rock star" engineers you'll need to put
your company over the hump for less than market rates.

~~~
jjm
Reminds me of what PG wrote in his 2004 essay: (snippet)

\---- FROM: <http://www.paulgraham.com/bubble.html>

"What makes the nerds rich, usually, is stock options. Now there are moves
afoot to make it harder for companies to grant options. To the extent there's
some genuine accounting abuse going on, by all means correct it. But don't
kill the golden goose. Equity is the fuel that drives technical innovation.

Options are a good idea because (a) they're fair, and (b) they work. Someone
who goes to work for a company is (one hopes) adding to its value, and it's
only fair to give them a share of it. And as a purely practical measure,
people work a lot harder when they have options. I've seen that first hand."

The rest of the section is fantastic, go read it.

\----

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tatsuke95
Whether or not you think this is ethical or legal (I'm not sure it's either),
the most amazing thing about this is the timing. I mean, with all the anti-
corporate sentiment in the wind, how on earth did they think this would fly? I
can see them getting crushed, not in the legal sense, but in the PR sense.

Can people possibly dislike Zynga, as a company, more then they already do?
Between this and Groupon, I'm getting fat from plowing popcorn.

~~~
tzs
Occupy FarmVille?

~~~
einhverfr
Oh, and Occupy Cityville

------
feralchimp
If you're not willing to actually grant equity, then don't pretend to grant
equity.

Grant "up to $5M of go-public bonus cash" or something. If they had capped the
upside up front, this wouldn't be a story.

~~~
cheald
Bingo. It sounds like what they did is just hand out stock options way too
liberally in the early days in order to attract talent (probably when they
planned to flip the company on a timeframe before those shares could vest),
and now that those shares turn out to be worth something, they want that
talent, the product that talent has created, plus the compensation that they
promised to pay returned to them.

If you can't stomach the idea of a hire getting a big payday out of an IPO if
your company goes big, you _shouldn't be giving them equity_. Using it as
hiring bait and then switching it out from underneath them is deplorable.

~~~
muzz
If only _unvested_ shares are being asked for... someone who has been there
since the "early days" would have already vested most of them, assuming a
standard 4-year vesting schedule

~~~
smokinn
Zynga was founded in July 2007 making it 4 years and 3 months old. It's likely
that almost no one has fully vested yet unless they hired a _lot_ in their
first month.

------
svdad
The problem is Pincus wants to pretend that options-based compensation is in
any way related to performance. If they wanted a performance-based comp
structure, they should have set one up in the beginning. Options are pure
seniority-based compensation and everyone in the industry knows (or should
know) that, whether or not they want to admit it.

------
outside1234
I never thought I'd see a dumber set of PR moves than the ones that Netflix
made a month ago.

I was wrong.

~~~
drumdance
I don't think this is as bad. I doubt people will stop playing Farmville
because of this.

~~~
bostonvaulter2
I'm sure people thinking about applying to Zynga will consider this.

------
pessimist
In all honesty, I'm surprised people are surprised by these actions. Its
routine that when companies like Google acquire smallcompanies, tons of people
in the smaller company are fired. I know for a fact that this happened in the
Admob acquisition, for example. This is really no different.

The valley is sleazy and management treats engineers like expendable
resources. Get over it. The only consolation is that engineering is the worst
possible job except for all the others.

------
vidarh
Thy're shooting themselves in the foot: I know _I_ will never go work for
Zynga without the base being high enough that I can value options or RSU's
received at 0. And neither would I consider joining another startup started by
these people in the future without similarly pricing the value of any equity
at 0.

They're driving up their cost of hiring.

------
einhverfr
Another reason if I was an employer I'd have lawyers involved right now:

No company wants to be going into an IPO with SEC paperwork that says "we are
being sued by our employees over compensation." There is very little doubt in
my mind Zynga would back off rather than fight.

------
waldr
If I worked for Zynga and I saw co-workers who were under performing heavily
rewarded I'd find that pretty de-motivating. It seems to me this has been
misreported, if your not performing in your role and you get fired you'd lose
the unvested stock anyway so by offering a new position and cutting your stock
you are given a second chance.

Without knowing how the performance is being judged and what the communication
with the staff is like its impossible to really pass comment, do we really
think that employees are given no prior warning and suddenly they are re-
housed and their stock cut? Seems a little far fetched to me, especially
before an IPO where the press are going to be hot for you anyway.

~~~
danssig
You must not be aware of Pincus' history. Then again, people working for him
must not have been either.

~~~
waldr
This is true, I accept that its very hard to comment without knowing a little
more. It seems as thought there is a very quick judgement passed before we
really know exactly how its being played out.

------
lpolovets
This came up on Quora yesterday: [http://www.quora.com/How-legal-or-illegal-
are-Zyngas-actions...](http://www.quora.com/How-legal-or-illegal-are-Zyngas-
actions-in-clawing-back-equity-from-employees-before-its-forthcoming-IPO)

My gut instinct was that was a jerk move, but after thinking about it I'm not
so sure. Here's my answer from Quora... I'd love to know what others think.

(On a side note, the article cited on Quora mentions that employees were asked
to give up some unvested options, but that their vested options are not
affected.)

==============

This is a slight oversimplification, but a typical stock option grant of, say,
.4% of a company is akin to the CEO telling you, "for every year that you work
for us, I will give you .1% of the company." For early startup employees who
typically take below market salaries, this kind of stock grant is one of the
things that makes working at a startup more worthwhile (financially speaking).

It's exceedingly rare that a startup grows to a billion dollar valuation
within a few years of founding, but when that happens, it makes sense for the
company to re-evaluate whether it's worth giving someone an extra .1% for one
more year of work. When a company is young and not worth much, giving someone
$10k in paper value as a loyalty bonus is a no-brainer; when a company is
worth billions, giving the same person a 50 million dollar loyalty bonus
requires a lot more thought. It might still make sense if they're the COO or
CFO or something like that, but does it make sense if they are a "Lead
Software Engineer" or "Senior Product Manager"? How many "Lead Software
Engineers" could you hire with 50 million dollars of stock? Put this way, I
think it's reasonable that Zynga wants to let some early people go at their
current compensation rates (and California has at-will employment, so you can
quit or be let go without reason at any time. _)

Note #1: I think this sucks for the early employees, and I certainly would not
want to work for a company whose founders have a history of these kinds of
practices, but that doesn't make the practices unethical.

Note #2: My answer would be very different if Zynga were trying to take back
options that had already vested.

_ I am not a laywer, so my assumptions about how at-will employment works
might not be 100% correct.Edit

~~~
klochner
You're forgetting that when employees took their compensation packages, it was
based on factoring in some probability of hitting a mega upside.

By capping that upside, any vesting option package is worth less in
expectation, so employees would have demanded higher base salaries knowing
that they wouldn't fully participate in a huge win.

~~~
lpolovets
The employees already have a huge win... the article talks about employees
being worth $200 million once they are fully vested. If they're halfway to
vesting, they might be worth $100 million, and it seems like Zynga is saying
that it's not worth $100 more million to keep the employee for two more years.

It's a weird problem that I think is only there because Zynga grew _so
freaking fast_. Normally an early employee's 4 years are up way before a
company is worth billions of dollars. Even in the last year or two of a 4-year
option plan, the employer's implicit choice is "is it worth another .1% for me
to keep this person for one more year?", and .1% might be worth 20k or even
50k, and so the employer doesn't even consider ways of reducing that cost
because it's tiny compared to the early employee's value. But when the cost is
$10m or $25m or $50m a year, it's definitely something to think about. And
only the hyper-grown companies that popped up recently (Twitter, Zynga,
Groupon) have had to face this problem.

~~~
rhizome
_it seems like Zynga is saying that it's not worth $100 more million to keep
the employee for two more years._

It's not Zynga's money. Zynga wants it to be, but it isn't.

~~~
Bud
Slight correction in wording: "Zynga" doesn't really want it to be.

The 2-5 or so guys at the very top of Zynga want it to be, because they think
Zynga should create a few more billionaires, instead of several dozen more
millionaires. To wit, they think THEY should be made into billionaires rather
than paying the folks who created the value of the company.

Hard to be shocked by this, since this has been the direction American
business has been traveling in for a few decades now, but usually the PR side
of it is handled better.

~~~
rhizome
Maybe it's how he enjoys so much support in the business community: he's the
canary in the coalmine who sacrifices his image to provide cover for other
companies in the future to claw back and/or establish variable equity
commitments. To us he's a useful idiot, to C-levels he's a valuable mercenary.

