Hacker News new | comments | show | ask | jobs | submit login
Zynga to employees: Give back our stock or you'll be fired (cnet.com)
1120 points by rbanffy on Nov 10, 2011 | hide | past | web | favorite | 370 comments

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.

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.

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


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.

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'?

It is very hard for a company to prove willful failure to perform duties when an engineer is actually executing on assigned projects, or at least attempting in good faith to execute. Engineers who have contractual protection against termination without cause are usually well-protected against arbitrary terminations on "non-performance" grounds and the company has to do a lot more than loosely assert (in "he said / she said" fashion) that someone's performance comes up short. Moreover, in most cases, the contract clause will specify that, in order to effect a termination on this ground, the company must give notice to the employee specifying why the performance is inadequate and give the employee a window within which to cure any defects in performance. This makes it doubly difficult to terminate someone on non-performance grounds because the charges have to be detailed and there will always be an argument about whether any deficiencies were cured if the employee is actually trying to perform all assigned duties. The company can try to document such cases all it wants but will normally hold a losing hand in trying to prove "cause" on that ground in such cases.

The Zynga cases are different, however, because the employees being squeezed in those cases are almost certainly pure at-will employees who have no contractual protection against being terminated without cause. Without the contractual protection, such employees can be terminated for pretty much any reason in the normal case and, if "non-performance" is cited as the reason, the company does not need to prove anything to back this up. "Non-performance" in such cases is often nothing more than a label used to rationalize a decision made on who knows what ground (e.g., on the ground that the company just wants to get someone's potentially valuable stock back before it vests).

What about the 'bad faith' argument presented in the sibling comment?

> [...] Kmart’s discharge was in 'bad faith' and that, even without a contract, such a termination gave rise to tort liability. The court agreed [...]

If you had clear reasoning that you was dismissed for a reason other than failure to perform duties, then you would have cause to sue.

FTA two people already retained council, settled and still got to keep a portion of their stock.

What Zynga is worried about is that if they're going to be publicly valued at $1 billion, the guy who owns 5% of stock because he was there from day one is going to land $50 million and walk.

I imagine that the biggest problem with IPO's for companies like Zynga (especially if they're acting douche to their employees) is that they risk losing a lot of employees. Either selling up stock to get the cash, or simply retiring to live off dividends and slow-stock sale tactics.

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.)

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

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

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.

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.

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.

>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.

This is EXACTLY what is happening - anyone who thinks otherwise is deluded or plain stupid.

When Lockheed bought Savi technology, the RFID company, there were massive stock bonuses given out to the the Savi execs just prior to the sale.

Then they told all the employees who had been there less than 18 months they would get NOTHING for the shares they were hired on with as incentive.

All the other employees were given 15% of what the company had been claiming the street price of the options were.

PLUS they held some significant % of the stock value in an escrow account for some number of months should there be a legal backlash and Lockheed were sues - they were to use the escrow share money on that case...

Pincus is a very very VERY shady character.

Yet another IPO that I would never touch purely on principal alone.

Who wants to be Goldman will be taking this IPO?

"Pincus is a very very VERY shady character"

Any examples of this? Not that I don't believe you, but just curious


Tells his team to steal game ideas, makes millions in the process then shafts the people who made it happen for him.

Would love to hear from someone who can paint him in a better light than the horrible individual I have in mind at the moment.

This isn't surprising, not everybody in the game is for building something or for changing the world or for passion.

Someone is here only for the money multiplication factor. Sales, advertising, marketing and your usual MBA subjects are all about that. That is, not to care about what you are selling, but to create an illusion which gives an opportunity to amplify that seed investment. That is the time to cash on and move on.

I apologize for what i said last night. I went to the Rock Health event with an open bar and had too much wine, and one should never internet under the influence :)

Sorry about that. I am, however, still passionate that the actions of Pincus and other executives like him are deplorable and in no way should they be seen as OK - even if "everyone else is doing it".

>not everybody in the game is for building something or for changing the world or for passion.

You fucking suck.

I am not clear if youare advocating these actions or not - but let me make it very clear to you; if you are a proponent of such behavior - lets make sure we never cross paths.

This is NOT OK.

People like this are CANCER.

Sure - many instances of CEOs end up in the position of a Pincus - but it DOES NOT make it ok.

Pincus is a detriment not a person to be idolized.

The guy is telling it how it is, you are behaving like an 11 year-old. The world is not a nice place, it gets less nice when money is involved, grow up.

You're both right. Just because "it is how it is" doesn't make something OK, as you say the world is not a nice place, but it also doesn't mean you have to sit down and take it like a cabbage either.

And it's perfectly fine to tell people with questionable moral values to go and fuck themselves. Even though it's not always the most strategically sound way to make sure they get what they got coming in a world that is indeed not a very nice place at all.

There's a bloody big leap from "screwing employees over stock options" over "excessive 'inspiration' from competition" to "not in it to change the world with a passion".

Replying "you fucking suck" to someone taking the position that it's actually OK to go and do a job without having passion and unicorns and rainbows flow out of your ass all day is not the opposite of "taking it like a cabbage", it's the opposite of civilized discourse.

I was taking the "you fucking suck" remark as him just being really passionate about it, possibly before his first coffee, even. I can see his point, I wouldn't word it like that (or perhaps word it at all).

Kamaal never said "this is what you should do," he said "this is how it is."

You guys are behaving disgracefully.

Seems like the capitalist machine is doing what it's doing. Someone is going in and generating profit which is pretty much how it's supposed to be.

Now whether someone who has that specific goal in mind is better at generating profit than someone who's not soulless is a separate question. But at the end of the day it's hard to blame an individual when it's a systematic problem.

My thoughts too, they only want the stock for themselves.

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.

Seems likely. Zynga is an obvious build-to-flip. Now is the time to cash it in at peak. The original push in social gaming was based on scaling, but people are starting to demand quality and that's where Zynga is going to die.

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.

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

No, but they probably will be promising employees something - and now, everyone knows that unless that promise is in writing, in an iron-clad contract peered over by Hell's best lawyers, it's worthless at best.

Indeed, they will only have one IPO. But the PR backlash can seriously affect it, if it's made clear to everyone that the execs are crooks, and that they'll never be able to hire talents again.

The poster child here is Groupon (GRPN) and while the poor choices of their executives did negatively affect the IPO they are still (11/9) trading above their IPO price of $20 ($24.50 when I glanced).

I don't think that Groupon execs are widely perceived as crooks, whereas Zynga's ones are more than hard to defend here.

Moreover, Zynga execs' move was likely intended to increase the total worth of their shares; if they manage to claw 20% more shares, but destroy 30% of each share's value, they've hurt themselves even in the short term (figures made up for illustration, obviously).

I don't think that Groupon execs are widely perceived as crooks, whereas Zynga's ones are more than hard to defend here.

Actually, Groupon's execs are widely perceived as crooks.

From my perspective, and I think it is inline with consensus, Andrew Mason is quirky and different, but is not a crook. He handled the Japanese new year issues pretty well last year. http://techcrunch.com/2011/01/17/groupon-ceo-andrew-mason-so...

Their sales teams are apparently very aggressive but that doesn't make them crooks.

While GRPN IPOed at $20, it opened for trading to the public at $30 and its dropped daily ever since.

There market cap is still well below what their first IPO was going to be set at.

Sure, there's only one IPO. But what about things like vacation time, bonuses, raises, and promotions? As someone else said, unless I've got it written down in a contract that (at least) a couple lawyers have told me is basically unbreakable, I'm going to be worrying about them deciding that I don't deserve what we've previously agreed to just to save/hoard some money.

Even if they never give out another share of equity, hiring always involves promises about the future - compensation, bonuses, security, opportunity for advancement - that can't be written into the contract. I'd have to think the discount rate for those promises just jumped significantly.

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.

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?

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.

" ... and no one I mean no one worth their salt is going to sign up with them now."

I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still) Zynga is a considered a "hot" IPO candidate and as such you will find folks who recognize that not everyone is a super star. Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way. And pre-IPO options are better than post-IPO options.

It will certainly be interesting to see if it affects their ability to recruit and retain talent. I can only hope that some of the HR people escape and can share the results with others. Too often there isn't any really definitive data post event if it was a net positive or loss for the company. This is why I think there is a lot of hand waving in the HR space, hard to get real numbers.

> "Some talent might be more attracted to Zynga because they 'deal with the dead wood' in a proactive way."

Would you really classify this as "dealing with the dead wood?" If they were "dealing with the dead wood", I'd expect they would just fire them for being dead wood in the first place and get their unvested options back as a side-effect.

Trying to keep the dead wood employed, but scaring them into effectively renegotiating their contracts isn't the sort of "dealing with" that very many people are going to look upon favorably.

I think this is probably a bit extreme (I realize you may be employing hyperbole for effect but still)

Yes some but I don't think much, IT employment is very much based on trends, in the 70-80's the hot place to work was Bell Labs or DEC, in the 90-00's it was Google. If you ruin your name you loose the A-Listers interest and everyone in tech fashions themselves A-Listers. So when this happens you have to rely on finding talent that has not proven itself yet or settling for the "it's just a job crowd". The biggest draw to pre-IPO is stock and the possibility of fortunes. To me and probably quite a few others, this is a shot across the bow that they will limit the participation in the fortunes part, which kills the primary reason people join pre-IPO start-ups. I would not underestimate the gravity of this action especially in this hot of a market.

>And pre-IPO options are better than post-IPO options.

Not if they decide to take yours back so they can get more money. pre-IPO options with Zynga are worth nothing.

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

Zynga would be effectively firing them for being too expensive. That's probably the most common reason for any layoffs. It sucks, but I can't imagine they have a legal leg to stand on.

Well it really looks more like extortion (the opportunistic timing combined with position of power) than a cost-cutting measure.

Isn't the logical result of this the ability for a company to decide and change, at any time, up until IPO, how much upside an employee will get?

IANAL but I'd be thinking breach of contract regarding the stock compensation would be the cause, not the termination. With luck you could be free of that corporation and still keep unvested stock :-D

Constructive dismissal is legal in California.

California does recognize a tort for constructive discharge, but only with the fairly high bar that involves violations of "fundamental California public policy" (as embodied in law or the constitution). I'm not sure this would reach that bar, though; here's an example of jury instructions that've been used: http://www.justia.com/trials-litigation/docs/caci/2400/2432....

But it's pretty difficult to prove unless you are a protected minority and the boss shows up in a white robe and says "we are firing all the N.....s" or you fire a secretary after he/she refused to sleep with you AND you got the refusal in writing!

Usually the employee only wins because the company messed up the paperwork.

The point is, it's not about the firing.

It's about an employment contract which involved compensation while an employee was working, where the employer backed out of that later and terminated the employee to keep from paying what are effectively back wages.

I am against suing to get one's job back, esp. here. However, suing to keep the unvested stock they took when dismissing you is a bigger deal.

Here's the thing:

1) Employee is promised stock for efforts

2) Company doesn't want to pay as promised

3) Employee is fired

4) Stock not paid as promised.

I don't think the fact that this occurs in an at will state has any major impact on the analysis.

Stock options vest in the future if you are still working there. The idea is that it keeps you committed - otherwise everybody cashes in on the day after an IPO and walks, and it rewards people who were the reason for the success.

You can't leave and then expect to get unvested options = otherwise people would simply sign up for every startup, stay a month and move on - then come back years later when the company is a success and ask for their million dollars.

It's abused when companies deliberately fire people before the options vest - this is relatively rare, since any sane company knows that getting rid of all your talent is a rather short term option.

This is what Oracle did when they took over Sun - they fired almost all of the VPs before the deal so they would have no share. In their case it was more justified, these people hadn't contributed to Suns future (it didn't have one) and weren't the reason for the Oracle takeover - there was no reason why they should gain from Oracle being in charge when the music stopped.

Here you aren't choosing to leave though. The company is paying you less and offering stock options, and then firing you solely so they can take those back as a deliberate policy.

With Sun and Oracle, at least the case could be made that the VP's would have been redundant during the reorganization process. But it's different from saying "Hey, give up the stock options or you are fired."

I think it's that point where you have arguable contract claims.

"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.

In fact the majority of states in the US are at-will employment states.


Pretty much the only significant reason you can't get terminated in the US is as a direct result of being in a protected class (so you can't fire someone for being black but you can fire a black person for any other reason including no reason at all)

Playing devils advocate, Why shouldn't things be symmetrical between the employee and employer when it comes to leaving?

If an employee can give 2 weeks notice to say they are quiting at any time for any reason, why shouldn't an employer be allowed to do the same.

As I said below (above? Depends on how it renders), it's a valid argument. I guess the only real counterargument is that employers (by default) have a lot of power over their employees. If an employer decides to fire somebody, it'll make very little difference to the company - they'll just hire somebody else.

However, losing your job as an employee is devastating. It's financially difficult and job hunting (particularly in this economic climate) is difficult. I suppose that Australian employment laws are an attempt to make things more equal and force employers to really think before hiring/firing – it makes employees people again rather than just entries in a payroll system.

> it's a valid argument. I guess the only real counterargument is that employers (by default) have a lot of power over their employees. If an employer decides to fire somebody, it'll make very little difference to the company - they'll just hire somebody else. However, losing your job as an employee is devastating.

Ah, this is a very good point!

"At-will" means that either both the employer and employee can break it off at any time. It's the maximum freedom for everyone involved. No company is compelled to hire anyone, why should they be compelled to continue employing someone indefinitely?

It's a compelling argument, but if there wasn't "at-will" firing, this sort of underhanded "give us our shares back or we'll fire you" stuff that Zynga is purportedly doing couldn't happen without nasty court cases.

Notice how you say "maximum freedom for everyone involved", and then "no company is compelled to hire anyone". The cultural disconnect lies right there.

Corporate personhood is a funny artifact of English Common Law, and its present state in the US is almost unique. Much of the world views corporations rather differently than our (I'm assuming you're American) legal system does.

When you start from the premise that a corporation is an artificial construct that exists at the whim of, for the purposes intended by, and for the general good of, society as expressed through laws, including a corporation in words like "everyone", and speaking of its "freedom", becomes nonsensical.

Most of Europe is the same too. Employment laws are pretty onerous. This is great for employees and I think more or less works in mature industries and businesses (think of a 10 year employee, who gets a new boss that they dont get on with so the boss just fires them).

This stricter regulation does make starting businesses very difficult, and a definite advantage the US has over Europe.

I think the answer is combination of the two where there is some kind of threshold where new/small companies have more freedom to dismiss, but forces larger businesses to treat their employees fairly.

I'm not an Australian employment lawyer (or any kind of lawyer for that matter), but I believe companies under a certain size are exempt from unfair dismissal laws.

I may be wrong, but I think that was wound back as part of WorkChoices being repealed.

Can you quit your job for no reason in Australia?

Yeah, of course. You might be required to give 2 weeks' notice or something and if you're contracted you might be liable for breach of contract but nobody's going to force you to work.

I think this is illustrative of a fundamental difference in philosophy between employment in the USA versus elsewhere, and one which favors economic growth and innovation over social stability.

Requiring cause to fire someone is business-hostile at best. Business can not improve efficiency, pivot, or generally adapt to changing markets if they are not free to hire and fire at will.

The one major point most "liberals" (in the American sense) miss regarding employment security is that employers are far less likely to take risks on hiring - whether in quantity, salary, or experience - when they can not fire at-will. This leads to less employment overall, not more.

The arguments are similar to other well intentioned, but seriously deleterious policies, such as rent control and Calfornia's "Prop 13."

That said, ethics and treating people well are very important. I find Zynga's actions unethical and think there is a good chance they should be held civilly liable.

> Requiring cause to fire someone is business-hostile at best

Generally, in countries which require reasons for dismissal, there is a distinction between a redundancy and a dismissal. A redundancy means that the position someone is working in is declared not to exist (and so no one will be hired to replace the redundant employee), while a dismissal means the position continues but the employment of the employee filling that position is ended by the company.

Changing the size of a workforce to "improve efficiency, pivot, or generally adapt to changing markets" is done through redundancies, not through dismissals, and redundancies can generally happen on whatever terms are agreed to in the employment agreement.

If an employee genuinely isn't working out in a no-fire-at-will country, the employee generally has to be treated fairly and given an opportunity to correct the problems, but they can still be dismissed if they are unable to rectify the problems.

The cost of a dismissal might be slightly higher in a non-fire-at-will company, due to the time period when the employee is given a chance to correct the problems, but not significantly, and businesses can still adapt to changing conditions through redundancies. Non-fire-at-will is therefore not a significant barrier to business.

However, it protects employees against abusive practices like those of Zynga in this instance - employees who do not have anything like the same bargaining power as the companies they are working for.

> 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.

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?

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.

contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination

Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?

I rewrite the contract so that all options that have been granted but not vested, vest on termination. I was bite by this one and learned my lesson, I have also been bit by dilution, you pick these things up along the way. If they do not agree to vest on termination then we go back to salary negotiation or I walk. To me if they can terminate you and snatch back millions, it's just to big of a carrot to do so, as well that's all it is, is just a carrot if they can at any time deprive you of it.

So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.

Are you in executive/board/founder position?

Once again, curious to hear the name of the companies. I glanced at this http://www.linkedin.com/in/kentonsmeltzer from your HN profile, and didn't find any Silicon Valley names, but I'm assuming you might not disclose everything there.

I own my own freelancing company now doing JS web apps and mobile, I am based in the Orlando Florida area, but I am part of a Vally start-up as the CTO. Sorry I have to be vague on that topic right now. That being said, I was an executive at Marriott and was in line for the CTO position before I left, I did rewire the options contract with Marriott and went through several iterations with Legal. I also built 3 start-ups from the ground up, one exited to Hotels.com, another to TUI travel and the other to EAS nutrition. I would prefer not to say which I got screwed on but one of those exits I was left with nothing but a cold hard lesson in business, ownership and options.

Got it. Yeah, someone with CTO title might bend the rules a little. Otherwise stock and option plans are generally approved by the board. Asking a company to redraw the contact essentially makes it a CEO's call to reconvene the board as it goes outside of standard grant plan - not something that they'd do for a staff employee.

I do this on normal contracts. Just mark out the parts you don't agree with, add things you want in there, initial all your changes, sign and date it. Sometimes it will go through without anyone noticing (so make sure you have a photocopy).

I have done it on small contracts as well, granted we are talking about a sizable start-up in this thread, but never the less many first employees are in a position to renegotiate the options; most start-ups are much smaller at the time these contracts are written, even the company we are talking about in this thread was probably much smaller when most of these "big award to get them in the door" contracts where written. Many of those contracts may have been written when their where less than 20 people at the company. In those situations, contracts are very much negotiable. The second start-up I did I walked into a functional and profitable but small company, and I negotiated my options give the experience I had before. I was not at that time negotiating from the perspective of being the CTO but first technical employee.

Please please do a detailed post on this, either on HN or elsewhere. Engineers who join in early NEED to know this.

"If they do not agree to vest on termination then we go back to salary negotiation or I walk."

So true. Expensive lesson for these folks.

Sometimes I pine for the good ol' days where this kind of unethical behavior would be met with a good old fashioned ass kicking.

It's only the olden days until someone goes ahead and takes a swing.

I had the exact same thought about the "fraudster holding the Occupy Boston d/b/a certificate hostage" story. Especially in that kind of ground-up, loosely-couples collective action scenario, how does overt bad acting not result in a Code Red at the food tent?

They're being terminated because they are not contributing relative to the amount they are being compensated. That seems to be perfectly legal to me (although it will probably hurt them in the long run).

Zynga used employee's jobs as a bargaining chip to get them to give up contractual rights, and that is something a legal case can likely be built on, even if Zynga would have been otherwise within their rights to terminate these employees.

Another point I wanted to make on this was that I also think the Google chef excuse is just that an excuse, I think they will target the big awarded first employees whose value was in getting them off the ground and which they should rightfully be paid for. Their value was then, when the company did not have to money to fairly pay their market price, and they had to use promises of future reward to get them to sign on. By all definitions the developers that got them off the ground are now being overcompensated to their market value, but that was the deal right, we can't afford you because you are a good programer and can get 250k in the market, we want to underpay you now with the promise that if we make it you get to participate in the windfall. So it does not matter if they are not contributing now, it was the contribution while they where being underpaid relative to the market that made them entitled to the windfall. It doe not matter if they where a chef or a developer if they agreed to take reduced compensation as a risk, with the promise of participating in the reward and are being deprived of that then they are in a very grey area.

Right, I am fine with the part that hey we think you are overpaid and we want to renegotiate the option awards that have not been granted, but they are walking a fine line renegotiation the ones that have already been awarded but have not vested. Many companies will award a certain amount of options and those options come with a vesting schedule so for example I get awarded 4 shares that vest in one year. My contract would say that I get 4 awards of 4 shared over 4 years and those awards vest in 1 year. They are going to run into trouble if they try to claw back the awarded shared because technically I have put in the work for those shares. Now if the contract says all stocks will be awarded in 4 years then yes technically they have not earned them yet, but I would have walked from that contract the moment I saw it.

Most contracts state that you lose unvested shares upon termination. It doesn't make sense any other way.

However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.

The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.

> However after two years, and a few splits, I have 128 shares.

You're not a "4 shares employee" you're a "% of the company employee". The 4 shares are worth some percentage of the company and after all those splits they're still worth that same percentage. Splits usually happen to get the cost of the overalls hares down but a $1m holding in some stock is still worth $1m after the split.

>But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.

So what! This is the point of accepting stock as compensation. They worked below what they were worth for the hope that they would win the lottery. They did win the lottery and now the company wants a redo.

The employee took a risk accepting equity as part of their compensation, especially at a pre-IPO company.

Zynga shouldn't be able to come back, with 20/20 hindsight, and say "turns out we did better than we thought we would so we're taking your stock back".

If they failed they certainly wouldn't be giving employees other compensation to make up for their stock being worthless.

What you are talking about is no dilutional where if they split, you are not diluted and your options do not get diluted, so instead of the 4 you agreed to you get the equivalent after the split. Most contracts are dilutional, where you get 4 regardless of splits, I have never seen a contract (in my dealings) that has been non-dilutional in original form, I have always had to add non-dilutional clauses to my contracts because I have had my ownership eroded through this very mechanism.

Well, yes. But the possibility of this excess was part of equity compensation in the first place, and came with the possibility (probability!) of compensation less than their contribution.

IANAL, but if the termination is motivated by the success of the equity gamble the employee took up front, that looks more like breach of contract. Don't want to keep them? That's fine, but pay what you promised you'd pay.

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.

Bullshit, this is a free market economy. If I feel you are overpaid for what you contribute, I can fire you. This is not extortion, they are readjusting their compensation to the market-going rates.

Whether it is moral or whether it will hurt them in the future are different questions.

The "different questions" are relevant. If this were merely a question of what the company can and can't do as a capitalist enterprise, the article would not have been written. Ethics are important. Would you be as dispassionate about this if you were a Zynga employee?

All your posts here make you sound like a really ignorant person, in regards to the subject at hand. The best thing for you would probably be to stop posting and start reading instead.

They aren't being fired for being overpaid, they're being threatened with termination unless they surrender their equity in a privately owned company.

Definiton of extortion (from wikipedia):

  Extortion (also called shakedown, outwresting, and
  exaction) is a criminal offence which occurs when a
  person unlawfully obtains either money, property or
  services from a person(s), entity, or institution, through coercion.
What Zynga is doing IS extortion. Perhaps it is a form of extortion that is legal in California.

That is an inaccurate view of the situation. Unvested shares are not equity.

You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation.

I put this in another comment: "However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares.

The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at."

I know this goes against the way it's always been in the tech industry, but it is not extortion.

The company didn't hire you to work as a 4-share employee, they hired you to work as a 4-share employee with significant upside potential. That is how early startup employees are compensated for the increased risk and lesser salary they take on.

Yes, you and your sibling threads are all correct, but it's not extortion. It's immoral and will certainly hurt them in the future, but it's not extortion.

I am simply trying to explain why this is a moral issue and not a legal issue.

This is the equivalent of saying: 'your gonna have to take a pay cut or were gonna have to let you go'. It is morally repugnant and goes against everything we believe in the startup community, but it is not illegal, nor should it be.

Imagine your company gave you a $40,000 bonus. You get 4 checks for $10k each, dated 11-Nov-2012, 2013, 2014, and 2015. If the company is still in business on those dates you can cash the checks. If you leave or quit, you hand back the uncashed checks.

Now the company says "give us back 2014 and 2015 or you're fired". What would you say?

Also more importantly they gave a $40,000 bonus as payable in the future because they wanted you to do $40,000 work now but didn't have money to pay you.

Yeah, I realized after the fact that the analogy was a little shaky there. It's not just a bonus but deferred compensation. But let's keep it simple for now. Androsynth had a problem trying to understand the idea that these options were granted in lieu of earned pay.

This analogy isn't correct with regard to future periods, vesting is concurrent with your participation (contribution and effort). The trigger for earning the bonus is not if the company is in business that year, but if you were a member of the company and contributed during that period to earn the bonus. The issue at hand is mid-stream renegotiation of the future un-earned bonuses.

No matter how vehemently you keep asserting it, the promise Zynga made has value - or else Zynga wouldn't want to renege on it, duh - and making threats in order to get anyone to give you anything of value is extortion in the common law.

I agree it is not extortion. Extortion typically requires the threat of unlawful force. If I way "Pay me $100 not to picket your company" and I start lawfully picketing that's not extortion. Otherwise workers strikes would all be illegal.

The larger issue though here is that of a contract. The company has in essence said "we want you to stick around and so we are giving you an incentive of stock options which vest on such and such a schedule."

Later they are saying "give up what we gave you or leave so we can take them back." It's this choice here which says clearly "we are going back on our contracts with you."

A close example might be this "We are giving you a raise and will pay you retro pay next month when this goes through but you have to work fewer hours at your hourly wage" and then the next month saying "sorry, no retro pay for you."

I think this would be a fun case. And now that class action cases have taken a few serious setbacks in the courts, it seems to me that Zynga really should be getting sued by lots and lots of employees in individual lawsuits..... One piranha may be good for dinner, but don't wade into a swarm of them.

Morality and legality are somewhat intertwined in business law. Every contract contains an implied duty of "good faith and fair dealing." Violations of that duty can result in contract damages.

It's not at all clear-cut. See sections 5-6 of this article: http://www.bernabeipllc.com/pdfs/stockoptions.pdf

You don't know whether or not it's a legal issue.

I am saying it shouldn't be a legal issue.

It is the equivalent of saying 'you need to take a cut in pay or you will be laid off'.

If we're talking about what should be illegal, I find it hard to argue that it shouldn't be. If you hire someone on the promise that they'll get a bonus at 5 years, and purposely fire them at 4 years, 11 months solely to avoid paying them the bonus, that should be illegal. In any reasonable interpretation of the contract, that isn't good-faith upholding of the contract--- you promised them something at certain milestones, and then purposely acted in a manner intended for the sole purpose of sabotaging the milestones, which is acting in bad faith.

In most other kinds of contingent pay that's tortious: if you promise a building contractor contingency bonuses upon meeting certain deadlines, and then you purposely interfere to make them miss the deadlines so you can get the work cheaper (and admit doing so!), you're probably acting illegally. Heck, even basketball players have sued over instances where a team kept them out of a few games solely to cause them to miss performance targets.

I disagree, what you describe is shady, but also pretty unrealistic. Normally there's a vesting schedule with only a 1 year cliff, and then chunks vest yearly. That's essentially pro-rata.

what you describe is shady

Not only is it shady it is a legal term and that term is called bad faith, if you can prove the party acted in bad faith, which if what is being reported about, return it or get fired, then that one is pretty locked up, then they are in violation of the spirit of contract. Faith is one of the foundations of contract law. If you are found to have not honored the faith portion of the contract then more times than not, you will be on the loosing end of a contract dispute.

I'm aware of bad faith.

I think the fact that it continuously vests after a cliff, that it's clear in basically every options grant that you don't receive unvested options upon termination, and because employment contracts repeatedly emphasize that employment is completely at-will makes it pretty clear that you shouldn't count your unvested option chickens before they hatch, and hard to prove that you could reasonably expect to vest all options. The employees that have been there for multiple years will have already vested a big percentage of their stock regardless of what happens.

I think Zynga is repulsive, and will hopefully get punished hard on many fronts for this, but I'm not convinced that what they're doing is strictly illegal. I'm convinced they'll get sued, though.

The standard is to have a 1 year cliff (i.e. 25% of equity vest at 1 year), and then monthly vesting of the remainder (1/36 per month for the next 36 months). NOT yearly vesting after the first year.

The exception is M&A earn out or vesting for key hires, which is often yearly, and sometimes even crazier; 1/2/3/4 where it's 10% the first year, 20% the second, 30% the third, and 40% the fourth.

Oops, sorry, yeah, you're right - it is normally monthly.

That latter vesting is pretty crazy - with each year, each point is usually getting nonlinearly more valuable as well.

No it isn't. A big corp I worked at in the US had a 1/7th per year vesting period. Then the dot com bubble came and they gave everyone 4-year cliff options. That is, no vesting until after 4 years. They absolutely could have fired people 3 years and 11 months in (and almost certainly did).

Sorry, I was talking about the typical valley vesting schedule, I'm sure they run the gamut in the wider corporate world.

Unvested shares may not be equity in the company, but they very well may be equity in the equity. They represent a promise to grant actual shares when certain conditions are met, and that promise is worth something in the present. Contriving to reneg on that promise is little different from defaulting on your debts. In a way, it actually is defaulting on a debt.

And you are making the critical assumption that the employee or the employer in your hypothetical situation expected those four shares to remain four shares.

If I'm a small company just getting started, what do I have to attract top talent? Maybe I can't afford to pay as well as the established companies, or maybe my benefits are going to be worse (or nonexistent). But I do have stock options. If I'm a fledgling corporation, stock options can get me more talent than I could otherwise command, and if I'm a skilled engineer, I feel like I can directly affect the fortunes of this company and thus my own net worth if I am compensated heavily in stock options which, in the unlikely chance that all goes better than expected, could make me wildly rich.

Your hypothetical four-share employee certainly didn't sign on just on the strength of those four shares alone. And, quite possibly, the employer played up the possibility of those four shares becoming many more shares down the road if things go well.

>You are acting as if they are being asked to give away something that they own

They are. They own those stock options, with the provision that they stay out the life of the vesting period. They are now being prevented from holding up their side of the contract. They would gladly stay through the vesting period if allowed to.

Now you're just descending into pedantry. Yes, unvested shares are not technically equity, that doesn't mean they cannot be the basis of extortion.

In a startup stock options are a future promise to make up for lower salary. You are gambling on the company doing well.

What they are doing is like hiring a salesman on low salary + commission and then firing them the day before the commission is paid.

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.

> I am shocked.

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

Your winnings, sir.

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

A few years back I showed that movie to someone who hadn't seen it before. They were utterly floored at how many catchphrases they already knew came out of that one screenplay.

You may be interested to learn that the Epstein brothers' names were given to Joseph McCarthy's HUAC by Warner Brothers themselves.

I'm sure the actors had a hand in making them resonate.

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?

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.

It reminds me of a cult. "They seemed like such nice people!"

Just playing some of Zyngas games might provide a hint.

This was really well written, thanks.

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.

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.

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.

This is utter bullshit. And if it's not, anyone reading HN has better options.

Let's stop with the all-employers-are-out-to-screw-you rhetoric because it's clearly not true.

I can believe we get a skewed view of anecdotes at HN, but stories about how employees got screwed out of equity by investors/founders when an exit loomed do seem like the norm around here. People even routinely give the advice that you should treat equity grants as having cash value ~$0 if you aren't a founder or maybe one of the first few key hires, because apart from the risk of the equity becoming worthless if the company folds, there's always some way to cut you out of the deal even in the case of a successful exit. Zynga's notable because of how brazen it is, not because the screw-employees-at-exit story is never-before-told...

>stories about how employees got screwed out of equity by investors/founders when an exit loomed do seem like the norm around here.

Well, "everything went as planned" doesn't make for a very interesting story.

On the contrary, I think HN would respond pretty well to stories of IPOs that went well, and employees who succeeded. They would likely have a lot of good advice.

Personally, I can think of three people I've met who did well at startups. One was at Google, one was at Amazon, and the third was at a company I don't remember. But I can think of an awful lot of stories of public and pre-IPO companies screwing over their employees, including myself being shafted at least three times by employers.

I agree. It is a bullshit situation, and you should be mad about it.

Employers have a responsibility to maximize the profits of their shareholders/investors.

They are not there to be your friend, take care of you, or compensate you beyond the minimum that they have to. Companies that offer bonuses/'benefits' are doing so as an incentive to retain you. The minute the market indicates that they can pull any of those benefits, they will.

MegaCorp does not give a holiday bonus out of the goodness of its heart. It doesn't have a heart, it is an inanimate object. It can not possibly feel a loyalty to you. It may bullshit you by telling you this, but that is really just to embiggen your feelings of loyalty towards it.

It has rules and structures, carefully laid out towards its goal... maximizing profits. An optimally designed corporation will fire you the minute that there is a cheaper alternative to your employment. If it were human, it would be a sociopath.

> Employers have a responsibility to maximize the profits of their shareholders/investors.

Somewhat shortsighted statement for this topic, considering the people they're harming here are employees who are... shareholders.

> If it were human, it would be a sociopath.

It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.

> Somewhat shortsighted statement for this topic, considering the people they're harming here are employees who are... shareholders.

I think it is pretty clear I was referring to the general case, rather than this particular situation. Anyway, until they vest, they technically aren't shareholders. (And after they've lost their rights to vest, they certainly aren't going to be shareholders).

> It may not be human, but they're ran by humans, and legally in many ways Corporations are people. In fact its a meme running in US politics lately. People with a lot of money, and a lot more power than 99.99% of humans. I'm getting sick of reading humans say Corporations, considered people and ran by humans, can do anything in the name of shareholder value, but for some reason, people with less money, power, and connections, have moral values applied to their actions. It's complete bullshit, and if people weren't so brainwashed they couldn't get away with this shit.

I agree completely. It is a crock of shit that corporations aren't held to the same basic moral and ethical standards that people are. (In my opinion, they should be held to greater standards, being that they are in practice immortal, and can wield greater sums of wealth than any single human being).

As an employee in the current environment, however, you have to keep the reality of how corporations are expected and allowed to behave in mind.

Have you ever watched a mob?

A corporation is a group of people. Like all groups of people there can be a mix of the full spectrum of humanity in varying percentages. Go to a protest or a concert, witness how groups of people react, especially when they are told to do something that no one wants to do. Corporations are run by people but you should not think that they are somehow different from groups of people and that group psychology somehow doesn't come into play.

>It may not be human, but they're ran by humans

Wasn't there a report some years back that showed most CEO's were sociopaths?

Most companies will never be in this position though. What if you were an executive and you suddenly found yourself in a position to pocket hundreds of millions of dollars simply by firing a few employees. At the very least, that's a moral dilemma. It would be very easy to go from 'upstanding and moral' to going flat out existential in that situation. It's a scummy thing to do, but the human brain can justify a lot of crap in those types of situations.

You can always hire a relative/mistress to a no-show/do-nothing job and further dilute the option pool in your favor. It's easier on the conscience as you effectively cancel the stealing out by adding to the employment rolls.

Beware the shuffling of chairs, granting of titles, lateral promotions, unannounced appearance of new employees cutting back on company snacks. These are all clues that lead to a financial event where unless you're in the driver's seat, you're bound to take a hit.

For those of you with the altruistic bent, please watch the Spanish Prisoner. It's a classic example of fuckery.

It's only a moral dilemma if you believe pocketing hundreds of millions of dollars is a moral imperative.

If not, you have exactly two choices. One is moral, one is not. The dilemma is between your greed and your morality, not between seemingly contradictory moral imperatives.

If that's true, then the business world needs to do a better job internally policing itself. Behavior like this (and worse... honestly this story is like a 4 on a 1-10 scale) creates exactly this impression.

Clean your own house, or it'll be cleaned for you.

Except when the regulatory laws or agencies in charge of cleaning house get gutted. Hooray, modern American politics!

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.

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.

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.

>>> 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...



...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).

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.

Indeed. What I wonder is how they decided that they'd come out ahead on this one.

Did they really think it'd be cheaper for them to pull this shady stuff? I'm almost certain that firing the alleged under-performers, including the subsequent cost of the inevitable wrongful termination suits, would be desirable over the shit storm they chose to stir up.

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.

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.

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.

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...

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?

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.

> 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.

Sounds like he didn't "have what it takes."

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.

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...)

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."

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

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.

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.

>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.

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.

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.

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.

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?

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".

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.

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.

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.

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.

Except the possibility always existed that they could get fired and not get that stock. The only thing that has changed is that Zynga is now saying that they're willing to fire you just so you don't get that stock.

Deeply unethical, and terrible for employee relations, and not at all in the interests of the company, but probably legal.

Even in right to work states, there's all sorts of reasons a company can't fire you, it's just the burden is on you to prove them. Pedagogical example is that your boss can't fire you just because you wouldn't sleep with him. If they fire you claiming it was just for performance, but you have evidence of circumstances that makes it clear it was because you wouldn't sleep with him, then you've got a problem.

Firing someone to screw them out of contractual rights you both agreed to is problematic. And even if the company claims it was performance-based, which they will have to, the CEO's statements basically give the other side all the evidence they need to refute that.

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.

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."

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."

In effect it is paid out along the way, that's the effect of the vesting schedule (whether it's options vesting or buyback rights terminating each month).

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".

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.

Although legally they might be safer firing everyone and re-hiring them post IPO. Although I would hate to work with anyone that they got to agree with this!

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

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.

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.

I've seen that too, and I've heard some whoppers of stories. Like, stuff that does not even slightly exist.

Pig, meet lipstick.

Like I said in another part of the thread: the stock market is the dumbest money around.

It looks that way to me too. I wish I knew of a smarter place to put it.

Your own business. Children. Real estate. These long-term investments are as old as time itself, and they do pay off.

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

I'll do a quick summary.

Episode 1: (this is the one that most directly affected me)

I was working on a very interesting but somewhat far-off technology. I did some tech talks about it, and put them on Google Video. Was approached by a guy who said he was a wealthy early-stage technology investor. He showed me a lot of stuff that indicated that this was the case, had a lot of real people vouching for him, etc.

He made me an offer of a cash investment over a period of two years in exchange for a percentage ownership in a company I would create. I got a lawyer, did a contract, and was very excited. We'd work with early stage customers, iterate, and he'd support the hiring of two additional people to do R&D work. (The technology was a machine learning application.) He even had some existing customers lined up and interested in bio-medical, oil and gas, and other industries.

Came to find out that: a) this guy has almost no money at all and is a complete fraud, b) everyone he associated with literally has a different picture of reality. It was pretty amazing. Some people thought he was associated with a company that he only acted as a salesman for, for example.

I walk. In doing so I have to walk away from approximately three years of work because the ownership of said work is now tied to an entity that this guy could have a potential claim on.

Guy turns out to also be a f'ing lunatic. He threatens my life verbally. I contemplate buying a handgun.

Episode 2:

I meet a promising entrepreneur who is interested in bio-med stuff. He's working on a protein classification company. He asks me if I'd be interested in joining as a software engineer. I say sure.

He sends my resume out to his investors, only he's listing me as having degrees I don't have. I e-mail him about this. He asks me to personally write up a CV and coaches me on how to pad my resume.

I walk.

Episode 3:

I join a consulting firm that does early stage tech R&D and business consulting for startups. This one involves me only indirectly, but while there I get to witness several pieces of rather astounding sleazery.

One episode involved a company that was formed to build a video delivery device. We did a bunch of R&D for them. They were basically a sales pit: founder was a salesman, and he hired a bunch of salesmen to go sell ahead into the market and hired us to build a prototype. (Nothing wrong so far.) But the market didn't seem to be too interested, so he pulled the plug. Walked. Left our firm with almost $100k in uncollected bills. We do some investigation and find out that this guy's name is on over a dozen defunct LLCs.

Another episode involved a guy who was "known" as a "genius," a "business God" as one person called him. In this case we did actually get paid, but... the guy was a complete f'ing lunatic. He would berate and insult his employees, sexually harass women, and we come to find out that he'd been sued multiple times by previous partners. We were lucky to get paid... mostly because someone other than this guy was footing the bill. (That someone later pulled the plug.)

Consulting firm shutters its doors. I can't blame the guy. I mean... I didn't have to actually negotiate with these pricks. I just worked for the place. He did.

Episode 4:

Join a startup doing mobile devices. We get funded to develop something, and we're on the verge of making a sale, when the parent company decides to pull the plug. We were inches away. Millimeters away. Then the parent company decides to screw over our development partner.

That's it. I'm out. No more startups for me, unless it's my own.

Now here is my question:

Do they actually teach this s--t in business school? What the hell? I had a friend when I was much younger who got into some shady stuff including drug trafficking, and he told me a lot of stories. None of them approached what I experienced in the "legitimate" business world.

Took me only 1 startup right after school to realize that the whole startup thing is rigged.

Never looked back unless it's my own startup.

It doesn't matter what they teach in business school. Most of the people I knew who took business majors (Commerce, Accounting, etc) are developing into "business assholes" slowly during their college years (.e.g: borrowing/copying your assignments, taking credits in group works, lying about their skills, boasting their knowledge, etc).

What do you expect? most of them are training for the real-world. They know what's going on out there. They went to seminars or talks given by those whom they deemed to be successful (ex-students working in KPMG, PwC, etc). They studied how these "successful" ex-students talk, present, think, etc. What are the odds they'll develop to become one of them really quick?

The business school process that I've been a part of focuses on case studies that basically boil monumental business processes down to a few paragraphs. As a result, the human factor of business gets reduced to commodity (ie: genius entrepreneur X found an unnamed technical producer, lined up a few sales with unnamed companies and started the process. 3 years later he sold the company). This process comes across as fly-by-night dealmaking when in reality, the process was likely long and relationship driven. That's why you often seen scammy behavior.

So, to answer your question, we aren' taught to do anything illegal, but the manner in which we are taught encourages hustle at any cost and treating people as a commodity.

> Do they actually teach this s--t in business school? What the hell? I had a friend when I was much younger who got into some shady stuff including drug trafficking, and he told me a lot of stories. None of them approached what I experienced in the "legitimate" business world.

I have to ponder that if one made a habit of screwing people over in the drug trafficking and/or shady business, the individual might end up with a shortened life expectancy.

Yeah. An armed society is a polite society.

Hey - if you're interested, I could use your story! Check this out: http://news.ycombinator.com/item?id=3220610

Ping me on email!

Worked at a place that shall not be named, back before startups were hip and trendy. They had received capital funding from a local collective of business folks. Lots of bad use of the money and telling investors versions of the truth.

I remember one time, the big boss was showing an investor around and brought them back to the IT area. I was third man in the company, but first one with no shares, so I was completely ignored. The big boss points towards a good-sized computer cabinet and tells them that's the production system. Not so much ... the production system was under my desk as we hadn't ported the system over to the big fancy box yet. No big lies, but just a constant stream of embellishments and reasons why the lack of success was everyone else's fault.

Don't know that he learned it at business school, although he did have an MBA, but he was also a Chicago banker. No telling what counts as legitimate business activity inside the loop.

Investors bear some culpability for this. The criteria that they sometimes use to judge their investments is... umm...

I had an investor once tell me with a straight face that he only invests in founders with a "prominent chin," because that "physiognamy" indicates someone who is an "operator." (Edit: he wasn't talking about me. It was at a conference. He had a beer or two in him. But I think he was serious. The context was serious.)

I am not making this shit up. Said investor who shall not be named operates a venture capital and business consulting firm out of Atlanta, Georgia and New York.

Given the quantities of money involved, I am kind of floored that more rational and scientific methods are not brought to bear on the problem of capital allocation. Don't get me wrong. The best of the best do think at least somewhat rationally about allocating their capital. But there is a ton of dumb money, and in my experience the dumb money tends to chase flashy fast-talking boatloads of bullshit piloted by sociopaths.

Edit: that's also why these guys always make a beeline to IPO. The stock market is the dumbest money around. I'm not saying all IPO-driven companies are sleaze-fests... but there's something about how they do it. They do everything they can to create the immediate impression of success in order to push for IPO as fast as possible, cash out, and leave. Groupon is probably the poster child right now.

I worked for a startup during the dot-com boom that seemed to want to be a Yahoo clone. The CEO was incredibly shady and the company was partnered in some way with some huge telemarketing company in Florida.

We offered free webmail, just like Yahoo, and at one point the CEO told a developer to add a credit card field to the sign-up form just to see what would happen. Several users entered valid credit card numbers. I do not believe that anything was done with these numbers, but I cannot imagine why the CEO wanted to test this.

Our main source of revenue seemed to be banner ads offering shady services from the telemarketing company. One of them was a travel club. The users would be drawn in with an offer of free airline tickets. They had to sign up for the travel club to get the tickets and they had to stay at specific hotels and such that were probably marked up to pay for the tickets. The whole idea was to get them to sign up for the travel club which caused a small monthly fee to be charged to their credit card. They knew how much to charge to get most people not to cancel for months (it was around $8-10). The only "benefit" of being in the club was more questionable offers.

At one point they considered starting a gasoline club that promised cheaper gasoline. The idea was that people would again pay a monthly fee for the club but then they would have to submit receipts to receive reimbursement for gasoline purchases. They were counting on people being too lazy to submit receipts.

I forgot to mention the reason why I left the company about four months after I started. They laid off about half of the developers and told them that they could take their computers as payment instead of their final paycheck if they wanted to. I considered the situation and realized that I might end up not being paid for my time if they were that bad off. I quit the next day and the company went under a couple weeks later.

> Do they actually teach this s--t in business school? What the hell?

"If you have psychopathic tendencies and are born to a poor family, you're likely to go to prison. If you have psychopathic tendencies and are born to a rich family, you're likely to go to business school." - George Monbiot

Yep this stuff is a dime a dozen and is a big reason why someone with just an idea is not taken seriously by technical people, those of us who have been around for a while have seen it all. Half want something for nothing and want to take it and run if you actually produce it and screw you out of any profit from your work, history is littered with tech guys getting screwed by idea men / con artist. It's almost like it is a game to them, to see if they really can screw you out of every penny and steal your work. They loose in their mind if you get one red cent.

The other problem with idea people is that they haven't risked anything. I've been partnered with a few idea people in the past and if the project isn't finished quickly, they usually move on or want to do something else (and all the hard work you put into it is for nothing).

If a non-tech person can't offer me connections in my app's market or cash for funding, they won't ever be a partner.

I also now have problems with acquaintances giving me simple ideas that I thought of before (or are in the process of implementing) and claiming that they gave me the idea.

> We do some investigation and find out that this guy's name is on over a dozen defunct LLCs.

> we come to find out that he'd been sued multiple times by previous partners

Is there a way to find out about this in advance? Some kind of database to check who you deal with prior to starting business with them?

Some of this stuff is public info. The head of our firm should have probably done more checking. But there are limits, of course, and it's a pain and can be expensive.

A database of the sort that you suggest is prohibited by libel and slander laws. You'd instantly be sued. While libel and slander laws serve useful purposes, they also serve to prevent people from warning each other about predators.

If you say "hey, this person is a predator, this is what they did to me and and I have proof," you can be sued. Sure, you might win. But if you're not rich, you can't defend yourself.

A database of such information might be sued out of existence, but a meta-search engine wouldn't be. There's nothing libellous about having a really good targeted search engine focusing on say lawsuits.

How did you find out about his associations in the end? Is it something that, say, a hired private detective could have uncovered?


But honestly, some of it was visible in signs that I (and others) would have recognized had we been more experienced.

In the drugs business someone who does what Zynga is trying to do now won't last long. Literally.

I wonder how much longer this sort of thing will need to keep going until others start following their lead.

Hopefully we can rely on courts of law to do their job.

How good of a job have they been doing so far?

I don't see how violence would be a better answer.

I'm not advocating anything. I'm saying that I won't be surprised if at some point people are going to start realizing that "being the better person" means they lose and the other party wins and that the establishment sides with the richest party.

There was very smart advice being given somewhere else under this topic. Something like "Never do anything with people you wouldn't work with without a contract".

I'd never, ever, under no circumstances, do anything with Zynga without one. That pretty much says I'd never, ever, under no circumstances, deal with them.

Completely agree. It's a shame some people are so desperate for work they would even work for Zynga which is the startup equivalent to telemarketers.

Did you work in Arizona? This is the standard business mentality there.

"Episode 1": That guy has been around every successful industry since the beginning of time. Don't hold it against Tech.

Episode 3-4: Yeah.

I'm curious to learn more about what you're working on, but I couldn't find contact information in your profile. Could you email me? (See my profile for details.)

I'm not working on it anymore. I've moved on to other things.

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.

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

As it should be. Hip-hop damaged humanity's brain with that one line.

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.

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.

pg has also gotten into bed with Yuri Milner and his DST firm. You will notice that both Zynga and Groupon are recipients of DST funds, so it's no surprise that pg is promoting Pincus and Mason. In fact, I have no doubt that if any of the new batch of YC startups were to become successful and IPO, this sort of behaviour that Pincus is trying to pull may be emulated. When you lie with dogs you get fleas, etc.

When PG wrote about how the latest batch of YC startups were run by "operators" rather than your typical "shy tech guys," I knew he'd started to fall into the orbit of the boiler room crowd.

Don't forget Milner's mafia connections.

Thank you for saying this, it needed to be said.

Lets all remember, PG is in business to make money. He does that by selling the upside and lifestyle as much as possible.

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.

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.

The most disturbing thing that I noticed was this: a person's status in the business world (or at least certain sectors of it) seems to be perfectly correlated with how they'd probably score on this:


I'm not making some superficial political statement either. I noticed it in myself. There were people I worked with that I completely hated yet... when they were present... it was almost like a drug. There's this "high" you get off them. You feel more confident just because they're in the room. They've got this kind of charisma that goes beyond mere confidence or enthusiasm. They were, by their actions, the most psychopathic ones.

It's like we have a genetic, predisposed tendency to follow psychopaths. I found it unbelievably disturbing. I'm a bit skeptical of evolutionary psychology, but this is one area where that kind of thinking feels like it could be right. It's like we know, on some subconscious animal level, that while these individuals are dangerous to us they're also more likely to win in a war. They will kill for us. And our genes want to be on the winning team.

Among other things, it converted me to a born-again advocate for human genetic and neurological engineering. We simply have to purge ourselves of this evolutionary legacy code or it will kill us all.

A psychopath as defined by Hare will never kill for you. At least, not in the sense you mean by "kill", which is probably "go to extreme lengths". They quite likely would kill for you, under the right circumstance - but only if it served their purpose and only because taking a life doesn't carry any particular emotional connotation for them. The scariest thing about realizing you're surrounded by psychopaths is knowing that they have about as much regard for your feelings and well-being as those of their toaster oven.

From an evolutionary psychology viewpoint, things are probably the other way around. That is - psychopathic personalities evolved to reflect, albeit in a very shallow way, the traits we're programmed to identify and follow as leaders.

I find the whole topic morbidly fascinating. In a way, it's the closest we can get to observing an alien intellect. The idea that so many executives in and around my industry could be such people just creeps me the hell out.

You should read Blindsight by Peter Watts. It's about this topic, and is basically an evolutionary dynamics horror story.

The term you're looking for is "nonsentient."

In my experience, finance scumbags and startup scumbags are different breeds. Finance scumbags are greedy but honest. They believe themselves entitled to own $20 million apartments and will do whatever it takes to get them, but they don't pretend to be anything other than what they are. Startup/tech scumbags (because they're more accountable; Zynga's behavior would be unremarkable coming from Goldman) tend to be a bit better at disguising their intentions. They also tend to care more about power, social access and kingmaking, whereas finance scumbags are purely about money. In my opinion, that makes finance scumbags more respectable (or, I should say, less repulsive).

That said, I like technology a lot better. There are always going to be scumbags when there's money, but the difference (IME) is that: (1) there are more normal (non-scumbag) people in tech, probably 85% vs. 70%, (2) the normal people in tech are more interesting and creative, whereas decent people in finance tend to be boring, 9-to-5 types, and (3) technology has a small but sizable number of people who are decent and have entered the upper ranks, whereas there's a glass ceiling that non-scumbags experience in finance (unless they start their own trading firms).

I didn't move from finance to technology with the illusion that I'd never have to deal with another asshat. I moved because in technology, it's much more likely that I can succeed (a) in a creative way, and (b) without becoming a scumbag myself.

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."

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

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.

"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.

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.

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

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.

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.

And Facebook... and Skype, etc.

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.

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.

"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."

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.

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.

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

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

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.

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.

"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).

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.

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.

What a bunch of assholes. Seriously.

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.

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

yeah complete rehash.

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.'


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

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.

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?

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.

> 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?

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."

Probably an anti-dilution clause prevents that.

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.

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.

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

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.

His point is that you would get sued anyway to intimidate you.

The people suing you have more money than you and lots to lose. They would just try to drag you into an expensive and endless legal battle hoping you could not afford it.

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.

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.

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.

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

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.

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.

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.

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.

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.

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…

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.

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

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?

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

Boss: Give me money or be fired.

Employee: Peace out sucka!


Bosses: How do we attract and keep top talent?

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. ;)

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).

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.

How is this not extortion?

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.

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.

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...

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!

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

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!

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...

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?

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.

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

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.

Can I just say: fuck everything about that?

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.

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


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.

Is Skype the first one?

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

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!

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.

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.


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).

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


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".

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.

Interesting, in that case would it not be wise for all of the disgruntled employees who are about to be screwed over to just refuse to give back the stock, get themselves fired and then start a lawsuit and assuming they win use all the money from selling the IPOd stock to start a business that directly competes with their previous employer?

It really depends on the probabilities of settlement versus winning a suit versus the costs of litigation, etc. It's probably best for them to just lawyer up and take their advice. This sort of tactical strategy is what they're paid to do.

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.

"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".

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?

I heard a similar thing over at airbnb

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.

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

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.

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.

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.

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

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...

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.

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

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?

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.

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.

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

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.

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

Someone takes Mafia Wars too seriously in there...

  With the unvested shares, the executives believed they could 
  attract more top talent with the promise of stock.
Not anymore they won't.

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.

> 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.

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.

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

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

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.

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

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

No, contracts are useful even if you trust the other party intimately, because they spell out, in writing, exactly what is expected of each party. Believe it or not, sometimes disputes arise even among people who had the best intentions.

They also allow you to continue to do business even if the other company changes hands.

I think the point you're trying to make is that if you already don't trust someone, a contract is not going to save you. That I can agree with.

The latter is what I meant. I didn't mean don't sign contracts. I meant don't do business with scum.

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

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

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.


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.

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.

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.

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

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.

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.

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..

Scumbag Zynga?

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

This isn't reddit.

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.

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact