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Comment by qq66 | Hacker News Reader

Grellas, PG, or others with experience in this field -- is there a legal document that I can make, as a startup CEO, that prevents my company from doing this in the future?

I would never do something like this but I want that to be legally "handcuffed" so that no employee can ever think that we would/could do this.

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It seems that Zynga is using a provision that says that all unvested stock grants are returned if the employee is fired. This is a pretty common provision from the contracts I have seen.

They then seem to be saying "give us back some of the stock voluntarily or we will fire you and you will lose it all."

If you want to make this impossible you can make your contracts such that unvested stock is not lost when one is fired. However, in that case you may end up with a lot of stockholders that are previously fired employees which may not be good for the company.

You can put in a provision in the contract that says that people can only be fired for good cause and that cause cannot be that they did not want to give their stock back. However, while this seems a very fair provision, it will invite a lot of lawsuits and may cost you a lot of money even if you do follow it.

You can put in a provision that says that one cannot ask employees to give back shares in exchange of not getting fired, but it is doubtful that will be effective. The courts usually allow contracts to be renegotiated if both parties agree to it, even if the provision that is to be renegotiated is the one that says "no renegotiation."

So, honestly, I cannot see a good way to "handcuff yourself" as you put it. You may as well just rely on being a decent person.

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PS: None of this is legal advice. This is just hypothetical discussion regarding a hypothetical situation. Please do consult a lawyer for your specific situation.

Employees can't rely on your decency because the investors might put someone else's finger on the trigger if that time comes. I wish there were a way to ensure everyone gets paid or screwed together, but tactics like share classes and dilution and liquidity preferences seem to be so strongly customary that I wonder if a VC would lose interest in a firm that relinquished the power to selectively starve that VC's rivals at the banquet.

"Unvested" means just that: The shares have not vested. The shares are not yours yet. You cannot lose something that is not yours. People who get fired before their shares vest, are not "losing" their unvested shares, nor are they "giving back" their unvested shares.

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

Vest regularly, as often as you send paychecks. My co-founders have monthly vesting setup in our stock purchase agreements.

What's unfair about this situation is if you are fired just before reaching your next vesting event, you see none of it (but oddly, you will still be given back-pay). If I had the legalese to vest continuously, I would.

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

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

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

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

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

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

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

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

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

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

Include a clause in the options agreement stating that if an employee is laid off, or fired without good cause, they become fully vested.

Of course, “good cause” is an inherently slippery term, but if a CEO announces in the frigging Wall Street Journal that he’s trying to twist employees into giving their stock back, and then turns to Fred and says “Fred, I haven’t mentioned this before, but I think your performance has been really poor over the past year”, then Fred’s lawyer does not have a very difficult case.

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