Zynga to employees: Give back our stock or you'll be fired
news.cnet.com
news.cnet.com
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.
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.
http://www.bls.gov/opub/mlr/2001/01/art1full.pdf
Specifically of interest is the "Covenant-of-good-faith exception"(only in 11 states, CA being one of them) which I first saw referred to also by someone else here on HN.
At trial, the jury found that Kmart terminated Ponsock to avoid having to pay him retirement benefits. As part of his case, he claimed that Kmart’s discharge was in “bad faith” and that, even without a contract, such a termination gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and exceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”
If I was a Zynga employee I'd definitely be talking to a Labor/Employment lawyer. "Give us back your unvested stock or be fired" sounds pretty "bad faith" to me. Zynga should have just fired the people, but I think they don't want to lose the talent, they'd rather negotiate lower compensation instead of having to find new talent which will most certainly know of Zynga's upcoming IPO & demand proper compensation.
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'?
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).
> [...] Kmart’s discharge was in 'bad faith' and that, even without a contract, such a termination gave rise to tort liability. The court agreed [...]
(First time I have heard the phrase "slap them upside the head" used in an informed legal opinion.)
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.
From my perspective, this sort of thing scares me away from companies, because they might do it again in the future.
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.
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?
Any examples of this? Not that I don't believe you, but just curious
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.
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.
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.
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.
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.
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.
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.
Not if they decide to take yours back so they can get more money. pre-IPO options with Zynga are worth nothing.
Usually the employee only wins because the company messed up the paperwork.
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.
Coming from Australia where you can't fire anybody without good reason (even demoting people can be considered unfair dismissal) this just sounds insane.
http://en.m.wikipedia.org/wiki/At-will_employment
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)
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
Whether it is moral or whether it will hurt them in the future are different questions.
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 they are doing is like hiring a salesman on low salary + commission and then firing them the day before the commission is paid.
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.
Don’t you mean “Shocked, shocked to find shady business going on in here?”
Your winnings, sir.
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.
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.
That way the don't have to over-compensate the performers beyond what they've already promised them.
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.
Let's stop with the all-employers-are-out-to-screw-you rhetoric because it's clearly not true.
Well, "everything went as planned" doesn't make for a very interesting story.
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.
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.
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.
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.
Clean your own house, or it'll be cleaned for you.
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.
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.
I'm not sure why people have missed this, but Silver Lake is an investor in Zynga, just like Skype...
http://www.silverlake.com/partners/investments.php?page=inve...
...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).
Announcing it (especially to multiple employees) is about as dumb as it gets.
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.
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.
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.
?
Somehow, that doesn’t seem like his best work as a CEO...
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'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.
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.
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.
"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...)
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."
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.
If Pincus succeeds with this, startups as a whole and this kind of compensation in particular will look much worse.
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.
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.
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.
The game is: lie, leverage, flip.
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?
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".
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.
Deeply unethical, and terrible for employee relations, and not at all in the interests of the company, but probably legal.
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.
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."
All they are saying is - give back the stock and we won't fire you the day before it vests.
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.
Pig, meet lipstick.
Like I said in another part of the thread: the stock market is the dumbest money around.
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.
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?
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.
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.
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.
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.
"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
> 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?
Episode 3-4: Yeah.
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.
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.
Lets all remember, PG is in business to make money. He does that by selling the upside and lifestyle as much as possible.
Not that there aren't still ethical people out there, it's just that the unethical ones make it so hard to see them.
http://en.wikipedia.org/wiki/Hare_Psychopathy_Checklist
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.
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.
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.
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.
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.
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.
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.
What are you talking about? It's the key to his success.
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.
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).
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.
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.
Even in a heavily equity-based compensation package in an early stage startup, anything over 1% is usually reserved for VP-level if not C-level executives, as the entire employee pool is usually only 20-25%
Per WSJ: '"Some of these people were sitting on over $200 million and close to 1% of the company" when fully vested, said one person familiar with the list that was compiled.'
http://online.wsj.com/article_email/SB1000142405297020462190...
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.
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.
What sort of top talent will have not read this story and decided that surely, THIS TIME, Zynga won't screw their employees?
with the right personalities behind it we could do serious damage to the sleazy conniving wheeler-dealers who pull this shit.
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.
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.
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.
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.
This could end up like what happened with Activision and the CoD guys.
If you take back some of that equity with no commensurate repayment, then fuck you.
Don't be surprised when an evil company acts evil. Just don't work for evil companies.
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.
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 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.
> 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?
Employee: Peace out sucka!
later
Bosses: How do we attract and keep top talent?
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. ;)
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 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.
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
With the shortage of talent, we have no need to work at company backed by these guys. Do so at your own risk!
Good God Fred, is this what a reasonably responsible company would do?
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.
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!
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.
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).
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".
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.
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.
I suppose that would be "top programming talent" but not so much "top economics and common sense talent".
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?
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.
Choose your employer carefully because the treatment you will receive is a pure test of professional ethics: how someone with power treats someone without.
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?
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.
With the unvested shares, the executives believed they could
attract more top talent with the promise of stock.
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.
Note to companies: Don't be assholes. We don't like assholes.
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 manager who came up with that idea is no doubt getting a huge bonus.
Not if the new hires find out about this previous action, and realize that the company may very well demand the stock back.
Make money pressuring users to pay for virtual goods. Pressure employees to give stock for virtual jobs...
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.