Mark Pincus memo to Zynga employees
finance.fortune.cnn.com
finance.fortune.cnn.com
The stock options given to employees were part of their employment contract with the firm. They were based on imperfect knowledge of future facts on both parties, i.e. taking risks. Zynga attempted to use its power to revise the contract post-hoc.
If I have to negotiate a deal of any sort with Zynga in the future, I'll be wary of them honoring it.
In some situations, the formality of exact punctuation and grammar can be unsettling. Perhaps discussion of something as business-like as stock options is not the time to drop the formality, but it isn't necessarily a sign of disrespect; in fact, it could be the opposite.
"Loose-yet-intelligible grammar, spelling and punctuation" doesn't mean friendly to me, it means ill-educated at best, retarded at worst.
I don't do this personally, just taking a potential angle on the letter. It is interesting that some people are so judgmental and stringent about this, though.
That's a flagrantly strawman version of what he or she was saying.
You should have put a comma after "this" in your first sentence, and you've got a comma splice in the second sentence.
The point they were making is that violations of formal grammar can be useful in some contexts and for some purposes.
What I just wrote is an apt example, actually. I used "they" as a gender-neutral third-person pronoun because, though it's not standard grammar, it suits the tone I want to convey here.
However, by concentrating on how I wrote, rather than what I wrote, you are reinforcing my view that "loose-yet-intelligible" is not OK. You provided further reinforcement by writing a clumsy sentence which you then felt the need to justify.
Perhaps someone could find another company that has threatened firings unless employees give back options, and Pincus can copy their CEO's memo to employees.
Actually it did. He mentioned that "leveling up" is part of the culture, which I read as a passive/aggressive way for him to both mention and justify the clawbacks. "Those people just weren't able to level up."
Most of "the guys" will listen to the moderate voices, and will probably only join a suit if it's class-action.
In the case of someone hired but who wasn't really as qualified as they represented themselves to during the interview process, then it would be understandable if they were summarily fired. No options, no nothing. Same would go for an individual who retired while still at the office. They're a cancer and you can't keep them around. I cannot see these types of people being reassigned. Oddly enough, some of those people are actually kept around, but that's another story.
But in the case of someone who was promoted to a level of responsibility beyond their capabilities, after working at the company for some time, I could see management clawing back those options and benefits given to them in addition to the ones they were originally at the time of their initial employment.
However, and if I'm understanding what is being written about Mr. Pincus, going after those options deemed excessive which were granted to early employees for the sole purpose of not having them participate in an equitable share of the profits of a stock sale, well, that's fraud. And Mr. Pincus had better hope that only a very minimal paper trail exists of those employee agreements. Very minimal.
Must be a horrible place to work.
"We believe so strongly in 'meretrocracy' that we have gone from pretending to be 'meritorious' to being 'meretricious.'"
Ok, I made up meretrocacy. It's derived from the L. 'meretrix' meaning 'prostitute.'
Meretricious however is in the dictionary, and even my spellcheck!
A common situation is an early "non-essential" employee receives something like 0.25% of the company, vested over 4 years. Suppose that at the time the employee is hired, this 0.25% is worth $10,000 or so ($4 million valuation). If the company manages to grow 100x in value, the company is now paying a non-essential employee $250,000/year in stock. With at-will employment, the company can legally fire them.
The conflict arises because there is no legal incentive for the company to keep this employee at this point. Fortunately, it's not all that bad for the employees as long as they have some vested stock since this problem only arises if the stock value gets too high.
Early employees who have shares are also investors, but they pay with their time and skill. I look at the vesting period as an insurance policy for the firm that an employee who turns out to be extremely valuable won't decide to quit b/c of the ongoing upside.
The only incentive the company should have to keep any employee should be that employee's ongoing value to the company. Sure the founder might feel loyal to some of the employees, but his/her job is to allocate resources to pick the best talent, not to wallow in sentimentality. Even a company like Zynga hasn't "made it", there is still a lot more work to do.
Firing an employee before he/she is fully vested is akin to canceling an insurance policy. You only do so if you think the insurable event(s) you were worried about are unlikely to occur.
Not to be argumentative, but I'm not quite sure how firing an employee before they vest their stock is in any way similar to canceling an insurance policy.
Just as there is nothing unfair about an investor selling his/her shares or an employee quitting, there is nothing unfair about an employee being terminated and not getting all of the shares he/she would have gotten if employment had continued. Stupid != unfair.
Sure, you can go down the path of sentimentality and say, "Oh no, an investor who believes in the firm should never sell", or "If you're a good employee you'll be loyal to the end", both are absurd statements. Life is random and sometimes unexpected things (good and bad) happen that make existing arrangements non-optimal.
The problem is the greed on the part of employees who counted the dollars before they vested.
This may harm Zynga's ability to recruit and may harm morale, and if it does Pincus is to blame, and someday we may know whether he made the right decision.
It seems to me, it's permissible to:
1) Let the options vest, leave them with the employees
2) Outright fire the employees and recapture the shares
3) Offer to purchase back at some specific deal
But that's different from saying "give them back or you are fired." At that point this is a renegotiation over not only compensation for current and future work but also for past work, and that's where I think a legal claim might come in.
If I were one of the employees I'd prefer a threat (even a serious one) to just showing up one day and finding that I'd been fired.
I too think that your third option would be best, and I wonder why there wouldn't have been some compromise made along those lines, but it's complicated by the reality that Pincus can simply fire the employees and have the shares w/o negotiating. Thus any negotiation becomes a sort of pretend dance and is as likely as not to result in bad morale.
I think that at least for accounting purposes the shares are officially "earned" at the end of each work day during the vesting period. I think the argument could be made that while an employee may perceive a grant of unvested ISOs as compensation at the time they are granted, they are indeed not compensation but an optional incentive for the employer to use in the event that an employee is extremely valuable during a period of rapid growth where turnover would be harmful to the company's prospects.
If the ISOs were meant to be compensation, why not have them vest immediately... the employee still would not have to pay taxes on them until they were exercised and the mechanism incentivizing performance is there simply via the purchase price.
Of course, the best option is not to be such a stupid asshole, but that's not practical in every case, as we see here.
why are companies allowed to fool people into valuing this offer at all?
This isn't Zynga saying "I'm sorry, you're not pulling your weight, I'm going to have to let you go.", this is Darth Zynga saying "I am altering the deal, pray I don't alter it any further.".
he's got to the end of the book, and this is him writing new chapters to the book :)
I have a life, I want to continue to have a life. That will always be more important than my job.
To reiterate: it's your business what is the most important thing in your life and it's not really fair to judge others for having different priorities.
http://www.sebastianmarshall.com/the-failure-to-execute-koba...
"No officer, I didn't kill him, and anyway, he deserved it!"
So what about the merit of the people who gave out all those options? What about them?
The psychopath's language is usually a caricature (sometimes to the point of absurdity) of going assumptions of the culture in which he's trying to win acceptance. Though they have no values, they are skilled at picking up others' values and using them to make their actions seem acceptable. In Pincus's case, he's taking the noble concept of meritocracy and twisting it into bizarre shapes, refusing to stop even at outright fraud.
Oh, and if I understand Mr. Pinkus right, people who work with food don't deserve to make money. Fucker.
Judging his attitudes from his writing and actions, he'd be a natural fit for the Tea Party. Since the Tea Party and Zynga are the two malefactors most responsible for insufferable activity on Facebook, this is a natural transition for Mr. Pincus.
To the screwed: sorry to hear it, but I guess this is what you get when you work for a company whose name sounds like 4th-grade anatomical slang.
I really wish people would keep politics out of a non-political discussion especially in a way that characterizes people unfairly.
Pincus's bullshit "meritocracy" justification is eerily similar. He's trying to deprive people of equity now that it's worth something, and when people point out that this is scummy, he points his finger and whines, "but they aren't pulling their weight!"
That's the similarity I was trying to point out, though maybe I justified it poorly in the grandparent post.
The problem with the Tea Party is pretty much identical to the problem with the Occupy movement - it's ill-defined. The purists would claim that Tea Party is about small government, like the Occupy movement purist would claim that it's about restoring bank regulation. But at this point both movements, being more or less leaderless, have grown wildly beyond the confines of the people that started it.
Like #Occupy, the Tea Party IMO has become an easy label and an easy rallying cry for whatever ails you. What started as a movement for small government has also attracted economic reformers, people who don't like taxes, freedom of speech activists, McCarthyan anti-communists, social darwinists, and yes, plenty of racists too who just aren't very happy about that black guy. Go look at what people are carrying and yelling at Tea Party rallies, and you'll see plenty of all of the above.
Similarly, go look at an Occupy rally and you'd have trouble telling what they stand for, even approximately. We have economic reformists, anarchists, environmentalists, black bloc hooligans, people who want to lynch all bankers, anti-corporate types, militant anti-corporate types... Some people want corporate power reigned in, an equally large contingent seem to just want the end of capitalism.
Both movements are really just a sea of disparate interests groups trying to pretend they represent some kind of unified voice.
Pincus is a psychopath on that part we do agree.
You seem to have confused the Tea Party with the Occupy movement? I mean, both are sort of amorphous and all, but to the extent that they have a distinct identity from each other that would seem to be one of the core such differences, and that's where the Occupy movement shows up, not the Tea Party. It's basically a restatement of the 1%/99% motto.
This being said, the problem with the tea party is not that they don't recognize some of the legitimate problems in this country, such as the very incestuous relationship the government has with big business (a relationship which lead Adam Smith in his day to advocate invisible hand policies), but rather the fact that they advocate those same invisible hand policies which resulted in such great concentration of wealth the last time around.
BTW, concentration of wealth is a major issue, impacting everything from the living conditions of the lower class to national security, and the fact that the Western Roman Empire had so much more disparity of wealth than the Eastern Empire may have a lot to do with the fall of the Western Empire so much earlier.
Because someone is going to rush to argue with me here, let me lay out Prof. Wolfram's argument on that. Basically he says that concentrated wealth necessarily leads to a narrow tax base because you can only raise sufficient money by taxing the super rich in a society with the concentration that existed say in the Western Empire. This means lower tax revenues, which erodes military spending. He points out that the Eastern Empire spent more on the military than the Western Empire raised in taxes.
So when the Tea Party says we need to broaden the tax base, I fully agree. My only difference is that I'd note the only way to effectively do this is to address the issue of concentration of wealth.
Although I don't think that Zynga has the most ethical business goals out there, I don't think it's bad enough to qualify someone as a sociopath. I'm sure there's a lot of history I don't know about so if you could give me the scoop that'd be great. It will hopefully help other readers engaged in the same search.
That all being said, the DSM-IV is a pretty scary book. It has expanded quite a bit of previous editions and become a little more broad to allow for a larger billing footprint. When I used to work in those circles, I had psychologist friends who thought anyone could be categorized as some type of disorder.
[1] http://www.mcafee.cc/Bin/sb.html
[2] http://en.wikipedia.org/wiki/Antisocial_personality_disorder
"Ok, so you're employed at-will. You are only talking about losing your unvested shares. Your employer has the option to fire you and prevent you from vesting anymore shares, yet he is keeping you on board and wishes to renegotiate the matter of your remaining unvested shares.. Do I have that right?"
"Yes. I want to remain employed, and I want to vest all my unvested shares"
"You realize your employer can perfectly legally just fire you and you will not vest any shares at all, right?"
"Yes, but I want to get all the shares I'm entitled to"
"I realize that, bu you realize your employer can perfectly legally just fire you and you will not vest any shares at all, right?"
"Yes, I guess they can."
"You don't need a lawyer, you have no claim here at all, there is nothing I could do. The underlying assumption of your employer is that you have not been doing a good job. I'm pretty sure they have a paper trail to support their case. You will have to contest that, but first you need to get fired, otherwise there is no harm done. But once that happens the onus will be on you to prove that you were fired for an illegal reason, and that is a very high standard to meet. Very high."
"Hmm, ok"
"Now, let's see what 'at-will employment' means: 'The employer is free to discharge individuals "for good cause, or bad cause, or no cause at all," and the employee is equally free to quit, strike, or otherwise cease work.'"
"Oh shit."
"Maybe you better negotiate for your remaining unvested shares. Some shares are better than no shares. You could be getting fired right now for all I know. You could bring me in to help you negotiate, but if I were them and my employee brought in a lawyer to negotiate, I would fire him on the spot rather than play a game I don't need to play."
"Damn."
I'm not so sure that's true. Zynga is headquartered in San Francisco and is subject to California's employment laws. I may not be an expert on California's laws regarding at-will employment, but I sat on a jury for a wrongful termination lawsuit and "at-will" never came up. I would assume any lawyer worth his salt would bring that up in the company's defense if it was valid. Does anyone know what California's laws are regarding at-will employment?
Edit: After Googling around for a bit, my impression is that California is an at-will employment state without many exceptions (basically can't fire someone out of discrimination).
Hiring someone always represents a risk. You don't know if the person is going to succeed at the job you hired them for. You don't know if they're going to wind up a positive asset to the company. You need the option of firing them, and the possibility that you might wind up in a legal battle because you did so -- that even if you have an airtight case, you'll have to lawyer up and spend time in a court room -- is scary and could therefore have a chilling effect on hiring in the first place.
For that we have trial periods (usually three month).
After that employees can still be fired, but there's a notification period involved.
France has had huge problems recently because they have strong 'workers rights'. The problem is that the unemployment rate for young people is huge because there is no movement of labor capital. In general the entire economy gets gummed up from a lack of labor movement. Also, businesses have to subsidize the costs of retaining their worst workers.
"Am I protected against unfair dismissal?"
"In most circumstances you must have at least one year's continuous service before you can make a complaint to an employment tribunal."
From:
So an employer can pretty much get rid of anyone in their first year of employment - they just take it through gross misconduct and the employee can't fight it.
I think it's different in Scotland, though.
[citation needed]
France is doing fine. They laid off thousands in the Auto industry when they were in trouble. "Strong workers rights" isn't a "problem", it's a trade off. It has good sides and bad sides. IMO, more good than bad and I think this Zygna scandal just reinforces that.
French labour laws and the accompanying tax system are the key causes behind France's huge problem with youth unemployment and a cripplingly bloated and inefficient public sector (google Aurélie Boullet).
Add the powerful transport and general workers unions in to the mix (who's members go on strike at least bi-monthly) and you can see that the French labour market has some serious problems.
The above is why the auto-entrepreneur scheme (introduced by Sarkozy) is such a runaway success as it gives individuals a chance to bypass all this bullshit.
The public sector has massive unfunded pension liabilities (because virtually all of France works partly or fully on the "black" due to the crippling tax regime) and the young working population are shut out from the majority of higher paying professional jobs as these are all occupied by unsackable (often unionised) career workers that still expect a job for life. Meritocracy plays second fiddle to who you know and what connections your family has.
(Edited to correct bad autocompletion.)
I strongly support, for instance, laws making it straightforward for people to sue for discrimination and sexual harassment. But after 15+ years in this industry, it is impossible for me to deny that discrimination and harassment claims are routinely abused by deadweight chaff employees to extract settlements from employers when they're terminated, or, worse, to keep their jobs and continue inflicting themselves on their teams.
Discrimination and harassment are two narrowly defined public policy exceptions to the rule of at-will employment, and by themselves they already create a huge amount of pointless† risk. Imagine if instead of narrowly defined exceptions, employees could evaluate every performance, compensation, and staffing decision a company made, and then litigate over them. Welcome to the United States Postal Service.
You might as well have this argument with the wind, by the way, because America is not going to move away from the at-will employment doctrine. It is a fundamental difference between the way the US and Europe conduct business, and most people who run companies would rather the world worked more like the US than Europe in this one regard.
† but: see above
Yep. And most people who are employees would probably rather the world worked like the EU.
at-will versus employee rights is choosing different sides of a power balance (Should we give employees more power? Or give employers more power?). It is clear that most people mostly choose the side that gives them more power.
If you want to work at companies run like the US Postal Service, staffed with lifers, then you want to be in a heavily regulated workforce like France's.
If you want to work in a more dynamic environment, where there isn't a structural disincentive to ever change jobs (because once you clear 1 year, you're can more or less lock yourself in) --- and, for that matter, and environment where you yourself could start a company and easily hire people, you want to start a business in the US.
You can turn this discussion into a soap opera if you'd like, but Hacker News is ostensibly a discussion among people interested in, trying to found, or working at startups, and I think I can safely assert that at-will employment is a clean simple win for startup founders.
It's like when consumers pay for subscription services, such as TV or internet. You pay a certain amount each month until you change your mind. Don't want TV anymore? No problem. Just cancel it. Imagine if you were required to prove you had reasonable cause to cancel your TV service. Just like with employment, the option for signing a contract is on the table (very common with mobile phone service).
In a way, at-will employment is the government choosing to minimize its meddling in employment agreements. It goes against my emotional intuition, but it makes perfect sense intellectually.
Agreed, at-will employment gives the general audience here more advantages. However I wonder if limiting the power of start ups would help start ups?
If it becomes common for some start ups to try to claw back stock options, then highly valuable employees might, in future, not accept stock options in lieu of salary, since they have a legitimate fear that it might amount to nothing. This means start ups might have to pay higher salaries, and requiring more capital. However if a company were to agree (somehow legally binding) that it would never use "at will" to fire someone (i.e. it will never fire someone for no reason), then a highly valuable employees might accept stock options in lieu of salary.
My point in all this is that there is no legal claim here. What's at dispute is shares that have not vested. It's kinda like being pissed off that you will not get the free coffee you get at work if you get fired or if the employer chooses to not provide it anymore; or next year's bonus, or whatever else you have not earned yet.
I guess the downvotes mean fellow readers do not like what I say, which is ok. As long as what I say is not false I'm ok with it.
It doesn't seem that different from reneging on retro pay that an employee might have been promised for example.
In the case for which I was a jury member, a women sued her previous employer for wrongful termination, claiming she was fired for whistle-blowing. Her job was a safety inspector at a refinery and she raised some concerns about the safety procedures involved with cleaning some tanks. She even had documentation (in the form of emails), which showed that some of her coworkers raised a stink about her concerns.
The problem is, no matter why a company actually fires you, they can always make a reason. And I don't think it's hard to come up with a pretense for firing someone. In the case that I served on, the women had hired one of the company's contractors to do work at her home using company machinery and provided reasonable evidence that her bosses knew about it. She was fired for "conflict of interest." Ultimately, we decided in the company's favor. It honestly wasn't even close. There were about 10 questions that would have had to answer yes to, and we only made it to the second one (and almost didn't make it that far).
Still, I'm surprised that at-will employment never came up in this case. It seems relavent. And the company's lawyer definitely seemed worth his salt.
And this is where I thank you for your time and go find a real lawyer.
Oracle lost a case around 2000 where they were forced to compensate someone wrongfully terminated for her unvested stock options. Other cases have been designed against the company on the grounds that firing someone just to screw them out of their options violated the implied covenant of good faith and fair dealing in the employment contract.
I think there is a colorable claim here. The law isn't as cut-and-dry as you're assuming.
They're demanding an act from the employees under threat of personal/property injury (being fired). They would have been much better off simply firing them if they were underperforming. Sometimes voicing out the thought process is all that's required to make something extorsion.
Like if I say "I'm going to sue you if you don't X, Y or Z" can be considered extorsion. Whereas simply suing them isn't.
While it's reasonable that Pincus wants to find some way to obtain more shares other than buying them, sending an email like this could not be beneficial to morale.
If it is truly in the best interest of Pincus and Zynga to obtain the shares, then it's also in the best interest of the targeted employees to give up the shares in exchange for something else with equal or greater expected value.
Since the hubbub around this reflects poorly on the firm as a whole, the employees refusing to cooperate are likely shooting themselves in the foot, though it also seems that Pincus has blundered significantly.
Pincus at least seems to be acting rationally about the future of Zynga, while the employees (even if they have reason to be annoyed by this) come off as being motivated purely by greed, spite, and short-term considerations.
man, how joining an early stage startup many years ago at the comparably lower salary, yet with comparably large option grant makes the person to come off as "being motivated by short-term considerations"?
Being an early employee should not entitle a person to sabotage the company's future just b/c the founder made a mistake, whether that mistake was being too generous with option grants, forgetting to change a password, revealing a secret about one's personal life, etc. Sabotage is sabotage. Creating the hubbub is essentially an attempt to blackmail Pincus and the company's current investors into complying.
Why should these employees be responsible for saving the company from a mess caused by the executive team and investors?
Continuing with that "logic", Pincus is apparently worth $2 billion. So if he chips in $1.9 billion of his own assets, maybe he'd have a leg to stand on.
Creating the hubbub is essentially an attempt to blackmail Pincus and the company's current investors into complying.
Blackmailing the company into...abiding by the terms they originally agreed to. Appalling.
And yet when the company is successful, now the company feels it has rights to dump the employee and deny all the compensation for work, risk and lesser monthly pay.
And all this for what? Because you suddenly realize that somebody whom you had promised to pay is getting big money. And you feel out of your own self elitist attitude that he doesn't deserve it, then you decide to dump him so that you can pocket money instead.
Seems like classic tissue example to me. People being used and thrown. Promised, money so that you can work hard to make the company successful. And then when the company is done squeezing the last drop of juice out of you making money. Dumping you, as they no longer need you.
Would that also be classed as sabotaging the company to refuse?
No one is claiming that this isn't good for the company - they are claiming it is unethical (at least) and bad for the employees.
Stock options are an important part of the compensation package at start-up companies.
If Pincus said to a group of employees: "Ok, we've paid a salary but now we have decided we want that money back. Give it to us or we will fire you" would your argument be the same? If not, what is the difference? The extra money would be good for the company, too, right?
Honestly, with the bizarre position you've taken over this issue one would have to imagine you are one of the people who stands to gain from this. You're lamenting the failing of a company that is on par with ambulance chasers and patents trolls? You're claiming the employees are greedy when a billionaire tries to extort them for the shares he promised them?
This is not a matter of exchanging unvested stocks for something of greater or equal value. This is a matter of Pincus telling a number of employees to give up their stocks, in exchange for nothing, or be fired. That's likely illegal.
Your solution to this is that they should roll over and accept this blatant breach of their contracts, giving up the one financial incentive they ever had for joining a startup, why? To preserve harmony? For the greater good of the company?
That, sir, is why I and others downvoted you.
So Pincus is genuinely an Indian giver if the options are only being clawed back from people who underperformed. Of course there would be documentation predating the clawback threat which identifies such underperformance.
Talk about spin! If Pincus is so stupid that he accidentally gave away huge percentages of the company to janitors, cooks and cleaning ladies then the rational thing to do is get out before more of his incompetence bankrupts the place. Why give back money to a sinking ship?
Further, it's bizarre that you take his "argument" at face value instead of the more obvious "he's just clawing back stock before the IPO" argument that everyone else sees (it's not like this would be his first unethical action).