Zynga could just fire all of these people if they didn't want to give them the stock, and that wouldn't be "taking back stock", that would just be "you never had the stock". The only reason why it's evil is because they think the employees are actually valuable enough that they want to keep them around but not valuable enough to keep good on their stock units. They could easily fire the employees and let them re-interview for their old jobs if they wanted and it would be perfectly legal (companies do this on a regular basis to rehire employees as contractors without benefits).
RSUs and stock options like this are pretty interesting to me because it provides a huge incentive for employees to stay at the company, but it also provides a huge incentive for employers to fire their employees after (N-1) time periods where N is when their units vest.
What you are saying is the same as "if the only reason you're firing someone is to not have to pay them anymore, you're a dick and it's wrong".
Options are negotiated at the time of employment for a reason - their value is derived from the risk and their upside. You cannot go back and take them away "because they're worth too much". It defeats the purpose of having them in the first place. If you want to cap the value, do it at the time of the agreement. Otherwise you are misrepresenting the value of the compensation.
As long as the employee is doing what they are supposed to be doning (and if they're not, they should be fired), those options should be paid out, regardless of their worth.
Ask yourself this: What would Pincus be doing if those employees had worthless options? Do you think he'd be writing checks to cover their non-gains?
I know the agreements are written to allow this behavior. It's still wrong, and goes against the spirt of equity grants.
I fail to see how this is any different than the spirit of a salary, you expect your salary to be the same or go higher and anytime it is lowered would be a surprise to most people.
It is explicitly in writing that this stock do not belong to them and that they won't get it if the company decides to fire them for any reason. That is exactly what the contract says, otherwise there wouldn't be any dispute here, it would be a violation of the contract. Stocks don't belong to you until they vest, just like salary doesn't belong to you until it actually gets deposited into your bank account.
It doesn't matter if the compensation is salary or stock grants or health insurance, and to act like stock is some magic form of compensation that is somehow different than the others, that it's perfectly ok to fire someone if their salary is too high but not ok to fire someone if their future stock grant would be too high makes no sense at all to me.
If it was actually what you are claiming it to be, then it should just be stock vesting at every pay period or just be stock or partial ownership that is granted up front. And yet that isn't how any RSUs work, because that isn't what they are.
Stocks and RSUs or options are not the same thing at all, and to act like they are the same is just crazy.
Edit: To be clear, it's perfectly possible that Zynga did something immoral here. They probably did, but that immoral thing was claiming that stock options are the same as stock, not using stock options exactly how they are intended to be used. I feel like you are just opening yourself up to being lied to exactly the same if you continue thinking that stock options or RSUs are anywhere near as good as actual stock.
You are only opening up future people by arguing the line of argument that you are, because other people will read it and think the reason why this happened is because Zynga was immoral, not because this is a normal risk that is by design part of stock options. You need to evaluate the chance that you are actually going to get stock in addition to the expected value of the stock if you do get it. Only evaluating the latter will give you a false sense of their value.
if (market.valueOf(employee.equity) > market.valueOf(employee.labor)) {
this.equity += employee.equity;
employee.dismiss();
}
If that language were written for this purpose, you would see people being forced out of their options prior to the one year cliff routinely.
But then, if that were common (or even somewhat likely), options would have literally near-zero value. See the problem? This cannot be the default behavior and make sense as an incentive. It has to be reserved for very rare and special circumstances. And even then, I have trouble thinking up a scenario where you would want to keep the employee but reduce their equity compensation.
Yes, these are agreements between consenting adults. But a contract is only a contract if minds meet. And if one mind is thinking "if I work hard, I'll get paid whatever this stock is worth" and the other is thinking "I'll reduce this guy's payment later if I want to", then you don't really have a meeting of the minds at all, do you? It doesn't matter what the words on the paper say.
If the cost of the options > value of employee + cost of bad PR / other employees then I expect it to always have this outcome, and I am fairly certain it happens routinely just on a smaller scale. The only reason why this is news is that it is on a massive scale, on a well known and vilified tech company that is nearing IPO, and they aren't hiding the fact that they are doing this by just firing everyone.
A random 15 person company that quietly fires their employee a month before their stock vests doesn't get to the front page of HN.
It completely blows my mind that you think this exact situation isn't completely normal and something that you should take into account when you weigh the value of the stock.
> But then, if that were common (or even somewhat likely), options would have literally near-zero value. See the problem?
Yes, I completely agree that there is a problem that the people aren't on the same page. The problem that I see is that an absurdly high number of people are apparently overvaluing their unvested stock in startups.
I still cannot comprehend that you think this is some backdoor unexpected usage of this. If you work at a tech startup and your stock is going to vest within a year before your company is going to be acquired or go to IPO, I would recommend you drastically reduce the expected value of your units based on what you are emoting here.
To come in after the fact, and decide that the upside was too much is to retroactively change the value of the options at the time of the grant, making them worth less than the agreed upon amount.
Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options, but the reason that is there is so that people who fail at their jobs do not continue to collect equity beyond their usefulness, not to greedily claw back money from employees who are fulfilling their agreed upon duties. Hiding behind that clause to justify this behavior is reprehensible.
There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore."
and
"Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement."
The options are worth $0 until they vest, so at the time of hiring and firing they are still worth $0. They are a promise of future compensation, just like salary, and just like salary you don't receive it if you don't work there anymore. If it was actually a decision of accepting the risk of the stock being valueless, then the compensation would be stock instead of options.
> Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options
No, that is the clause as written, not some sort of sneaky backdoor that they snuck in, it is the very definition of these stock options. The clause doesn't say "if you are fired for gross negligence or incompetence..." it says "If you are not employed here on date X, then you get nothing".
> There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore."
You have earned nothing until they vest! That is the entire point of the structure of these options. If they were actually anything like what you are describing, they would just be monthly stock grants. If you work somewhere for 6 months you don't get half of the grant that you get after 1 year, you get nothing. It is explicitly not proportional in the contract.
> "Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement."
How is this different from "Johnny, we like you, but we don't think you are worth the $200k salary that we foolishly offered you before. We aren't going to continue paying you such a high salary, so you can either accept the lower salary that we think you deserve or we will fire you"? Both are retracting an offer for future compensation for future work. Or do you think that would also be immoral?
"Take a risk working for me. I can't pay as much as you could otherwise earn, but I can give you equity instead. Some day, if we do well, it will be worth a lot of money and we'll all be rich".
That lawyers and tax men have screwed up these agreements to the point of absurdity does not change the fact that this is basically the promise that is made. It should be kept.
But I think the core issue here is that this is what stock options and RSUs are. This isn't Zynga exploiting a loophole that only they wrote into their contract and only they do, this is the definition of stock options. I understand that Zynga is awful, I am more trying to make everyone aware that this isn't some insane situation that could never happen to them because they work at a nicer startup. If you are working for RSUs there is a much much higher chance that you are going to get fired a month before your stock vests than a month after, and it seems like everyone on here has been tricked just like the Zynga employees were tricked into thinking that stock options in startup X are just as good as stock.
I'm going to lose 65% of the time, I'm going to be ridiculed by poor players without knowledge of equity and pot odds, and I'll question whether I actually made the right decision. The other 35% of the time, I'll win that $150, feel good that I made the right decision, and those same people will call me a lucky moron.
The average result is that I gain $100 * 0.35 - $50 * 0.65 = $2.50[0] every time I make this decision. My decision was good, even if the outcome is highly volatile (nearly 2/3 of the time, I lose).
Now the player I was up against says that because I got lucky and won with a worse hand, I don't deserve the full $150 that's in the pot. How about if I give him 10% of that as consolation, since he "should have won"? Everyone else at the table agrees that's reasonable (after all, I'm just an idiot who got lucky), and now the equity of my decision works out to 85 * 0.35 - 50 * 0.65 = -$2.75[1], and I'm actually losing money on my original decision.
Changing the terms after I've made an informed decision is more than shady: it makes my original decision (based on the overall expected value) incorrect in retrospect. That is what people have a problem with. If early employees now have to account for some nonzero chance of getting fucked on their equity, it's going to make it that much harder for an early startup to afford anyone. Limiting the upside of an investment drastically lowers the risk an investor (and an early employee is effectively an investor) can rationally bear.
[0] At the time of my decision, there was $100 in the pot for me to win. I win it 35% of time, and the other 65% of the time I lose the $50 that I'm paying now.
[1] 150 - 10% = 135 - 50 (the amount that I put into the pot to call) = 85.
A contract's a contract, and a deal's a deal. "Deserving" it doesn't come into play beyond the scope of the contract.
Fixed for accuracy.