The Real 'Scandal' Over Zynga Stock Options Is Over Misleading Reporting
from the let's-work-this-out dept
There were a bunch of reports last week about a so-called "scandal" at social gaming company Zynga, concerning reports that it demanded stock options back from employees or they would be fired. Zynga certainly has done some questionable things over the years, and hasn't always had the greatest reputation... so a lot of people jumped on this story, and plenty of people submitted it. But, the details suggest that the only real "scandal" here is in the attempts by reporters to make this into a scandal (kudos to Dan Primack for not getting fooled). The reporters doing so either don't understand what really happened or are just attacking Zynga for the hell of it. I've got no problem calling out Zynga when I think the company has done something bad, but the details here suggest that what Zynga did is actually pretty reasonable.The part that gets lost in most of the discussions is the fact that Zynga was only asking about unvested stock options, rather than vested ones. Unvested stock options are just like future salary. You can lose it if you get fired. What Zynga did here was take a few employees that it felt weren't achieving up to expectations and, rather just fire them -- in which case they would have received none of their unvested options -- try to find another role for them in the company. That other role, however, would be somewhat lower on the totem pole, and thus, would be entitled to fewer stock options. Yes, it's basically a demotion, but for some people perhaps that's preferable to an outright firing.
But here's the key point. Most of the "Zynga bad!" reporting on this made it sound as though Zynga was taking back options that had already vested. That's false and misleading. Nothing was taken back from the employees. The already vested options remained untouched. Basically Zynga was offering a way for people, who otherwise would have been fired, to keep accumulating some options, just at a lower rate. That may be insulting, but it seems like a more reasonable and humane solution than just firing them outright.
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Filed Under: journalism, options, vesting
Companies: zynga
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Carrying water for Zynga because it's against SOPA!
You're pretty rabidly fixated on SOPA, don't want any of the companies you mention as opposing it to be cast in bad light.
Seems pretty clear that Primack struggles for a favorable slant over the WSJ take: "As far as WSJ is concerned, this is a grievous abuse of power. By renegotiating, Pincus is breaking his word. And possibly the company's contractual obligations."
Mike, you've shown that "renegotiating" is bad when done by the "free" bloggers at Huffington Post, so how can explicitly taking back (potential) pay be okay?
And by the way, if it's "give back" or "be fired", that cannot be construed as commendable reasonableness, it's a flat out threat.
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Re: Carrying water for Zynga because it's against SOPA!
Basic reading comprehension, FTW
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Re: Carrying water for Zynga because it's against SOPA!
Don't be ridiculous. I've called Zynga out for plenty of other crappy practices.
And by the way, if it's "give back" or "be fired", that cannot be construed as commendable reasonableness, it's a flat out threat.
The shares are unvested. There's nothing to "give back." That's the misleading part.
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Renegotiating the stock option agreement on a bad performance review
Probable answer: It vests at the original rate if the employee is still employed-- regardless of title, salary, demotions, etc.
I'm going to suggest this is still renegotiating a signed contract and using the ability to fire the employee as leverage.
But I'll agree with Dan Primack that "Zynga could have avoided this entire mess". Having the stock option agreements tie the vesting rate to performance is one way of doing it. One where a bad performance review can not only reduce your salary but also your vesting...
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The fact that they said they didn't want another "Google Chef" problem where the chef made more than the executives did.
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Vested / Unvested
In this case it seems that they didn't feel that the employee's were worth firing just demoting and taking back stock options. Possibly related to an IPO they are about to do.
Anyway you slice it this is income the employees were told they can expect. Now that's it's due the employer is saying you don't deserve it. The timing might be to slacker employee's but I doubt it.
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Re: Vested / Unvested
It isn't anything they "earned". That is exactly the reason why companies have vested and unvested options. If it was something you already earned, they would all be vested.
Maybe try reading the article before spouting off like a dipshit.
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Re: Re: Vested / Unvested
If you are "laid off" your employment is terminated and you exercise anything that has vested up until that day. End of discussion.
If you are an employee while the company is filing for their IPO and expect to be an employee at time of IPO (or sale of company) - standard operating procedure at 95+% of start ups in Silicon Valley and elsewhere is you have the OPTION TO EXERCISE all vested shares and portions thereof.
Your unvested shares continue to vest per your original employee agreement. Allow me to repeat that for you. As an active employee, your UNVESTED OPTIONS CONTINUE TO VEST.
Threatening an employee with termination post fact or taking away unvested options while maintaining employment is a scumbag move.
Pincus & Co. damn well better be sure that management documented all of this "poor performance" in writing or not only will this blow up in their face, but they will end up paying court costs, lawyer fees and the employees they scammed.
You do not change the rules of the game at the end of the game.
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Re: Re: Re: Vested / Unvested
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Big miss on Mike's part
And this idea that it is OK because these employees would lose their jobs otherwise is a crock someone came up with to try and save face. In the end, it is the same thing ... give the unvested options back or you are fired. I agree with the previous poster that this is 'forced' renegotiation of a contract. I.e., blackmail.
A final point, from Zynga's point of view, if they really had legitimate issues with these employees. If you have a poorly performing employee, and you take away perks that you have already committed to and put them in a different job, do you really think they are going to 'turn around' and become more productive?? Not going to happen. You are left with an even more disgruntled employee, and that poisons the entire work environment.
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What I do understand is employee is promised X to do their job. When it was no longer convenient for the employer, they take them back.
They then want to offer those same things to new people, who in my mind would be insane to consider it any sort of perk as it has been shown they will take them back if they want to.
Trying to avoid the Goggle Chef Millionaire thingy, well this shows that it has happened before. That if you were paying attention you should have known handing the options out like tissues would be a bad thing. Maybe they wanted to get a big stack of pre IPO stock options to drop on the congresscritters not to influence them of course not.
This seems like a real reason for them to offer all new hires stock options, and just push out the dates they vest so they can take them back later once they are in the job.
Someone educate me about this. I'm willing to hear things so I can understand better - but my mindset is if you promise to give me a cookie on friday then on wednesday you tell me your taking my cookie away to give to a new friend, I'm going to want to punch you in the face.
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Re:
Nothing was taken back. Think of it this way: if I hire you to do job X at $100,000, and halfway through, I realize you're not doing a very good job, I could fire you -- give you the $50,000 you've actually earned and move on. Or, I could ask if you want to change jobs, to something more appropriate, noting that the new job only pays $25,000 more.
Nothing is "taken away" from you that you've earned. The money you earned from the first half (the $50k) is still earned and still yours. The other $50k was never yours because you never earned (didn't do the necessary work). At that point, you'd either get fired (and not get the $50k) or are offered a different job for $25k (its going rate). At no point was anything taken back.
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Re: Re:
I myself dislike the idea of a promise of future compensation for taking less today, unless that compensation is confirmed. But then I don't program, so this is totally out of my arena.
I guess me liking or not liking would depend on how the contract was worded, and if it was clear that there would be a review that could alter it moving forward after that meeting. If everyone knows what the deal actually is and accepts it... more power to them.
If they were told they were working for ramen wages for 2 years and at the end of 2 years they would have X Stock options and suddenly had an issue with the work 23 months in, then I could see an office rampage. Its situational.
Well that and I think Farmville is the devil.
Thank you for explaining this Mike, it seems much more rational than the hyped up article I read.
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Re: Re:
That's not true. What is being taken back is part of the existing option grant. That some of the grant hasn't yet vested doesn't make the grant itself "nothing." The vesting of an option grant is not usually tied to job title or performance, hence asking an employee to surrender the unvested portion of their grant is a renegotiation, which, as has been pointed out, is being conducted with the threat of firing as the stick.
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The real scandal?
First, if you are employee #5 at any start up and offered a heavy option stake in exchange for a below market salary, you take on massive risk of ending up with nothing. If the company does take off, employee #5 will always technically be "demoted" as professional managers and executives arrive and create a more formal corporate structure.
Second, if the company is about to go public or be purchased, it is customary (and fully expected) to allow all employees to purchase their unvested shares at the current strike price. Ask anyone who has been there. Saying that employees were "under-performing" is total bullshit and nobody in the valley is buying it
The greed and predatory business practices of Mark Pincus and his short sighted executive team just soiled the entire idea of taking stock options in exchange for salary. Future employees will be more inclined to politely refuse options in exchange for a market rate salary.
And that is the REAL scandal.
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This is not the employee's problem, Zynga probably didn't expect the level of the IPO and promised more than they should have. This is not the employee's problem. Given they still work there, they are obviously doing the job and for only this reason subject to be fired. Most labour laws will side with the employee in any case of a firing in this situation, especially one where the company basically stated they don't want them to get the benefits.
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Unvested shares can accelerate!
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Hmmm
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Wonder about volatility?
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