I'm not usually a get out the E-Pitchfork type guy, but this subject has really gotten under my skin. I got stiffed on an exit so you can take my view as biased if you would like. It most likely is given my irritation at the subject, I generally don't get worked up over stuff so it has certainly hit a nerve.
But the part that really gets me is it has absolutely nothing to do with the role these people played and every bit to do with the longer hours, reduced compensation risk and how long a person takes that risk for. If they came in on the ground floor then have been riding the roller-coaster and getting paid dirt for longer then they deserve those early and current options, I just cannot understand the attitude that is being displayed where the CEO feels that later employees that are "now" more strategic to the company (read executives) are more deserving of that equity given their worth to the current goals of the company. That is such a warped perspective, it has nothing to do with the future and everything to do with how much risk and how long those early employes took that risk for.
We are talking about unvested shares to be earned in the future. There is not much risk in working at Zynga from here moving forward - no more than any large company. They're not taking back shares people earned during the risky period. They're saying, now that the company exploded we'd prefer to pay you differently from here on out. You have the choice to stay or go. Nothing that already happened is being rescinded except that 2 years ago we put together a plan to keep you highly motivated for 4 years, and now that we know what the stock is worth, it's not equitable to trade the latter half for 2 more years of your work. We could fire you to preserve this capital, but we're offering you a regular compensation package instead.
No, we are not really talking about unvested shares to be earned in the future. We're talking about unvested shares. These are shares that employees have already been paid. This payment is contingent upon the employee continuing to work at the company. Zynga is in effect blackmailing these employees. They are telling them "Give us this money we promised you, or we'll fire you."
The idea behind putting together a plan to keep early employees highly motivated is that you all work hard to grow the company, and in return for the risk and hard work you stand to make a lot of money. That's the whole idea behind tech startups. To grow the company and then tell these employees they don't get the rewards promised them the entire time they have worked there is ridiculous. It violates the entire idea behind vesting shares, which if it is unclear, is that you have already earned those shares. It's merely a matter of when you gain access to them.
It is perfectly reasonable to have shares that vest conditionally based on future performance. Obviously this needs to be clear up front though (and the definition of "future performance" also needs to be clear).
I've always thought Zynga was a huge waste of space/energy/life/etc, and I hope no engineer with any other job opp ever joins again, but it goes against the whole definition and point of vesting to say that unvested shares are already yours. If you quit or are fired, you rightfully only get the ones that have vested, that's the whole reason they gradually vest - so that neither party is completely bilked if you leave after a year and a half. They're not handing over that percentage of the company on the day you join. That would be silly.
It's disturbing that Zynga is doing this, and it's a shitty thing to reneg on salary promises, but that's basically what vesting options are - uncertain salary promises. What they're doing is saying "We promised you a salary based on company worth, but we're now growing so fast in value that there's no way you're worth this much to us, so take a pay cut from now on, or we're firing you". If those people have been there for three years, they should already have 3/4 of their stock vested, assuming they're following the typical valley vesting schedule.
I think the main reason people are so vocal about this is because there's generally an implicit understanding that options are different from salary, more set in stone. Comparatively few people join companies based on promises to be paid 2*x salary the following year. This is upsetting a big part of the natural order of things.
Hopefully this won't impact more upstanding companies.
I think it is mistaken to view options as equivalent of salary. When you are granted those options, you have no clue what they will be worth on the day they vest, and neither does the company. This is why the options have to be valued at their worth on the day of the grant.
Options are used as an incentive for employees to stick around with the company and to work harder in the hopes that their hard work will result in 2-4 years in a higher stock price (or high IPO), which benefits both the employee and the company.
Attempting to take back options which were promised in the past because the company currently thinks the employee doesn't deserve them is aptly named "claw back", because that's exactly what it is.
Imagine a company asking someone in 2011 to give back a part of their 2009 salary, or be fired.
I agree that the connotations are different, but the way the vesting is written into these contracts, it is essentially a periodic stock grant, which ends as soon as employment does, and with no guarantee that it will continue. In that way it's very much like a salary, despite how it's typically viewed. Perhaps the expectation part of things is strong enough that this could be considered bad faith, but my understanding has always been that if someone doesn't work out as an employee for any reason, they have no claim to the unvested stock.
The latter half of your comment reveals Zynga's deceit in pulling this, and why it's not just another case of grudgingly correct capitalism. Zynga used the promise of unvested shares as motivation for its workers. Taking it away now is akin to promising delicious, gourmet cheese to a mouse while it runs on a wheel for a few years, then saying, "Hey, thanks, but a renewed evaluation of your performance indicates you're more deserving of some more bread crumbs every year, no cheese." You can't reneg on valuation made during the early stage.
I'm pretty disappointed to see a YC founder taking Zynga's point of view on this Joey. You can finesse this however you want, some basic trust has been undermined, and this hurts entrepreneurs like yourself as much as anyone. Good luck on your next (or current) venture trying to convince a prospective developer or technical co-founder that you're "not like Pincus."
I'm still shaking my head -- really, Joey? You? You have to see how undermining the "Google Chef" narrative hurts guys like you probably more than anyone. It wasn't too long ago that you were looking for experienced Rails and Mongo devs to help with Earbits. If you were starting today the dynamics would be very different.
I understand that from your perspective as a CEO/Founder there are nuances here that make the business ethics not so cut-and-dried. But for the vast majority of talented devs, the take-away from all this will be a simple story:
Once upon time the "Google Chef" could become a millionaire.
I'm not saying I support this practice, just that there is more than one way to look at it. And I should have realized a better way to do that earlier, which is: Nobody would be pissed if an employee with a 4 year stock plan left after 2 years because he saw the company was going nowhere. Seems to be the same. The employer and they agreed on a 4 year compensation plan that was supposed to keep the employee motivated to stay. When the company is doing poorly, that's not enough. When the company is doing phenomenally well, it's too much. If you're going to complain when the company skyrockets and they don't need to pay $10M to motivate an employee to stay on two more years, then you also have to complain when every employee leaves a dying company while they still have stock to vest.
Again, not saying I agree with or would ever do what Zynga has done, but how can you not look at these two scenarios the same way?
If you want to ensure that your new hire will stay with the company for four years, you put that in the contract. You then negotiate a compensation package that factors in the opportunity cost to the employee of granting you an exclusive right to their services for the next four years. This compensation will consist not of "maybe-someday-we'll-all-be-super-rich-won't-it-be-grand dollars", but instead "we're-a-startup-and-we-don't-have-many-of-these dollars". This will be expensive.
Fortunately for you, dear founder, there's an alternative (at least there was, until these guys ruined it for everyone). Instead of requiring the employee to commit up front to stay for four years, you structure the compensation package in such a way that the employee has an incentive to stay, but isn't required to do so. These packages are often called "golden handcuffs" because they bind an employee to an employer for a number of years, the result you're after, in a way that relies on a large signing bonus of "maybe-someday-we'll-all-be-super-rich-won't-it-be-grand dollars" that is to be disbursed annually over the life of the agreement.
You and the employee both hope those dollars will eventually be worth something, but right now all you know for sure is that you have a lot of them. It's a trade that works for both parties; you keep your employee if those dollars prove valuable enough to compensate for the opportunity cost incurred by the employee in continuing to work for your company, and the employee has the freedom to move on if they don't. It's the "golden" part that keeps the employee around, not the "handcuffs". And remember that it was you, the employer, that chose to do the deal this way. You would have preferred regular handcuffs, but didn't have enough "we're-a-startup-and-we-don't-have-many-of-these dollars" to afford them.
I think the two scenarios are similar, but in the first case, the employee's ability to leave was de-facto -- of course she can leave any time she wants. That's part of the risk the employer takes. But if you want to balance that equation the other direction, that needs to be just as explicit up front. The possibility of a company 'exploding' is precisely the possibility the employee is hoping for. If you want to put a cap on that, fine, just make that cap explicit up front.
I did not say I would ever do this. I just really hate the polarization that happens on these forums over any issue, really. I am not arguing that it's right, fair, or nice. Just that there is more than one way to look at it.
But, ethics and nuance aside, I do think the implications in the long run, esp for founders and entrepreneurs who actually need the 'Google Chef' story, will be a simplistic account in the minds of developers that will make it harder to recruit them.
I have read every comment of yours on this thread, and in an effort to be charitable, I have taken a few days to digest your points regarding the status of unvested shares.
It occurs to me that in multi-founder situations, founder shares typically vest as well. As a founder, if your startup made it beyond the "risky period" before you were fully vested, would you think of it in the same way if your unvested shares were clawed back? I'm willing to bet dollars to donuts that the answer is no. And this is why your position is immoral, reprehensible, and hypocritical. It's not "one way to look at it", it is being self-serving and twisting facts to justify altering the deal, Vader style.
I'm sure you've made it onto more than one "people/companies I'd never work for" list.
Wow. Why in the world would you post this as a founder? It's like saying, "Watch out, anyone who works for Earbits, I'm a big fan of screwing people out of options!"
In his defense he has been pretty consistent on the, we are being one sided on this, which HN can do, we have a strong technical co-founder/first employee bias, we see a lot of I got screwed on options stories and many of us have been thorough it. His viewpoint is that from a purely logic standpoint, the contract allows for this behavior, he has said that he is not weighing in on the morals of it, but that the contract allows for it and that the employee has earned some but not all of the agreed upon compensation. Given that it was agreed to in the future, that according to the contract (not morality) that the company can do so. The funny part is I tend to agree with the owner/founder point of view 80% of the time, but not on this one, I have stated that I am probably biased because I have been thorough my obligatory get screwed on an options dues.
But the part that really gets me is it has absolutely nothing to do with the role these people played and every bit to do with the longer hours, reduced compensation risk and how long a person takes that risk for. If they came in on the ground floor then have been riding the roller-coaster and getting paid dirt for longer then they deserve those early and current options, I just cannot understand the attitude that is being displayed where the CEO feels that later employees that are "now" more strategic to the company (read executives) are more deserving of that equity given their worth to the current goals of the company. That is such a warped perspective, it has nothing to do with the future and everything to do with how much risk and how long those early employes took that risk for.