Way to build employee morale, Zynga
Social gaming company grabbing back IPO shares from 'undeserving' workers, WSJ reports
"I know you had a higher salary in mind, but Zynga's really going places. We're offering you some shares in the company that will be incredibly valuable once we go public. I don't want to make any promises, but when Google went public in 2004, more than 900 of its employees instantly became millionaires! So this is a potentially wealth-creating opportunity."
You have to wonder how many potential Zynga employees heard a pitch similar to this four years ago when being recruited by the social gaming company started by chief executive Mark Pinkus.
But as plans for Zynga's public offering begin taking shape, some of the company's early hires were presented with an entirely different proposal.
The Wall Street Journal has a fascinating -- and, to my mind, infuriating -- article about how Pincus (perhaps with input from the IPO's underwriters) basically has been trying to screw over long-time employees:
Early last year, as Mr. Pincus began preparing to take Zynga public, he and several other executives decided the company had doled out too many stock rights to certain people in its early days, say people familiar with the matter. The executives chose an unusual solution: They began demanding that certain employees surrender some shares or be fired.
Apparently Pincus and his braintrust fear that the "wrong" people will get wealthy from Zynga's IPO, which may come at the end of this month and could value the company at $20 billion. Heaven forbid that we end up with another "Google chef," a reference to a kitchen worker for the search giant whose stock after Google's IPO was valued at $20 million.
That's a very good point. Why should a lowly "99%er" get some of the millions from a public offering that could go to a more worthy recipient -- say, one of the wealthy Wall Street investors who are friendly with underwriters Morgan Stanley, Goldman Sachs or Bank of America/Merrill Lynch? Those people worked hard to get those free shares!
So to head off a potential catastrophe, Pincus and his fellow "worthy" executives compiled a list of Zynga workers "whose job performance might not justify their large grants" of shares. You know, the kind of thing that happens to CEOs all the time!
Some employees on Pincus's "undeserving" list ended up setting with Zynga and leaving the company, according to the WSJ.
The WSJ notes that the claw-back could "expose the company to employment litigation—and, were the practice to catch on and spread, would erode a central pillar of Silicon Valley culture, in which start-ups with limited cash and a risk of failure dangle the possibility of stock riches in order to lure talent."
Sadly, it appears the pillar already is eroding, the WSJ reports:
One lawyer said that over the past year, he has heard executives of three social-media sites discuss the possibility of clawing back equity from some employees.
Another lawyer, who has handled stock-compensation issues with technology companies for decades, said he never saw a company try to take equity from employees until about two years ago, but has since seen three such cases at start-ups.
So, really, Zynga is an early adopter!
The problem from Zynga's point of view is that some first-wave employees have more shares than people subsequently hired above them. So what? Those first employees took a chance by signing on to a start-up that could have folded inside of a year. But Zynga flourished as games such as FarmVille and CityVille became wildly popular on Facebook. Now the company is recruiting executives who are joining a much larger, more stable organization.
And if it's such a problem that there were "close to 30 employees with performance questions and large amounts of restricted shares," as the WSJ reports, how come no one is looking into the effectiveness of the Zynga executives who did the hiring?
Also, why aren't these "underperforming" early employees just being fired? You'd think that would do more for overall morale than instilling in other Zynga workers the constant fear that they'll have to give up potentially life-changing shares or have five minutes to clean out their cubicles while an HR person and security guard wait to escort them out the door.
Keep it classy, Zynga.