4 ms·

Wow this should be straight up illegal and yet: "One lawyer said that over the past year, he has heard executives of three social-media sites discuss the possi

by smokinn 15y ago

Wow this should be straight up illegal and yet: "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." I don't see how this is anything other than theft. They're saying that either you give us some of your compensation back (you may not have joined if it were not for those stock options/grants) or you're fired and lose it all. Insane.

damoncali 15y ago
To be fair, people are asked to take cash pay cuts all the time. They're talking about unvested stock (future compensation). It's tough to defend this, though. I would assume that it would be a breach of contract, but I'm no lawyer.
- grandalf 15y ago
  It would seem that this could be solved through negotiation. Pincus needs the shares now to recruit top talent, and without the shares everyone's chances of a great exit are diminished. Pincus could sell his own shares, but would risk losing control. So Pincus should be willing to essentially write futures contracts on the proceeds from his own shares and trade those with employees, who should be willing to accept them in trade, even at precisely equal expected value.
  - Silhouette 15y ago
    The irony of course being that anyone good enough to be in his target market for "top talent" is probably going to take one look at a move like this and run away very fast. Meanwhile, he's likely to see an exodus over the coming months of other good employees whom he didn't try to screw (this time) but who also now realise that the benefits of staying long term aren't necessarily worth the paper they're printed on. You can pretty much write the rest of the story when something like this happens. The only question is whether people like Pincus himself will manage to cash out at some stage before Facebook intentionally or otherwise pulls the rug out from under Zygna in much the same way and the potential value of an IPO plummets.
- davweb 15y ago
  Usually people are asked to take pay cuts because the company isn't doing well, often with the understanding that pay will go back up if things get back on track. Here it seems people are being asked to take a pay cut not because their company is having problems buts because is doing very well indeed.
  - damoncali 15y ago
    Agreed. It's a major dick move. And it's not quite the same as a salary cut, as option prices and amounts were set before the outcome was known. They could well have been worth zero. As long as the employees are doing their jobs, they've earned the equity, no matter how inflated it may seem to the CEO. But... he could just fire them. Which is a problem in itself. This is why I have a major problem with typical employee stock options. It is just flat out not worth as much to employees as it is to investors and founders. Employees are basically put in the position of having to trust that their management (and their management's acquisition overlords) will do what they said they'd do. Between the employers and the tax man, employee equity can be a real bitch. Translated into english, most stock option agreements say, "We'll give you XXX options per month (after you pay us for them, of course). IF we feel like it - we can always fire you and owe nothing more, as you know. Taxes are your problem (good luck!). Oh yeah, and you don't get shit for a year." Ever try to improve the situation up front? Oh, the howling and moaning you'll witness from the company and their lawyers. ("That's highly irregular! Nobody does that! It's a standard vesting period! Why are you so greedy! You could just walk away with stock!")
wavephorm 15y ago
If I were one such employee I'd be lawyering up like RIGHT THE FUCK NOW.
harryh 15y ago
They're not saying "you give us some of your compensation back", they're saying "your future compensation will be less than you expected." It's kinda like if someone gets you to join their company by offering to pay you 100k/year, but then 6 months in drops your pay to 50k/yr. And really it's not even that. It's "you got hired at 100k/yr, but then the company was WILDLY SUCCESSFUL and you then expected to make 10M over the next year but they're dropping your pay to 1M for that year" Skeezy? Definitely to some degree. Theft/Illegal? I don't think so.
- nirvana 15y ago
  Actually, it is theft. The grant is a commitment to issue the equity on the vesting schedule. Attempting to change that schedule is attempting to deny employees the compensation they are morally due. If the employee continues to do the work he promised to do at the time of the grant, firing him, or attempting to renegotiate, simply to get the stock back is a form of theft. You can't just hire someone at $100k a year and then decide you want to pay them less, at least not without risking a losing a lawsuit.
- smokinn 15y ago
  The difference between a pay cut and a stock restriction is that pay is regular and vesting is not. Let's say you renegotiate down 50% like you suggested. That means from now on you make 50% and before you made 100%. A vesting schedule though almost always accelerates towards the end. So if you renegotiate down 50% towards the end you may in fact be likely losing 75% or more. That's the problem with renegotiating stock grants/options, you likely still have a large amount left unvested and you put in all the hours and work beforehand with the promise that loyalty would be rewarded over time.
  - harryh 15y ago
    > A vesting schedule though almost always accelerates towards the end. Really? That's hasn't been my experience. In every situation I've seen (or even heard of) vesting has been on a regular schedule with the exception of a cliff at the beginning of employment (generally 1 year). If the zynga situation involves people who have not yet reached their 1 year cliff the skeeziness factor would go WAY UP imho.
rmc 15y ago
or you're fired and lose it all Take note white collar workers & high paying professional programmers, at-will employment and lack of employee rights can screw you too. If it was illegal to fire someone "for no reason", then it would be much harder for a company to screw employees like this.
- jellicle 15y ago
  Yeah, honestly this whole situation feels like a "come to Jesus" moment for HN. This type of screwage by corporations happens all the time to people across the U.S., whether it is pay cuts for the peons, unpaid overtime, layoffs where you have to do twice the job for the same pay, whatever. And HN has always danced right over them: "Sucks to be you, suckers! If you were really smart, you'd have joined a startup!! LOLOLOLOLOLOL!!!11!!" Now that it's HN's ox being gored, there's a different feeling about it. Labor rights aren't just for farmhands and Walmart workers.
  - CodeMage 15y ago
    Maybe my perception is wrong, but I thought HN attitude is usually "found your own startup" instead of "join someone else's startup".

by smokinn 15y ago

damoncali 15y ago

To be fair, people are asked to take cash pay cuts all the time. They're talking about unvested stock (future compensation). It's tough to defend this, though. I would assume that it would be a breach of contract, but I'm no lawyer.

grandalf 15y ago
It would seem that this could be solved through negotiation. Pincus needs the shares now to recruit top talent, and without the shares everyone's chances of a great exit are diminished. Pincus could sell his own shares, but would risk losing control. So Pincus should be willing to essentially write futures contracts on the proceeds from his own shares and trade those with employees, who should be willing to accept them in trade, even at precisely equal expected value.
- Silhouette 15y ago
  The irony of course being that anyone good enough to be in his target market for "top talent" is probably going to take one look at a move like this and run away very fast. Meanwhile, he's likely to see an exodus over the coming months of other good employees whom he didn't try to screw (this time) but who also now realise that the benefits of staying long term aren't necessarily worth the paper they're printed on. You can pretty much write the rest of the story when something like this happens. The only question is whether people like Pincus himself will manage to cash out at some stage before Facebook intentionally or otherwise pulls the rug out from under Zygna in much the same way and the potential value of an IPO plummets.
davweb 15y ago
Usually people are asked to take pay cuts because the company isn't doing well, often with the understanding that pay will go back up if things get back on track. Here it seems people are being asked to take a pay cut not because their company is having problems buts because is doing very well indeed.
- damoncali 15y ago
  Agreed. It's a major dick move. And it's not quite the same as a salary cut, as option prices and amounts were set before the outcome was known. They could well have been worth zero. As long as the employees are doing their jobs, they've earned the equity, no matter how inflated it may seem to the CEO. But... he could just fire them. Which is a problem in itself. This is why I have a major problem with typical employee stock options. It is just flat out not worth as much to employees as it is to investors and founders. Employees are basically put in the position of having to trust that their management (and their management's acquisition overlords) will do what they said they'd do. Between the employers and the tax man, employee equity can be a real bitch. Translated into english, most stock option agreements say, "We'll give you XXX options per month (after you pay us for them, of course). IF we feel like it - we can always fire you and owe nothing more, as you know. Taxes are your problem (good luck!). Oh yeah, and you don't get shit for a year." Ever try to improve the situation up front? Oh, the howling and moaning you'll witness from the company and their lawyers. ("That's highly irregular! Nobody does that! It's a standard vesting period! Why are you so greedy! You could just walk away with stock!")

wavephorm 15y ago

If I were one such employee I'd be lawyering up like RIGHT THE FUCK NOW.

harryh 15y ago

They're not saying "you give us some of your compensation back", they're saying "your future compensation will be less than you expected." It's kinda like if someone gets you to join their company by offering to pay you 100k/year, but then 6 months in drops your pay to 50k/yr. And really it's not even that. It's "you got hired at 100k/yr, but then the company was WILDLY SUCCESSFUL and you then expected to make 10M over the next year but they're dropping your pay to 1M for that year" Skeezy? Definitely to some degree. Theft/Illegal? I don't think so.

nirvana 15y ago
Actually, it is theft. The grant is a commitment to issue the equity on the vesting schedule. Attempting to change that schedule is attempting to deny employees the compensation they are morally due. If the employee continues to do the work he promised to do at the time of the grant, firing him, or attempting to renegotiate, simply to get the stock back is a form of theft. You can't just hire someone at $100k a year and then decide you want to pay them less, at least not without risking a losing a lawsuit.
smokinn 15y ago
The difference between a pay cut and a stock restriction is that pay is regular and vesting is not. Let's say you renegotiate down 50% like you suggested. That means from now on you make 50% and before you made 100%. A vesting schedule though almost always accelerates towards the end. So if you renegotiate down 50% towards the end you may in fact be likely losing 75% or more. That's the problem with renegotiating stock grants/options, you likely still have a large amount left unvested and you put in all the hours and work beforehand with the promise that loyalty would be rewarded over time.
- harryh 15y ago
  > A vesting schedule though almost always accelerates towards the end. Really? That's hasn't been my experience. In every situation I've seen (or even heard of) vesting has been on a regular schedule with the exception of a cliff at the beginning of employment (generally 1 year). If the zynga situation involves people who have not yet reached their 1 year cliff the skeeziness factor would go WAY UP imho.

rmc 15y ago

or you're fired and lose it all Take note white collar workers & high paying professional programmers, at-will employment and lack of employee rights can screw you too. If it was illegal to fire someone "for no reason", then it would be much harder for a company to screw employees like this.

jellicle 15y ago
Yeah, honestly this whole situation feels like a "come to Jesus" moment for HN. This type of screwage by corporations happens all the time to people across the U.S., whether it is pay cuts for the peons, unpaid overtime, layoffs where you have to do twice the job for the same pay, whatever. And HN has always danced right over them: "Sucks to be you, suckers! If you were really smart, you'd have joined a startup!! LOLOLOLOLOLOL!!!11!!" Now that it's HN's ox being gored, there's a different feeling about it. Labor rights aren't just for farmhands and Walmart workers.
- CodeMage 15y ago
  Maybe my perception is wrong, but I thought HN attitude is usually "found your own startup" instead of "join someone else's startup".