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Do they have a legal footing to stand on? The way I read it is: 'We consider you overpaid for the job you are doing and we no longer wish to keep you around at

Do they have a legal footing to stand on? The way I read it is: 'We consider you overpaid for the job you are doing and we no longer wish to keep you around at that compensation level'. That is a valid reason to fire someone in CA isn't it?

kls 15y ago
IT is not a valid reason to reclaim unvested stock, those are looked at like current compensation when termination is unjust. You cant terminate someone just to unvest them. That being said, I always draw a line through and contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination. IF they want to negotiate as to when the options will be awarded to ensure that I am going to do a good job before I get options that is one thing, but I never allow for a termination to unvest me after the fact.
- prostoalex 15y ago
  contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?
  - kls 15y ago
    I rewrite the contract so that all options that have been granted but not vested, vest on termination. I was bite by this one and learned my lesson, I have also been bit by dilution, you pick these things up along the way. If they do not agree to vest on termination then we go back to salary negotiation or I walk. To me if they can terminate you and snatch back millions, it's just to big of a carrot to do so, as well that's all it is, is just a carrot if they can at any time deprive you of it. So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.
    - prostoalex 15y ago
      Are you in executive/board/founder position? Once again, curious to hear the name of the companies. I glanced at this http://www.linkedin.com/in/kentonsmeltzer http://www.linkedin.com/in/kentonsmeltzer from your HN profile, and didn't find any Silicon Valley names, but I'm assuming you might not disclose everything there.
      - kls 15y ago
        I own my own freelancing company now doing JS web apps and mobile, I am based in the Orlando Florida area, but I am part of a Vally start-up as the CTO. Sorry I have to be vague on that topic right now. That being said, I was an executive at Marriott and was in line for the CTO position before I left, I did rewire the options contract with Marriott and went through several iterations with Legal. I also built 3 start-ups from the ground up, one exited to Hotels.com, another to TUI travel and the other to EAS nutrition. I would prefer not to say which I got screwed on but one of those exits I was left with nothing but a cold hard lesson in business, ownership and options.
        prostoalex 15y ago
        Got it. Yeah, someone with CTO title might bend the rules a little. Otherwise stock and option plans are generally approved by the board. Asking a company to redraw the contact essentially makes it a CEO's call to reconvene the board as it goes outside of standard grant plan - not something that they'd do for a staff employee.
        kls 15y ago
        I have done it on small contracts as well, granted we are talking about a sizable start-up in this thread, but never the less many first employees are in a position to renegotiate the options; most start-ups are much smaller at the time these contracts are written, even the company we are talking about in this thread was probably much smaller when most of these "big award to get them in the door" contracts where written. Many of those contracts may have been written when their where less than 20 people at the company. In those situations, contracts are very much negotiable. The second start-up I did I walked into a functional and profitable but small company, and I negotiated my options give the experience I had before. I was not at that time negotiating from the perspective of being the CTO but first technical employee.
- Androsynth 15y ago
  They're being terminated because they are not contributing relative to the amount they are being compensated. That seems to be perfectly legal to me (although it will probably hurt them in the long run).
  - kls 15y ago
    Right, I am fine with the part that hey we think you are overpaid and we want to renegotiate the option awards that have not been granted, but they are walking a fine line renegotiation the ones that have already been awarded but have not vested. Many companies will award a certain amount of options and those options come with a vesting schedule so for example I get awarded 4 shares that vest in one year. My contract would say that I get 4 awards of 4 shared over 4 years and those awards vest in 1 year. They are going to run into trouble if they try to claw back the awarded shared because technically I have put in the work for those shares. Now if the contract says all stocks will be awarded in 4 years then yes technically they have not earned them yet, but I would have walked from that contract the moment I saw it.
    - Androsynth 15y ago
      Most contracts state that you lose unvested shares upon termination. It doesn't make sense any other way. However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares. The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
      - kls 15y ago
        What you are talking about is no dilutional where if they split, you are not diluted and your options do not get diluted, so instead of the 4 you agreed to you get the equivalent after the split. Most contracts are dilutional, where you get 4 regardless of splits, I have never seen a contract (in my dealings) that has been non-dilutional in original form, I have always had to add non-dilutional clauses to my contracts because I have had my ownership eroded through this very mechanism.
wavephorm 15y ago
The employees that get their shares stolen can sue for extortion, which is exactly how I and most people would describe this situation. Unfortunately the law generally favors those with more money and resources.
- Androsynth 15y ago
  Bullshit, this is a free market economy. If I feel you are overpaid for what you contribute, I can fire you. This is not extortion, they are readjusting their compensation to the market-going rates. Whether it is moral or whether it will hurt them in the future are different questions.
  - wavephorm 15y ago
    They aren't being fired for being overpaid, they're being threatened with termination unless they surrender their equity in a privately owned company. Definiton of extortion (from wikipedia): Extortion (also called shakedown, outwresting, and exaction) is a criminal offence which occurs when a person unlawfully obtains either money, property or services from a person(s), entity, or institution, through coercion. What Zynga is doing IS extortion. Perhaps it is a form of extortion that is legal in California.
    - Androsynth 15y ago
      That is an inaccurate view of the situation. Unvested shares are not equity. You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation. I put this in another comment: "However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares. The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at." I know this goes against the way it's always been in the tech industry, but it is not extortion.

kls 15y ago

IT is not a valid reason to reclaim unvested stock, those are looked at like current compensation when termination is unjust. You cant terminate someone just to unvest them. That being said, I always draw a line through and contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination. IF they want to negotiate as to when the options will be awarded to ensure that I am going to do a good job before I get options that is one thing, but I never allow for a termination to unvest me after the fact.

prostoalex 15y ago
contract that says that I loose vesting on termination, and change it to all options become instantly vested on termination Curious which companies do that. Are you talking about 83(b) election, or were you really able to convince companies to instantly vest upon termination?
- kls 15y ago
  I rewrite the contract so that all options that have been granted but not vested, vest on termination. I was bite by this one and learned my lesson, I have also been bit by dilution, you pick these things up along the way. If they do not agree to vest on termination then we go back to salary negotiation or I walk. To me if they can terminate you and snatch back millions, it's just to big of a carrot to do so, as well that's all it is, is just a carrot if they can at any time deprive you of it. So basicly I write it to secure what a good company wants, A pair of handcuffs chaining me to a position, but I ensure that once I have completed my time, they can't deprive me of that rightfully earned compensation, I do this by adding a clause that all awards vest on termination, nothing complex not a bunch of legalize just all options vest and the clause overrides any and all other verbiage related to the matter in any other section of the contract.
  - prostoalex 15y ago
    Are you in executive/board/founder position? Once again, curious to hear the name of the companies. I glanced at this http://www.linkedin.com/in/kentonsmeltzer http://www.linkedin.com/in/kentonsmeltzer from your HN profile, and didn't find any Silicon Valley names, but I'm assuming you might not disclose everything there.
    - kls 15y ago
      I own my own freelancing company now doing JS web apps and mobile, I am based in the Orlando Florida area, but I am part of a Vally start-up as the CTO. Sorry I have to be vague on that topic right now. That being said, I was an executive at Marriott and was in line for the CTO position before I left, I did rewire the options contract with Marriott and went through several iterations with Legal. I also built 3 start-ups from the ground up, one exited to Hotels.com, another to TUI travel and the other to EAS nutrition. I would prefer not to say which I got screwed on but one of those exits I was left with nothing but a cold hard lesson in business, ownership and options.
      - prostoalex 15y ago
        Got it. Yeah, someone with CTO title might bend the rules a little. Otherwise stock and option plans are generally approved by the board. Asking a company to redraw the contact essentially makes it a CEO's call to reconvene the board as it goes outside of standard grant plan - not something that they'd do for a staff employee.
        kls 15y ago
        I have done it on small contracts as well, granted we are talking about a sizable start-up in this thread, but never the less many first employees are in a position to renegotiate the options; most start-ups are much smaller at the time these contracts are written, even the company we are talking about in this thread was probably much smaller when most of these "big award to get them in the door" contracts where written. Many of those contracts may have been written when their where less than 20 people at the company. In those situations, contracts are very much negotiable. The second start-up I did I walked into a functional and profitable but small company, and I negotiated my options give the experience I had before. I was not at that time negotiating from the perspective of being the CTO but first technical employee.
Androsynth 15y ago
They're being terminated because they are not contributing relative to the amount they are being compensated. That seems to be perfectly legal to me (although it will probably hurt them in the long run).
- kls 15y ago
  Right, I am fine with the part that hey we think you are overpaid and we want to renegotiate the option awards that have not been granted, but they are walking a fine line renegotiation the ones that have already been awarded but have not vested. Many companies will award a certain amount of options and those options come with a vesting schedule so for example I get awarded 4 shares that vest in one year. My contract would say that I get 4 awards of 4 shared over 4 years and those awards vest in 1 year. They are going to run into trouble if they try to claw back the awarded shared because technically I have put in the work for those shares. Now if the contract says all stocks will be awarded in 4 years then yes technically they have not earned them yet, but I would have walked from that contract the moment I saw it.
  - Androsynth 15y ago
    Most contracts state that you lose unvested shares upon termination. It doesn't make sense any other way. However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares. The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at.
    - kls 15y ago
      What you are talking about is no dilutional where if they split, you are not diluted and your options do not get diluted, so instead of the 4 you agreed to you get the equivalent after the split. Most contracts are dilutional, where you get 4 regardless of splits, I have never seen a contract (in my dealings) that has been non-dilutional in original form, I have always had to add non-dilutional clauses to my contracts because I have had my ownership eroded through this very mechanism.

wavephorm 15y ago

The employees that get their shares stolen can sue for extortion, which is exactly how I and most people would describe this situation. Unfortunately the law generally favors those with more money and resources.

Androsynth 15y ago
Bullshit, this is a free market economy. If I feel you are overpaid for what you contribute, I can fire you. This is not extortion, they are readjusting their compensation to the market-going rates. Whether it is moral or whether it will hurt them in the future are different questions.
- wavephorm 15y ago
  They aren't being fired for being overpaid, they're being threatened with termination unless they surrender their equity in a privately owned company. Definiton of extortion (from wikipedia): Extortion (also called shakedown, outwresting, and exaction) is a criminal offence which occurs when a person unlawfully obtains either money, property or services from a person(s), entity, or institution, through coercion. What Zynga is doing IS extortion. Perhaps it is a form of extortion that is legal in California.
  - Androsynth 15y ago
    That is an inaccurate view of the situation. Unvested shares are not equity. You are acting as if they are being asked to give away something that they own; they are being asked to give up future compensation. I put this in another comment: "However the problem with your math (and most others in this thread) is this: lets say Zynga values me at 4 shares, and I get 1 vested per year. However after two years, and a few splits, I have 128 shares. The company hired me to work as a 4 share employee, then it grew like crazy and I became a 128 share employee. This is normal in tech nowadays, most people take it for granted that you just get lucky and accept your windfall. But the fact is that you are a 4 share employee being paid 3000% of what you were hired at." I know this goes against the way it's always been in the tech industry, but it is not extortion.