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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 i

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.
  - tlrobinson 15y ago
    The employee took a risk accepting equity as part of their compensation, especially at a pre-IPO company. Zynga shouldn't be able to come back, with 20/20 hindsight, and say "turns out we did better than we thought we would so we're taking your stock back". If they failed they certainly wouldn't be giving employees other compensation to make up for their stock being worthless.
  - danssig 15y ago
    > However after two years, and a few splits, I have 128 shares. You're not a "4 shares employee" you're a "% of the company employee". The 4 shares are worth some percentage of the company and after all those splits they're still worth that same percentage. Splits usually happen to get the cost of the overalls hares down but a $1m holding in some stock is still worth $1m after the split. >But the fact is that you are a 4 share employee being paid 3000% of what you were hired at. So what! This is the point of accepting stock as compensation. They worked below what they were worth for the hope that they would win the lottery. They did win the lottery and now the company wants a redo.
rayiner 15y ago
Zynga used employee's jobs as a bargaining chip to get them to give up contractual rights, and that is something a legal case can likely be built on, even if Zynga would have been otherwise within their rights to terminate these employees.
kls 15y ago
Another point I wanted to make on this was that I also think the Google chef excuse is just that an excuse, I think they will target the big awarded first employees whose value was in getting them off the ground and which they should rightfully be paid for. Their value was then, when the company did not have to money to fairly pay their market price, and they had to use promises of future reward to get them to sign on. By all definitions the developers that got them off the ground are now being overcompensated to their market value, but that was the deal right, we can't afford you because you are a good programer and can get 250k in the market, we want to underpay you now with the promise that if we make it you get to participate in the windfall. So it does not matter if they are not contributing now, it was the contribution while they where being underpaid relative to the market that made them entitled to the windfall. It doe not matter if they where a chef or a developer if they agreed to take reduced compensation as a risk, with the promise of participating in the reward and are being deprived of that then they are in a very grey area.
chernevik 15y ago
Well, yes. But the possibility of this excess was part of equity compensation in the first place, and came with the possibility (probability!) of compensation less than their contribution. IANAL, but if the termination is motivated by the success of the equity gamble the employee took up front, that looks more like breach of contract. Don't want to keep them? That's fine, but pay what you promised you'd pay.

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.
- tlrobinson 15y ago
  The employee took a risk accepting equity as part of their compensation, especially at a pre-IPO company. Zynga shouldn't be able to come back, with 20/20 hindsight, and say "turns out we did better than we thought we would so we're taking your stock back". If they failed they certainly wouldn't be giving employees other compensation to make up for their stock being worthless.
- danssig 15y ago
  > However after two years, and a few splits, I have 128 shares. You're not a "4 shares employee" you're a "% of the company employee". The 4 shares are worth some percentage of the company and after all those splits they're still worth that same percentage. Splits usually happen to get the cost of the overalls hares down but a $1m holding in some stock is still worth $1m after the split. >But the fact is that you are a 4 share employee being paid 3000% of what you were hired at. So what! This is the point of accepting stock as compensation. They worked below what they were worth for the hope that they would win the lottery. They did win the lottery and now the company wants a redo.

rayiner 15y ago

Zynga used employee's jobs as a bargaining chip to get them to give up contractual rights, and that is something a legal case can likely be built on, even if Zynga would have been otherwise within their rights to terminate these employees.

kls 15y ago

Another point I wanted to make on this was that I also think the Google chef excuse is just that an excuse, I think they will target the big awarded first employees whose value was in getting them off the ground and which they should rightfully be paid for. Their value was then, when the company did not have to money to fairly pay their market price, and they had to use promises of future reward to get them to sign on. By all definitions the developers that got them off the ground are now being overcompensated to their market value, but that was the deal right, we can't afford you because you are a good programer and can get 250k in the market, we want to underpay you now with the promise that if we make it you get to participate in the windfall. So it does not matter if they are not contributing now, it was the contribution while they where being underpaid relative to the market that made them entitled to the windfall. It doe not matter if they where a chef or a developer if they agreed to take reduced compensation as a risk, with the promise of participating in the reward and are being deprived of that then they are in a very grey area.

chernevik 15y ago

Well, yes. But the possibility of this excess was part of equity compensation in the first place, and came with the possibility (probability!) of compensation less than their contribution. IANAL, but if the termination is motivated by the success of the equity gamble the employee took up front, that looks more like breach of contract. Don't want to keep them? That's fine, but pay what you promised you'd pay.