4 ms·

To answer your initial question, an early investor is absolutely not in the same situation, because investors do not typically vest their stock over a period of

To answer your initial question, an early investor is absolutely not in the same situation, because investors do not typically vest their stock over a period of time. They receive it all at once, and there are no future shares that can be withheld from them. Not to be argumentative, but I'm not quite sure how firing an employee before they vest their stock is in any way similar to canceling an insurance policy.

grandalf 15y ago
The employee does receive all shares earned "at once" on the day that they are earned. If it's for 365 shares vesting after 1 year, then one share is earned each day (assuming no cliff). Just as there is nothing unfair about an investor selling his/her shares or an employee quitting, there is nothing unfair about an employee being terminated and not getting all of the shares he/she would have gotten if employment had continued. Stupid != unfair. Sure, you can go down the path of sentimentality and say, "Oh no, an investor who believes in the firm should never sell", or "If you're a good employee you'll be loyal to the end", both are absurd statements. Life is random and sometimes unexpected things (good and bad) happen that make existing arrangements non-optimal. The problem is the greed on the part of employees who counted the dollars before they vested. This may harm Zynga's ability to recruit and may harm morale, and if it does Pincus is to blame, and someday we may know whether he made the right decision.
- einhverfr 15y ago
  I don't disagree with your analysis as far as you take it but I think it's different when an employee is told "give this back or quit so we can take it back." I think that's where you have potentials for issues and even the WSJ notes that this is an area that hasn't gotten much review from courts yet. It seems to me, it's permissible to: 1) Let the options vest, leave them with the employees 2) Outright fire the employees and recapture the shares 3) Offer to purchase back at some specific deal But that's different from saying "give them back or you are fired." At that point this is a renegotiation over not only compensation for current and future work but also for past work, and that's where I think a legal claim might come in.
  - grandalf 15y ago
    I agree. At the very least (from what we've all been reading) the process was messy. If I were one of the employees I'd prefer a threat (even a serious one) to just showing up one day and finding that I'd been fired. I too think that your third option would be best, and I wonder why there wouldn't have been some compromise made along those lines, but it's complicated by the reality that Pincus can simply fire the employees and have the shares w/o negotiating. Thus any negotiation becomes a sort of pretend dance and is as likely as not to result in bad morale. I think that at least for accounting purposes the shares are officially "earned" at the end of each work day during the vesting period. I think the argument could be made that while an employee may perceive a grant of unvested ISOs as compensation at the time they are granted, they are indeed not compensation but an optional incentive for the employer to use in the event that an employee is extremely valuable during a period of rapid growth where turnover would be harmful to the company's prospects. If the ISOs were meant to be compensation, why not have them vest immediately... the employee still would not have to pay taxes on them until they were exercised and the mechanism incentivizing performance is there simply via the purchase price.
    - bluedanieru 15y ago
      I think I would rather be sacked outright, and if I were really trying to recapture those shares that is probably what I would do as well. Even if you get an employee to stick around after this, the hit to morale is such that it's almost certainly better for both parties that they go somewhere else anyway. Especially in this case where you're telling the person they aren't pulling their weight. Of course, the best option is not to be such a stupid asshole, but that's not practical in every case, as we see here.

grandalf 15y ago

The employee does receive all shares earned "at once" on the day that they are earned. If it's for 365 shares vesting after 1 year, then one share is earned each day (assuming no cliff). Just as there is nothing unfair about an investor selling his/her shares or an employee quitting, there is nothing unfair about an employee being terminated and not getting all of the shares he/she would have gotten if employment had continued. Stupid != unfair. Sure, you can go down the path of sentimentality and say, "Oh no, an investor who believes in the firm should never sell", or "If you're a good employee you'll be loyal to the end", both are absurd statements. Life is random and sometimes unexpected things (good and bad) happen that make existing arrangements non-optimal. The problem is the greed on the part of employees who counted the dollars before they vested. This may harm Zynga's ability to recruit and may harm morale, and if it does Pincus is to blame, and someday we may know whether he made the right decision.

einhverfr 15y ago
I don't disagree with your analysis as far as you take it but I think it's different when an employee is told "give this back or quit so we can take it back." I think that's where you have potentials for issues and even the WSJ notes that this is an area that hasn't gotten much review from courts yet. It seems to me, it's permissible to: 1) Let the options vest, leave them with the employees 2) Outright fire the employees and recapture the shares 3) Offer to purchase back at some specific deal But that's different from saying "give them back or you are fired." At that point this is a renegotiation over not only compensation for current and future work but also for past work, and that's where I think a legal claim might come in.
- grandalf 15y ago
  I agree. At the very least (from what we've all been reading) the process was messy. If I were one of the employees I'd prefer a threat (even a serious one) to just showing up one day and finding that I'd been fired. I too think that your third option would be best, and I wonder why there wouldn't have been some compromise made along those lines, but it's complicated by the reality that Pincus can simply fire the employees and have the shares w/o negotiating. Thus any negotiation becomes a sort of pretend dance and is as likely as not to result in bad morale. I think that at least for accounting purposes the shares are officially "earned" at the end of each work day during the vesting period. I think the argument could be made that while an employee may perceive a grant of unvested ISOs as compensation at the time they are granted, they are indeed not compensation but an optional incentive for the employer to use in the event that an employee is extremely valuable during a period of rapid growth where turnover would be harmful to the company's prospects. If the ISOs were meant to be compensation, why not have them vest immediately... the employee still would not have to pay taxes on them until they were exercised and the mechanism incentivizing performance is there simply via the purchase price.
  - bluedanieru 15y ago
    I think I would rather be sacked outright, and if I were really trying to recapture those shares that is probably what I would do as well. Even if you get an employee to stick around after this, the hit to morale is such that it's almost certainly better for both parties that they go somewhere else anyway. Especially in this case where you're telling the person they aren't pulling their weight. Of course, the best option is not to be such a stupid asshole, but that's not practical in every case, as we see here.