5 ms·

Nonsense. Options are negotiated at the time of employment for a reason - their value is derived from the risk and their upside. You cannot go back and take th

Nonsense. Options are negotiated at the time of employment for a reason - their value is derived from the risk and their upside. You cannot go back and take them away "because they're worth too much". It defeats the purpose of having them in the first place. If you want to cap the value, do it at the time of the agreement. Otherwise you are misrepresenting the value of the compensation. As long as the employee is doing what they are supposed to be doning (and if they're not, they should be fired), those options should be paid out, regardless of their worth. Ask yourself this: What would Pincus be doing if those employees had worthless options? Do you think he'd be writing checks to cover their non-gains? I know the agreements are written to allow this behavior. It's still wrong, and goes against the spirt of equity grants.

esrauch 15y ago
I still don't understand how this is any different than "What would he be doing if their salaries had been negotiated to be lower to begin with? If he didn't have to pay them, would he still be firing them?" I fail to see how this is any different than the spirit of a salary, you expect your salary to be the same or go higher and anytime it is lowered would be a surprise to most people. It is explicitly in writing that this stock do not belong to them and that they won't get it if the company decides to fire them for any reason. That is exactly what the contract says, otherwise there wouldn't be any dispute here, it would be a violation of the contract. Stocks don't belong to you until they vest, just like salary doesn't belong to you until it actually gets deposited into your bank account. It doesn't matter if the compensation is salary or stock grants or health insurance, and to act like stock is some magic form of compensation that is somehow different than the others, that it's perfectly ok to fire someone if their salary is too high but not ok to fire someone if their future stock grant would be too high makes no sense at all to me.
- prodigal_erik 15y ago
  The whole premise of options is "if we succeed, this can make you rich", not "if we succeed, I'll have an overwhelming motive for firing you and pocketing what I lured you with". The best case has to be worth much more than market rate, that's the only reason anyone accepts compensation that's so much riskier than cash. If he isn't comfortable letting this bet actually pay off, he had no business offering it in the first place.
  - esrauch 15y ago
    I just think that is an incredibly naive view of options, they are actually an incentive to prevent you from quitting while still giving the employer the normal amount of power to decide if you should be fired. If you are counting unvested stock as part of your current "in the bank" compensation then you are completely mistaken. If it was actually what you are claiming it to be, then it should just be stock vesting at every pay period or just be stock or partial ownership that is granted up front. And yet that isn't how any RSUs work, because that isn't what they are. Stocks and RSUs or options are not the same thing at all, and to act like they are the same is just crazy. Edit: To be clear, it's perfectly possible that Zynga did something immoral here. They probably did, but that immoral thing was claiming that stock options are the same as stock, not using stock options exactly how they are intended to be used. I feel like you are just opening yourself up to being lied to exactly the same if you continue thinking that stock options or RSUs are anywhere near as good as actual stock. You are only opening up future people by arguing the line of argument that you are, because other people will read it and think the reason why this happened is because Zynga was immoral, not because this is a normal risk that is by design part of stock options. You need to evaluate the chance that you are actually going to get stock in addition to the expected value of the stock if you do get it. Only evaluating the latter will give you a false sense of their value.
    - prodigal_erik 15y ago
      I don't think the form of the offered equity matters that much, it's going to be whatever is most favored by tax laws. I'm guaranteed to be worse off accepting any form of deferred equity compensation if a manager is going to sink to this: if (market.valueOf(employee.equity) > market.valueOf(employee.labor)) { this.equity += employee.equity; employee.dismiss(); } If Zynga's tactic is legitimized by succeding and not getting crushed in court, nothing short of cash or fully-vested shares will have any value for motivation, which screws all startups.
      - esrauch 15y ago
        I still don't understand, it seems like what zynga is doing here is literally the entire reason why these options are structured how they are. If there wasn't this "flaw" in options then they would simply be written differently then they actually are. They would say that if you are fired and they can't demonstrate incompetence that your stock instantly vests or it vests for whatever portion of the time period that you worked.
- damoncali 15y ago
  This is why: the value of the options at the time of the grant is very different than at the time of the firing. You are accepting very risky options in return for a small amount of cash with the hope that it will be worth something much greater later, and the knowledge that it may be worth zero or less, if you include the strike price and taxes. To come in after the fact, and decide that the upside was too much is to retroactively change the value of the options at the time of the grant, making them worth less than the agreed upon amount. Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options, but the reason that is there is so that people who fail at their jobs do not continue to collect equity beyond their usefulness, not to greedily claw back money from employees who are fulfilling their agreed upon duties. Hiding behind that clause to justify this behavior is reprehensible. There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore." and "Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement."
  - esrauch 15y ago
    > This is why: the value of the options at the time of the grant is very different than at the time of the firing. The options are worth $0 until they vest, so at the time of hiring and firing they are still worth $0. They are a promise of future compensation, just like salary, and just like salary you don't receive it if you don't work there anymore. If it was actually a decision of accepting the risk of the stock being valueless, then the compensation would be stock instead of options. > Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options No, that is the clause as written, not some sort of sneaky backdoor that they snuck in, it is the very definition of these stock options. The clause doesn't say "if you are fired for gross negligence or incompetence..." it says "If you are not employed here on date X, then you get nothing". > There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore." You have earned nothing until they vest! That is the entire point of the structure of these options. If they were actually anything like what you are describing, they would just be monthly stock grants. If you work somewhere for 6 months you don't get half of the grant that you get after 1 year, you get nothing. It is explicitly not proportional in the contract. > "Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement." How is this different from "Johnny, we like you, but we don't think you are worth the $200k salary that we foolishly offered you before. We aren't going to continue paying you such a high salary, so you can either accept the lower salary that we think you deserve or we will fire you"? Both are retracting an offer for future compensation for future work. Or do you think that would also be immoral?

esrauch 15y ago

I still don't understand how this is any different than "What would he be doing if their salaries had been negotiated to be lower to begin with? If he didn't have to pay them, would he still be firing them?" I fail to see how this is any different than the spirit of a salary, you expect your salary to be the same or go higher and anytime it is lowered would be a surprise to most people. It is explicitly in writing that this stock do not belong to them and that they won't get it if the company decides to fire them for any reason. That is exactly what the contract says, otherwise there wouldn't be any dispute here, it would be a violation of the contract. Stocks don't belong to you until they vest, just like salary doesn't belong to you until it actually gets deposited into your bank account. It doesn't matter if the compensation is salary or stock grants or health insurance, and to act like stock is some magic form of compensation that is somehow different than the others, that it's perfectly ok to fire someone if their salary is too high but not ok to fire someone if their future stock grant would be too high makes no sense at all to me.

prodigal_erik 15y ago
The whole premise of options is "if we succeed, this can make you rich", not "if we succeed, I'll have an overwhelming motive for firing you and pocketing what I lured you with". The best case has to be worth much more than market rate, that's the only reason anyone accepts compensation that's so much riskier than cash. If he isn't comfortable letting this bet actually pay off, he had no business offering it in the first place.
- esrauch 15y ago
  I just think that is an incredibly naive view of options, they are actually an incentive to prevent you from quitting while still giving the employer the normal amount of power to decide if you should be fired. If you are counting unvested stock as part of your current "in the bank" compensation then you are completely mistaken. If it was actually what you are claiming it to be, then it should just be stock vesting at every pay period or just be stock or partial ownership that is granted up front. And yet that isn't how any RSUs work, because that isn't what they are. Stocks and RSUs or options are not the same thing at all, and to act like they are the same is just crazy. Edit: To be clear, it's perfectly possible that Zynga did something immoral here. They probably did, but that immoral thing was claiming that stock options are the same as stock, not using stock options exactly how they are intended to be used. I feel like you are just opening yourself up to being lied to exactly the same if you continue thinking that stock options or RSUs are anywhere near as good as actual stock. You are only opening up future people by arguing the line of argument that you are, because other people will read it and think the reason why this happened is because Zynga was immoral, not because this is a normal risk that is by design part of stock options. You need to evaluate the chance that you are actually going to get stock in addition to the expected value of the stock if you do get it. Only evaluating the latter will give you a false sense of their value.
  - prodigal_erik 15y ago
    I don't think the form of the offered equity matters that much, it's going to be whatever is most favored by tax laws. I'm guaranteed to be worse off accepting any form of deferred equity compensation if a manager is going to sink to this: if (market.valueOf(employee.equity) > market.valueOf(employee.labor)) { this.equity += employee.equity; employee.dismiss(); } If Zynga's tactic is legitimized by succeding and not getting crushed in court, nothing short of cash or fully-vested shares will have any value for motivation, which screws all startups.
    - esrauch 15y ago
      I still don't understand, it seems like what zynga is doing here is literally the entire reason why these options are structured how they are. If there wasn't this "flaw" in options then they would simply be written differently then they actually are. They would say that if you are fired and they can't demonstrate incompetence that your stock instantly vests or it vests for whatever portion of the time period that you worked.
damoncali 15y ago
This is why: the value of the options at the time of the grant is very different than at the time of the firing. You are accepting very risky options in return for a small amount of cash with the hope that it will be worth something much greater later, and the knowledge that it may be worth zero or less, if you include the strike price and taxes. To come in after the fact, and decide that the upside was too much is to retroactively change the value of the options at the time of the grant, making them worth less than the agreed upon amount. Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options, but the reason that is there is so that people who fail at their jobs do not continue to collect equity beyond their usefulness, not to greedily claw back money from employees who are fulfilling their agreed upon duties. Hiding behind that clause to justify this behavior is reprehensible. There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore." and "Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement."
- esrauch 15y ago
  > This is why: the value of the options at the time of the grant is very different than at the time of the firing. The options are worth $0 until they vest, so at the time of hiring and firing they are still worth $0. They are a promise of future compensation, just like salary, and just like salary you don't receive it if you don't work there anymore. If it was actually a decision of accepting the risk of the stock being valueless, then the compensation would be stock instead of options. > Yes, there is a detail in the agreement that the employer can fire you whenever he wants and retain unvested options No, that is the clause as written, not some sort of sneaky backdoor that they snuck in, it is the very definition of these stock options. The clause doesn't say "if you are fired for gross negligence or incompetence..." it says "If you are not employed here on date X, then you get nothing". > There is a BIG difference between saying "Johhny, it's just not working out, please take the options you've earned and move along. You're not needed anymore." You have earned nothing until they vest! That is the entire point of the structure of these options. If they were actually anything like what you are describing, they would just be monthly stock grants. If you work somewhere for 6 months you don't get half of the grant that you get after 1 year, you get nothing. It is explicitly not proportional in the contract. > "Johnny, we like you, but we didn't think you'd make this much money, so we kinda wish we hadn't given you as many options. Please give them back or we will forced to fire you as permitted by clause 3.2D in the agreement." How is this different from "Johnny, we like you, but we don't think you are worth the $200k salary that we foolishly offered you before. We aren't going to continue paying you such a high salary, so you can either accept the lower salary that we think you deserve or we will fire you"? Both are retracting an offer for future compensation for future work. Or do you think that would also be immoral?