Zynga this morning woke up to a front-page story in the Wall Street Journal, accusing the social gaming company and its CEO Mark Pincus of strong-arming employees into giving up previously-granted stock options. Before continuing, please understand that I am not accusing the WSJ of getting its facts wrong. At issue here were stock option grants given to early Zynga employees. Most of the grants were designed to vest over a four-year period, which is fairly standard within Silicon Valley.
There is no promise as to what the shares may ultimately be worth, but start-up employees are an optimistic bunch that often left higher-salaried jobs with more established companies. Unvested options disappear if an employee leaves — either voluntarily or involuntarily. At Zynga, however, Mark Pincus apparently likes to do things a bit differently.
Rather than simply firing under-performing employees and handing unvested options over to the replacement, Pincus often likes to find another position within Zynga where the employee might still be able to contribute.
As far as WSJ is concerned, this is a grievous abuse of power. By renegotiating, Pincus is breaking his word. Since when are CEOs not allowed to decide certain employees are overpaid?
Perhaps Pincus should have shown a bit more humility by giving up some of his own options under the theory that he was at faulty for the original hiring decision. For example, the company issued over 33 million in new stock options in , according to regulatory filings.
Pincus was not among the recipients. In retrospect, however, Zynga could have avoided this entire mess. Instead, it could have tied some of its options to performance metrics rather than time metrics. This is a company that largely organizes itself by product group i.
Such products have easily-measured metrics, including revenue, users, frequency of use, etc. Why vest options just based on ongoing employment, when you could also include product-specific performance objectives?
What Zynga did may sound bad on newspaper, but is little more than morally-acceptable business as unusual. Sign up for my daily email newsletter on deals and deal-makers: By Dan Primack November 11,More...