Zygna Demands Employees Give Back Unvested Options

This story was offensive. Zygna makes games for FaceBook and other platforms. Zygna has been very successful. They may have an IPO soon.

Some early Zygna employees have unvested options that are very valuable! Zygna is demanding that those employees give back their unvested options, or they will be fired!

This quote is offensive.

In order to determine which employees would be asked to give stock back, Pincus and his executives tried to pinpoint workers whose contributions to Zynga–in the execs’ eyes–didn’t necessarily justify the potential cash windfall they could receive when the company went public, the Journal claims. One Journal source said that Zynga executives were especially concerned with not creating a “Google chef” scenario.

Summarizing, “Options may make some of our early employees very wealthy. We don’t want that to happen, so we’re taking back their unvested options.”

Isn’t that the whole point of working at a startup? If the startup is successful, then you get a lot of money? Why would any ever accept a lower salary to work at a startup? Why would anyone ever work ridiculous hours at a startup? If the startup is successful, then management will use loopholes to cheat you!

This is legal due to a technicality. They are “at will” employees, and these are unvested options. So, Zygna can fire them without giving a reason, and they lose their unvested options. Instead, Zygna is demanding concessions or be outright fired.

There is another interesting technicality. Most options have a clause that say “Options must be exercised within 90 days if you’re fired or quit.” If an employee refused to renegotiate and was fired, then he would have to come up with the cash to pay for the option exercise, or lose them. Zygna isn’t public yet, so the shares are not liquid.

With a public corporation, you can exercise-and-sell your options, without putting up any cash. You can’t do that with a pro-IPO corporation. In that case, your only option is to put up the cash, exercise, and hold onto the shares until the IPO.  There are some markets where pre-IPO shares are traded, but you may not get a good price.  Also, if you’re fired and force to exercise the options, you lose a lot of the benefit, because you lose the time value (ability to not exercise if the price crashes) and basis value (the fact that you don’t have to put up the exercise money until later).

I don’t understand why any Zygna employee would keep working there, after getting robbed by management like that.

FaceBook did the exact same thing. However, they outright fired the employees rather than demanding they forfeit their options.  Why would you want to keep someone there as an employee, after you rob them?

That is extremely sleazy.  The startup is successful and you think you’re making a lot of money.  Then, management demands you give the options back.  Why would anybody be motivated to keep working hard, after management rob you like that?

I wonder if management told the early Zygna employees that, when they offered them a job? “We’re offering you $X of incentive options as part of your employment agreement. But, if the startup is really successful, we’re going to cheat you and weasel out of paying.”

When you get options at a startup, you don’t get “unlimited upside”. If the startup is very successful, then you will be cheated. You can be fired and then you lose your unvested options. As an “at-will” employee, management doesn’t have to give a reason when they fire you; if necessary, they can fabricate a reason.  As a minority shareholder, you have little protection. The CEO can waste your equity, by hiring his unqualified friends at high salaries.

As a startup employee, you don’t have a call option. You really have a call spread. If the startup fails, you get nothing. If the startup is wildly successful, then management will cheat you. Therefore, you only have limited upside, when you get options or equity in a startup. Really, it should be an “incentive call spread” and not an “incentive option”.

Why would anyone ever take a reduced salary to work at a startup? You’re an idiot if you think you will cash out for a fortune. If the startup is successful, then management cheat you.

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