Saturday, November 12, 2011

On Zynga and its "give back stock or get fired" story

This week it's been all over the place the news about Zynga CEO and its executives demanding that you either give back the not-yet vested stocks or face termination. One of the ways that startup companies have to lure employees into taking the risk is to offer equity - that's the currency for startups for the risk taking as well as for offering lower salaries and demanding long hours. Once you offer this equity, I think companies must honor their contracts. At the same time, this can tell you a lot about the company, its value, and whether other people will want to join them in the future.

However, Zynga is correct in trying to be meritocratic. Those who contributed more should have a bigger piece than those who are around but did not contribute much to the company's success. A good compromise would be to have policies stating that the stock grants are dependent on your performance evaluation. Some sort of multiplier would be applied in this case - if you reach the expectations, you will get 1x your stock grants, if you're a rock star, you could get up to Nx (e.g. 2x), and if you're an underperformer, you may get nothing at all. That is much more fair than just demanding stocks back or threat with termination. Of course no system is entirely fair, as it can subjective and politics always play a part there, but it's better than lure people into thinking that they will get their stocks if they stick around long nothing and then fire them primarily for this reason.

On other hand, though, how many other companies may be contemplating or actually firing people with unvested stocks to accomplish the same goal? At least one can say that Zynga was transparent on the reason why they would fire its employees. But this is the kind of transparency that one doesn't see quite often because it lowers all employee's morale and the company's moral values are questioned. A company that does the same, but not that openly, seems to be much better off as employees tend to still believe that the company abide by its moral principles and its worth putting in all the effort to make the company grow.
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