Zynga wants its stock back

As it heads to a potentially blockbuster IPO, the online gaming company is reportedly asking some employees to surrender some shares.

By Kim Peterson Nov 10, 2011 5:25PM
Zynga, the online gaming company preparing for an initial public offering, thinks it may have been too generous with its stock.

The company regrets giving employees so many stock grants in its early days, according to a report in The Wall Street Journal. So it's telling some workers to give back some shares -- or get fired.

Zynga executives were concerned about creating a "Google chef" situation, the Journal reported. They were referring to the chef who joined Google (GOOG) in the early days and walked away with $20 million after the company went public.

Zynga makes the popular "Farmville" and "Mafia Wars" games, and could be looking at a valuation of $20 billion if its IPO goes well. Employees are sitting on a lot of money. In fact, some of them were sitting on as much as $200 million each, said one person close to the company, according to the Journal.

Chief executive Mark Pincus reportedly developed a hit list of employees whose work he thought didn't justify the large blocks of restricted shares they received when they were hired, according to the Journal.

Most of those aware of Zynga's demands for the return of stock said the effort was designed to replenish the pool of shares that could be awarded to attract new talent. One person called the effort part of Mr. Pincus's strategy to continually assess employees and create a meritocracy where the biggest rewards would go to biggest contributors, and nobody could just "rest and vest."

I can see where Pincus is going with this. It's not unusual for some Silicon Valley workers to get a little flaky if they're expecting a huge IPO paycheck. Facebook and other companies have seen early employees quit altogether -- taking their stock grants with them, of course.

Many employees have sold those grants on the secondary market, making a pretty penny long before an IPO becomes reality.

But a promise is a promise -- particularly when it's written into an employment contract. Some Zynga employees have reportedly hired attorneys to deal with the company's demands.

The article is making Zynga look pretty bad. The company didn't exactly deny the report, but said it was based on hearsay and innuendo and "paints our meritocracy in a false and skewed light." Here's Pincus in a memo obtained by Fortune:

Being a meritocracy is one of our core values and it's on our walls.  We believe that every employee deserves the same opportunity to lead. Its not about where or when you enter zynga its how far you can grow. This is what our culture of leveling up is all about and its one of our coolest features.

Commenters on Twitter were fired up about the issue, calling the company wrong, sickening and a scumbag.

Fortune's Dan Primack saw it differently, suggesting that Zynga wanted to demote under-performing employees and cut their compensation by reducing the number of unvested options:

But this isn't Major League Baseball, where the Boston Red Sox are stuck paying Carl Crawford $20 million per year even if he proves no better than a backup. It's a non-unionized startup, where the CEO is well within his rights to simply fire an under-performing employee (and recover unvested options). In fact, that's what happens at most companies. The difference at Zynga is that Pincus seems intent on retaining talent, even if that talent either didn't live up to initial expectations or didn't adequately match up to the changing needs of a fast-growing company.

Tags: IPO
Nov 10, 2011 7:22PM
Zynga , is a money hungry greedy company  that has gotten to big to fast and is now punishing the ones that made them big in the first place. I hope they not only keep their stock options but are allowed to continue to work where they made other rich too or they can all fail and loose it all I don't care anyway. their games aren't that great and you have to buy stuff just to kept ads from ruining your play of the games anyway.
Nov 11, 2011 4:27AM

So an "underperforming" CEO who has a "contract" gets to walk away with millions after he bankrupts a company and hundreds, even thousands of people lose their livelihoods, but "contracts" with "underperforming" employees can be negated at the whims of one person?

Merely because he granted too many stock options in early contracts with employee's?

Maybe they should make EVERY employee (including the CEO) give back 1% of the shares they own?....

Nov 10, 2011 7:03PM
The greed at the top is kicking into overdrive. Time to butt-bang all the people who got 'em there.  
Well, I for one am refusing to support this agency any more by playing their Facebook games in any manner.  If they threatened me that way I would take them to court the day they fired me!
Nov 10, 2011 9:23PM

What was the name of this pig at the trough, again?  Oh yeah, got it now.   Mark PIMP-US.  What a sorry excuse for a capitalist.


Washington sucks for allowing this BS to go unchecked.  Likewise, corporate American leadership members that participate in and/or condone this type of activity swallow.

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