Zynga

[filsdepac]

This is an "old" article, but I just got around to reading it:

http://www.usatoday.com/tech/news/story/2011-11-10/zynga-ipo-stock/51158068/1

I guess this happens a lot (so says an attorney), but not sure why anyone would actually give back shares. Another attorney says, "Certainly nothing that prevents an employer from saying to an executive 'you are making much too much money, accept a lower amount or we'll have to let you go.'"

Is that true? I thought an option agreement states that if you fulfill the service period, you get the options. I suppose if they're performing poorly, you could negotiate, but why do that and retain a crappy employee, just fire them.

[TripletDaddy]

I'm not exactly sure what you are asking because you seem to be proposing several questions, but there are lots of reasons why employees would give back unvested ISOs. This is not uncommon at all.

[filsdepac]

I'm not exactly sure what you are asking because you seem to be proposing several questions, but there are lots of reasons why employees would give back unvested ISOs. This is not uncommon at all.

Ok, that's my main question, why would an employee give back unvested options at a company where they are heavily in the money and they will soon be publicly traded?

I don't doubt that it is uncommon, I'm just trying to figure out why. If it is as simple as them being compensated for them at perhaps a slight discount, then I get it, but I got the impression Zynga is asking them to just return the unvested options.

[TripletDaddy]

Ok, that's my main question, why would an employee give back unvested options at a company where they are heavily in the money and they will soon be publicly traded?

I don't doubt that it is uncommon, I'm just trying to figure out why. If it is as simple as them being compensated for them at perhaps a slight discount, then I get it, but I got the impression Zynga is asking them to just return the unvested options.

The threat of being fired for cause, so you risk losing everything (pretty rare, but not impossible)
The unspoken threat of being laid off....you keep your vested shares but lose your weekly income.
You don't have any money to exercise at the strike price (in Zynga's case, I am pretty sure there have been multiple splits since the first option grants were given out to early employees. Who knows what the current strike is on all the refresh grants but it probably isn't pennies on the dollar anymore)

Zynga is extremely aggressive in their dealings with potential targets. I assume they are equally aggressive when it comes to their internal practices. This doesn't surprise me especially on the eve of making a billion dollars. When you are in a brand new start up and you are pounding out the first cap table, it is easy to throw around ISOs because it feels really good to show love to everyone at the company. You are playing with monopoly money at that point. As a liquidity event nears and becomes a reality, all of a sudden every share has a real value and you are much less inclined to simply give out free money to people as a reward.

I wonder if they are going to do one more round of splits before their IPO? It would behoove them to gobble up as many shares as possible now.

[Paperback Writer]

They could want the unvested shares back to redistribute to higher level execs who are deemed more important but have been with the company for a much shorter amount of time. That occurred with a former company prior to the internet bubble bursting. Execs were trying to free up unvested shares to offer to their ivy league buddies in a hire package. People were even laid off and had to sell their shares at a much reduced price. The question was asked privately: "Why does a worker bee with 15-years experience from state U. have twice as many unvested shares than a newly hired VP from Warton School of Business?" The anwer that they didn't want to hear was: "Because the guy chose early on to take his annual bonus in the form of stock options and has contributed much more than your buddy from Wharton that you hired last month that knows little about our industry or software development."

[TripletDaddy]

They could want the unvested shares back to redistribute to higher level execs who are deemed more important but have been with the company for a much shorter amount of time. That occurred with a former company prior to the internet bubble bursting. Execs were trying to free up unvested shares to offer to their ivy league buddies in a hire package. People were even laid off and had to sell their shares at a much reduced price. The question was asked privately: "Why does a worker bee with 15-years experience from state U. have twice as many unvested shares than a newly hired VP from Warton School of Business?" The anwer that they didn't want to hear was: "Because the guy chose early on to take his annual bonus in the form of stock options and has contributed much more than your buddy from Wharton that you hired last month that knows little about our industry or software development."

Agreed, but this would be a reason why the company would want the shares back, not so much why an employee would give them back.