According to a Wall Street Journal article (registration required), when Zynga was starting up as a company, Chief Executive Mark Pincus often offered shares as a replacement to high salaries to his top employees. Last year, he and the other executives decided to ask for them back, in some cases threatening termination, with the underlying belief being that Pincus believes that those early employees have not contributed as much as the employees who joined after the company started to see large successes. If Pincus and other executives find someone who isn’t performing up to par, they move that person to another position which they feel may be more suited to that person’s strengths instead of firing him/her. Usually, this newer position is a lower one, so Pincus wanted to cut the person’s compensation by reducing the amount of invested options the person had. Vested options remained untouched.
Pincus has responded in an internal memo obtained by CNN’s Fortune. Here is the full text of the memo, unedited:
The wall street journal posted a story last night (copied below) which paints our meritocracy in a false and skewed light. The story is based on hearsay and innuendo which is disappointing but is to be expected as we move towards becoming a public company.
We have nothing to hide in our past and present policies and I am proud of the ethical and fair way that we’ve built this company. As many of you have heard me say — we’re building a house that we want to live in.
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.
we want everyone to put zynga first and contribute to the overall success of our company and all of you have.
According to the Associated Press, Zynga has declined to comment because it is in a federally mandated quiet period ahead of its IPO, which is expected this year, so we are unable to determine whether Pincus is offering compensation in exchange for the stocks.
Analysis: I really, really hate Mark Pincus. I don’t give a shit for his meritocracy arguments; they’re useless and mean absolutely nothing. What happened is that both Pincus and his employees took a bet: the company could have gone under and screwed over the employees, or it could’ve gone over really well and screwed Pincus. It obviously went over well, and now Pincus is feeling giver’s remorse. A deal is a deal, Pincus. If he had actually believed in his company and thought it would get big, maybe he should’ve offered smaller rewards instead of offering big ones that he was just going to backtrack on anyway well before his employees could claim the stock. That’s called a bait and switch, and if you do it, you’re an asshole.
Pincus’s memo was equally worthless. He doesn’t address why the WSJ article painted the company in a “false and skewed” light. What Pincus is doing certainly isn’t illegal, as long as they’re unvested stocks, but one can definitely argue that it’s unethical. Even if it were a-okay that he wanted to take back what he gave employees, what standards is he using to determine who is “meritous?” The employees he offered stock to set the ground work. They helped make the company what it was. What standards do you have to be using to be able decide that, years later after you’re successful, “Oh, no, just kidding, you don’t deserve that. Now give me your stocks back or you’re fired”? Are there performance reviews to back this up? If the work was done, the compensation was earned.
If you don’t like what your employees are doing, you tell them what you want. If you still can’t get what you want from them, you fire them and find someone else. You don’t start taking their stock and tell them, “Hey, you’re going to lose this either way; you might as well still work for me for a lower price.” I don’t know why Pincus thinks his option is more moral, but I would suspect a lot of people don’t agree with it. Yes, it’s nice that he tries to move them around if they aren’t doing well in their current position, but it’s not an intelligent move. That’s why companies don’t cut employee pay without a damn good reason; it tends to lower over all morale, and if someone is underperforming enough to start questioning whether you should allow them to get their stocks vested, you should probably fire them.
No matter how you spin this, it’s poor management. Pincus gave too much stock, or he didn’t evaluate his employees well, or he’s screwing over his employees. I hope that those with enough talent to work for Zynga in the future take note: this company will screw you over as soon as it suits them.