Kai Ryssdal: You go to work for a startup in Silicon Valley, one of the unspoken perks — actually, it’s spoken quite a bit — is a chance to get rich off stock options.
Which makes a development at the social gaming company Zynga — they invented Farmville — a little curious. Zynga could go public for as much as $20 billion later this year. But company founders are said to be having some regrets about handing out options and shares so freely back in the early days. The Wall Street Journal reports they’re making employees an offer that’s tough to refuse: Give everything back or lose your job.
Marketplace’s Steve Henn has more.
Steve Henn: The lure of stock options are one of the biggest reasons so much talent still flows into tiny little startups.
Adam Tratt: In a startup, you often take a reduced salary in exchange for an equity share, and the promise is if things work out, sometimes you are rewarded disproportionally for the risk you took. And if it doesn’t work out, then you made a bad bet and you go get a different job.
Adam Tratt is CEO of a small gaming startup called Giant ThinkWell. He’s gotten options at other companies in the past and he is giving them out now at his own company. But the idea that a firm could claw back stock options on the eve of a blockbuster IPO is almost unheard of.
Tratt: Without knowing the explicit details of what going on, it seems a little bit outrageous that Zynga would be trying to change the rules right on the eve of the big payout.
And Zynga’s refusing to comment. But securities experts in Silicon Valley say most stock options require employees to work at a company for a year or two before the options vest. So if an employee’s not performing, managers can simply fire them and they’ll lose everything. What’s different at Zynga is that instead of simply firing poor performers, employees were given a choice: they could give back some of their shares or lose their jobs.
That strikes Shawn Hector, an engineer here in the Valley, as bogus.
Shawn Hector: You can’t have your cake and eat it too. You can’t draw all these people here with options and say, ‘oh well now I didn’t think you actually did a good job so I am going to take half of them away.’ That doesn’t work.
But these kinds of claw-backs are becoming more common. Silver Lake, a private equity firm that owned Skype, pushed that company to fire a number of executives after Microsoft bought it — allegedly to avoid a payout.
In Silicon Valley, I’m Steve Henn for Marketplace.
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