Mark Pincus is not having a very good holiday season. An amended S-1 filing from last week showed a drop in net income, fewer daily active users, and slower revenue growth than previous quarters.
Absent a stock price, the filing seemed to indicate Zynga (ZNGA)’s IPO would be delayed until after Thanksgiving. But before he can dull his anxieties with tryptophan, the Wall Street Journal has another skeleton to drag out of the closet.
Apparently, Mr. Pincus has been threatening a few early employees he deemed unworthy to return the Zynga stock they were given or risk being fired and lose all their unvested stock.
Doling out company stock in lieu of salary is par for the course of a startup. But with an IPO on the line that could value the company at close to $20 billion, suddenly that sweat equity was looking a little too lucrative for early employees that aren’t pulling their weight. Especially when it can be spent attracting new talent.
To try to avoid a situation like Google, where a company chef ended up with $20 million in stock, the Journal says Mr. Pincus started making a list of employees whose performance at the company failed to justify, in his eyes, their restricted shares. Demands to return stock were only pointed at share grants that had not been vested, however some of those eligible for backsies had grants worth tens of millions. Among Mr. Pincus various lists was one called “MIA” for those contributions to the team were “missing in action.”
For a CEO who makes the financial success of each game available to employees in real time, it was an attempt to combat the notion of “rest and vest.”
However, Mr. Pincus was known for renting out a theater for all-staff meetings to bestow restricted shares and promotions on employees who met their goal, the company has been very hush-hush about this practice. Perhaps that’s because it lies in a legal gray area that could open up the company to employment litigation.
This yes-backsies! policy is starting to become more common among fast-growth startups with lawyers reporting an increased in instances, although its legality has yet to be tested in court.
Beyond a lawsuit, the real danger says the Journal might be devaluing the notion of equity as a recruitment tool altogether. Either that, or Mr. Pincus just invented a best motivational strategy ever.
