It's better for founders too if the employees don't get screwed because a portion of the talent is silently passing over equity opportunities for fear of the complexity, and a founder can't even see or measure the talent that silently passes
Like me! Why can't there be a simpler subset of corporate law? A startup using corporate law that was easy to reason about (like a programming language) would have a huge recruiting advantage.
So a while ago I read all of the UK Companies Act 1985 with someone when we were trying to work out how to set up a non-profit. It's actually not too complicated and looks remarkably like a programming language for company operations. For example, here's some input validation from the more recent version: http://www.legislation.gov.uk/ukpga/2006/46/section/57
But the vast bulk of it was clearly exploit prevention "code". You can quite clearly work out what the scam was that caused each of the overly specific rules. This makes it somewhat irreducibly complicated.
I wouldn't say its "irreducibly" complicated. Production C code has a lot of exploit prevention code that production code in a higher level language doesn't need.
Your comment sounds interesting though I'm not sure I'm following. What can't a founder see or measure? Why would the founder care? For rehire potential?
Most employees have to like your company in the first place before they would ever even return your recruiter email or apply to work at your place. These people do not communicate why they rejected you.
Basically, you have the option of $250k annual liquid compensation from GoogFaceSoft and a low stress & time working environment. Vs. random startup that if it hits it big, you would make more than that amount and have more fun doing it.
Now you starting hearing stories that equity compensation isn't so great:
1. Companies take far longer to get to IPO now. You might not be able to liquidate your stock until 7+ years later. They also don't like it when you try to sell in between.
2. Companies play take back games with dilution, zynga style threats, or even just pure stock buyback options at the original / FMV strike price like Skype.
3. VCs play take back games with liquidation preferences & more.
4. There is this AMT headache that can be double or more than your strike price cost. Founders have 0 AMT, 0 strike price cost, and long term capital gains tax rates!
5. You soon realize it's %70 investors, %15 1 or 2 founders and %15 all employees on a power law! If your facebook then maybe %20 founders, %20 employees. Why become an early start up employee who works just as hard with %0.5-%0.01 when you can be a founder? Thus the 'glut' of start ups with angel rounds.
You have overpriced mortgages & rent to pay in the bay area, so money is important.
> You have overpriced mortgages & rent to pay in the bay area, so money is important.
I would turn the point around and start from here. GoogFaceSoft is great comp low stress environment only close to headquarters.
In most other places GoogFaceSoft engs are the guy the headquarter outsourced to, and that is a dramatic shift in stress/job satisfaction.
Bottom line, talent is everywhere, if the product is solid investors will find you; if the startup is focused on angels/exit instead of great products then, well, that's why people want no part in it.
The idea is that some new hires may be missed due to a candidate deciding the options package is too risky. If they know upfront that leaving the company doesn't force their hand, maybe the package is more attractive.
The founders can't see the talented people who didn't even bother applying for a job at the company, and the talented people who instinctivly ignore "start-ups".
In Zynga case there's no material difference between
* asking an employee to give up a certain number of options
* firing the employee, making further option vesting impossible
By not firing immediately and by not requesting 100% of options be cancelled out, Zynga was actually playing nice. If you were among people affected by that offer, the writing as far as future career prospects at Zynga was on the wall.
Firing people to weasel out of paying their unvested options is definitely shady. When those employees were hired, did they tell them "Oh, by the way, if your unvested options wind up being worth a lot more than your fair salary, we're going to threaten to fire you to avoid paying."?
If someone had $1M in unvested options, and you ask them to renegotiate for $200k and keep them there as an employee, that's really tone deaf. Do you really think that employee is going to give their best efforts after you just cheated them out of $800k?
Yeah, no doubt somewhere along the way someone made a negotiation mistake, and is now trying to remedy that, which does not paint them as a man of their word.
From strictly rational perspective, choosing between two messages - "you're costing the company too much, therefore we're reducing your package" and "you're costing the company too much, you're fired, Jonathan will walk you from the building" - is a no-brainer for employees.
> Yeah, no doubt somewhere along the way someone made a negotiation mistake
Is it really a negotiation mistake, rather than a result of growing valuation?
The point of stock options is to grant and receive them early at a low price. There's a good chance that they won't amount to much, but there's also a hope that they will be worth a lot. That's the entire point of accepting stock options over salary as an early employee.
But if stock options are likely to be cancelled if they appreciate in value, then their expected value quickly falls to zero, and it would make more sense to just offer yearly cash bonuses instead.
Yeah. If the options were worth $100k when the person was hired, and now they're worth $10M, is that really a negotiation mistake? Maybe the employee did a great job and that's the reason they are now worth $10M? Would the employee have taken the job if you only offered $1k equity (or been insulted by the pittance)?
By their actions, Zygna also signaled to the other employees that Zynga was going play a "heads we win, tail you lose" in the future. Who in their right mind would ever work for that founder again?
Going in, a startup employee gets some stock (upside) in exchange for risk (downside). Zygna used their relative power to reneged on that agreement to capture the employee's upside. "You can give us your money or we can take it AND fire you. Hey, but its your choice."
I think they clawed back unvested options from many employees, who had unvested options with substantial value. That breaks the implied social contract of a startup. If the company is wildly successful, they'll try to claw back your unvested options, which makes startup equity even less attractive than it would otherwise be.
Zygna isn't the only one that did this. Didn't Facebook also do this?
(So in a startup, you can be screwed with options in three ways. If the startup fails, your equity is worth zero. If there's a low-value buyout, the common shareholders can get nothing. If the startup is wildly successful, the company will claw back your unvested options. Why join a startup for equity if you're going to get cheated when you hit the 100x home run?)
Zygna got what they deserved. With changes to the way Facebook promotes their feeds and the switch to mobile, they lost most of their market.
This is the problem with the US's "at will" employment. It affects white collar tech employees too. If you could only be fired for stated misbehaviour (like in the EU), this wouldn't have been possible.
How do you know they were underperforming? Maybe the board just realized they could get a lot of extra money by looking for an excuse to get rid of them?
"An injury to one is an injury to all" and if you can do this to board members who will have the wealth to fight this - what would they do to the rank and file.
This movement only makes me appreciate the management and culture of Pinterest; quite the opposite of the Zynga fiasco [1][2]
[1] http://www.cnet.com/news/zynga-to-employees-give-back-our-st... [2] http://www.cnet.com/news/zynga-uses-stock-options-to-keep-em...