Saturday, March 2, 2024

The online game maker Zynga, which has some 35 workers in Central Square brought on over the past couple of years, is in The Wall Street Journal as the poster child for a new kind of bad entrepreneurial behavior: the forced ungifting of stock options given too generously before a start-up started looking like a real success.

San Francisco’s Zynga — headed toward an initial public stock offering worth a possible $20 billion — “decided the company had doled out too many stock rights to certain people in its early days, say people familiar with the matter. The executives chose an unusual solution: They began demanding that certain employees surrender some shares or be fired,” the Journal reports.

This has led to a couple of lawsuits, as well as fears that this kind of bait-and-switch for employees lured with stock instead of high pay might become common. It’s all too easy to hand out stock when “Farmville” and “Mafia Wars” hasn’t even arrived to obsess or irritate Facebook users. Only later do things start to get complicated, as the Journal describes:

As more people were hired, the restricted-share grants piled up. Zynga had only about 150 employees in 2008, according to regulatory filings, but more than 1,400 by the end of 2010 and now about 3,000. The employees hold a large portion of shares, though the company won’t say how large …

As Zynga expanded, some high-ranking executives with big stock packages were pushed down the ranks when more-accomplished people were hired above them. Meanwhile, Zynga’s valuation rose quickly, and early stock grants were suddenly valued at millions of dollars. Thus, some employees who didn’t rank near the top of the hierarchy stood to own more than half a percent of Zynga’s shares, worth tens of millions of dollars.

About two years ago, the trend began to worry executives.

One would think that since the company’s Cambridge workers were hired so recently, they would be exempt from this kind of worry.

But this is the Internet. By coming on within the past couple of years, the Cambridge workers have been around for nearly half the life of the company.