Nov. 11, 2011 – Zynga, the privately-held online social gaming giant, has made a rather unprecedented move regarding the startup equity of its early employees. It has been confirmed Zynga CEO Mark Pincus and other executives have begun demanding early employees with significant stock holdings relinquish some of their remaining unvested shares or be fired.  The move is highly unusual among privately held tech companies, and comes just weeks before a planned Zynga IPO.

In an internal memo sent to employees on Thursday (Nov. 10th) amid the controversy, Zynga CEO Mark Pincus claims:

“Being a meritocracy is one of our core values and it's on our walls… 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.”

PrivCo, the private company financial data authority, research shows that these forced “stock clawbacks” are virtually unprecedented among privately held tech companies. The move raises eyebrows not just because of the imminent IPO in which the stock would become very valuable, but also in light of the fact that CEO Mark Pincus already owns a large 18.1% piece of Zynga, with VC firms owning much of the remaining shares, leaving them with plenty of equity to grant new employees.

“Zynga’s stock clawbacks, effectively made under duress with a threat of immediate firing, is a highly unorthodox move and goes against the nature of how a startup’s capital is structured,” says Sam Hamadeh, CEO of PrivCo.com. “Early employees receive larger restricted stock and stock option grants in privately-held startup companies for a reason: they are taking bigger risks on illiquid securities versus joining a larger, more established company. To insist on equity clawbacks now after Zynga has become valuable based on early team efforts is against the social compact of Silicon Valley and of startup companies in general.”

 

Full text of Zynga CEO Mark Pincus’ internal email to employees on November 10, 2011 regarding the employee stock clawbacks:

To: Zynga Employees

From: Mark Pincus

Date: November 10, 2011

Team,

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.

thanks,
mark