Zynga Defends Its Scandalous Options System

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Zynga doesn't think there's anything wrong with forcing certain employees to give up their soon-to-be-very valuable stock options. This morning The Wall Street Journal's Justin Scheck and Shayndi Raice uncovered what sounded like a scandal. As the very successful company planned to go public, CEO Mark Pincus decided that some people had gotten too many shares so they asked for some of them back. "They began demanding that certain employees surrender some shares or be fired," Scheck and Raice write. That sounds shady. But, as the story has gotten more press, Zynga's not denying anything. In fact, it's standing by the practice. 

While The Journal describes the whole thing as a scary standard that could put Zynga in legal trouble and "erode a central pillar of Silicon Valley culture," Zynga doesn't think there's anything wrong with it. Rather than scandalous thievery, Pincus prefers that favored American term "meritocracy" to describe the system. "The Wall Street Journal posted a story last night (copied below) which paints our meritocracy in a false and skewed light," writes Pincus in a company e-mail obtained by Fortune's Dan Primack. He even goes as far to call the whole thing "ethical" and "fair." Primack explains how Scheck and Raice may have misrepresented Zynga's intentions. Instead of firing under-performing employees, who would thus lose all of their options, Pincus opts for demotions instead. "But because that new position was often lower down the corporate totem poll, Pincus basically wanted to cut the person's compensation by reducing his or her number of unvested options (vested options were not touched)," writes Primack. Instead of firing lesser talent, Pincus kept them around. Just at a lower rate. Meritocracy! Of course, those employees, who, as Primack points out, left higher-paying more-secure jobs for a risky start-up might feel they deserve all the options. Then again, they should be happy Pincus didn't just flat out fire them.

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