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If the Shoe Fits: Zynga, a Cautionary Tale

by Miki Saxon

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

5726760809_bf0bf0f558_mToday is not another rehash of the Zynga fiasco or CEO Mark Pincus’ follow-up email to the troops.

What I found fascinating is that the entire problem could have been averted by using Option Sanity™.

Seriously.

Yes; I know; every founder believes his or her product is the perfect solution in its nitch, but rarely are we gifted with such a high profile, real-life demonstration.

Rather than simply firing under-performing employees and handing unvested options over to the replacement, Pincus often likes to find another position within Zynga where the employee might still be able to contribute. 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).

Some say bad hires just shouldn’t happen, while others accept them as a normal part of business and believe fast hire/fast fire is the right approach.

I believe Pincus’ approach to a miss-hire is valid; in the heat of a high growth hiring frenzy managers do hire good people for the wrong positions, oft times because candidates oversell their experience and/or managers are desperate to fill their openings.

Think of it as a people pivot—repositioning talent for the good of the company.

The problem is that any unexpected changes made after the fact, no matter how valid, breach the social contract and, in doing so, break trust.

The hiring errors and the associated stock grants should have been corrected as soon as they were identified. Waiting until just before the IPO significantly exacerbates the damage to both Zynga’s and Pincus’ street rep and puts employee morale in the toilet.

It’s a different result when incentive stock grants are based on a transparent, fair, structured methodology that everyone understands, especially when it’s rooted in the company’s stated values/culture.

A methodology that

  • assigns positions to levels based on its ability to influence the company’s success as opposed to urgency or charm and history of the candidate;
  • assigns an ISO baseline to each level that dictates both the initial hiring grant and
  • the Annual Stock Bonus, so that a significant portion of each person’s stock rewards are based on the actual success of the company over time, as measured against quantified annual goals approved by the Board;
  • allocates based on the current risk level as defined by set milestones; and
  • spells out what happens for both promotions and demotions

It’s easiest to put that structure in place at the very beginning when it’s just the founders.

That’s why we provide Option Sanity™ free for six months to any startup with fewer than four people.

(Feel free to email me or call 866.265.7267 for more information or if you are just curious.)

Option Sanity™ prevents Zyngavitis

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.

Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.”
Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Image credit: hikingartist.com

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