It has been a rough couple of weeks for Zynga. Though the largest producer of Facebook games, their earnings report sucked this quarter, their future products have not impressed and their $200 million OMGPOP acquisition has not exactly gone as planned. The company has begun to resort to licensing tactics, including a Draw Something-branded TV show to try and keep the lights on. Combine that with an insider trading investigation and a lawsuit from EA over the similarities between their new game The Ville and EA's The Sims Social.
None of this inspires confidence from the market, but even less confidence is inside the office. Because of this, the company is expecting many employees to leave out of fear. In an attempt to prevent this, the company handed out stock to all full-time employees to encourage them to stick around. While stock options are a common occurrence within Zynga for performance within a quarter, a full-company handout is not. As of right now, Zynga has 77.4 million outstanding options worth about 76 cents apiece.
Is this a sign of the end or common practice? Hit the break to find out.
Start-ups tend to do this just before and after an IPO in an effort to entice employees to stay, particularly top employees. For example, a software company might offer options to development leads to keep them interested and focused on the company. Frank B. Glassner, a partner at consulting firm Meridian Compensation Partners LLC, said,
Stock ownership or equity-based incentives are an important part of Silicon Valley culture. When people have meaningful equity in a company, they have skin in the game.
While an offensive use of business nonsense jargon, it is accurate none the less. An employee who is being paid, at least in part, in ownership of the company, is more likely to stick around and work harder so that their compensation will be worth something by the time it matures. If the company goes out of business, those stock options become worthless.
Arvind Bhatia, an analyst at Sterne Agee & Leach Inc, doesn't seem to have the same cheery thoughts on the matter. In an interview with Bloomberg, Bhatia said,
It's a proactive move to prevent mass exodus. It's positive for morale and I think it's the fair thing to do.
A mass exodus does not sound good. This sounds like a company that has grown beyond its means too quickly and is falling apart at the seams. Hopefully something will help them right the ship or all of those poor sheep will disappear into digital oblivion.