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Zynga Said to Give Stock to Keep Staff After Earnings Miss

Zynga Inc. (ZNGA), the biggest maker of games played on Facebook Inc. (FB)’s website, doled out equity grants to all full-time employees after an earnings shortfall caused a share-price decline that eroded the value of existing grants, a person with knowledge of the matter said.

Stock options were given to all of Zynga’s full-time workers shortly after its earnings report on July 25, said the person, who asked not to be identified because the matter is private. Though the company routinely gives options and cash bonuses to employees each quarter, this marked the first time equity awards were given to all staff, the person said.

Chief Executive Officer Mark Pincus aims to prevent a stampede of talent after the stock plummeted 71 percent since the initial public offering in December. Many employees who joined before the IPO were paid partly in restricted stock units, or RSUs, whose value has diminished as concerns over growth prospects dragged on Zynga’s shares.

“It’s a proactive move to prevent mass exodus,” said Arvind Bhatia, an analyst at Sterne Agee & Leach Inc. in Dallas. “It’s positive for morale and I think it’s the fair thing to do.”

Stephanie Hess, a spokeswoman for San Francisco-based Zynga, declined to comment yesterday.

Photographer: David Paul Morris/Bloomberg

Zynga Inc. headquarters in San Francisco. Close

Zynga Inc. headquarters in San Francisco.

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Photographer: David Paul Morris/Bloomberg

Zynga Inc. headquarters in San Francisco.

The company had 2,846 full-time employees at the end of last year. An option gives the bearer the right to purchase shares at a preset price at a specified time. Zynga had 77.4 million options outstanding, with a weighted average exercise price of 76 cents apiece, as of June 30, according to a regulatory filing.

Meaningful Equity

Startups often supplement salaries and bonuses with equity grants to entice employees to stick around in the run-up to and months after an IPO.

“Stock ownership or equity-based incentives are an important part of Silicon Valley culture,” Frank B. Glassner, a partner at consulting firm Meridian Compensation Partners LLC. “When people have meaningful equity in a company, they have skin in the game.”

Granting options to employees does not dilute existing shareholders, since it does not require the company to issue new shares, Glassner said.

Zynga said on Aug. 9 that John Schappert is departing as chief operating officer and board director. A management overhaul stripped him of his oversight of key operations.

Pincus kicked off the reorganization in July to revive growth and help the company better capitalize on the switch to game-playing on mobile devices. The company reported second- quarter sales and profit last month that fell short of analysts’ predictions. It said changes by Facebook made it harder for users to find existing games.

Last year, the CEO came under scrutiny for his handling of worker compensation after he asked some employees to return unvested equity because their potential rewards didn’t match what they were contributing to the business, Roger Dickey, one of the first 30 workers at Zynga, said at the time.

Zynga shares fell 2 percent to $2.95 at the close in New York.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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