technology

Snap Skips Employee Bonuses, Combats Morale Slump After a Rough Year

Updated on
  • Employees won’t get cash bonuses after missing internal goals
  • Spiegel said to be working to spread decision-making authority
Snap's Volatile First Public Year Leaves Staff Deflated

On Wednesday, Snap Inc. sent employees a survey asking a broad set of questions to understand what they’re happy about, what they want to improve, and what they want to say, anonymously, one year after the company’s initial public offering.

Grievances will be aired.

Just last month, the company reported revenue that beat Wall Street’s projections for the first time, causing the stock to surge 47 percent. Internally, the picture isn’t as celebratory. The year involved a complete rethinking of the advertising business, an exodus of top executives, a broadly critiqued redesign of the Snapchat photo-sharing application and stiff competition from Facebook Inc.’s Instagram, leaving the shares close to their IPO price. While Snap topped Wall Street’s estimates last quarter, employees were told they didn’t beat internal goals -- and wouldn’t be getting cash bonuses, according to people familiar with the matter.

Evan Spiegel

Photographer: Michael Nagle/Bloomberg

Snap’s internal targets weren’t defined for employees, but that wasn’t a surprise at a company where Chief Executive Officer Evan Spiegel tightly controls aspects of the business he cares about -- especially the spread of information, said the people, who asked not to be identified discussing internal matters. There is a sense among employees that since going public, Snap has only become more beholden to the one shareholder who matters: Spiegel.

Spiegel, who has the majority of voting power at the company along with co-founder Bobby Murphy, prefers executives who don’t challenge his ideas, according to people familiar with his meetings. Most managers who have departed since the IPO, including the leaders of engineering, sales and product, were succeeded by internal candidates familiar with Spiegel’s management style. Michael O’Sullivan, a July replacement for the departed general counsel, was an external hire but no exception to the rule; he had previously worked at a law firm with Spiegel’s father, and represented Spiegel in negotiations with the company for his voting rights and IPO bonus, which amounted to $636.6 million.

Spiegel’s leadership team is actively trying to fix the impression that he rules the Los Angeles-based company with little input or transparency. There’s the survey, for one thing. He has visited branch offices in San Francisco, Hamburg, and elsewhere to hold question-and-answer sessions -- rare events before the IPO. And, in the last four months, Spiegel has called small-group versions of his leadership meetings, the people said. In the larger meetings, with more than a dozen attendees, people often fear confronting him. In the smaller setting, executives are invited to offer their opinions on problems and priorities.

Last May, Spiegel told employees in an email that as the company grew larger, other executives needed to take ownership of big decisions, shifting from a culture that values fast feature development to one that is more thoughtful about its next steps.

Pedestrians walk in front of Snap headquarters at Venice Beach in Los Angeles.

Photographer: Patrick Fallon/Bloomberg

“This is a very important transition for growing companies to make,” he wrote in the email, which was responding to written employee questions. “This means we need to get rid of conversations where people use ‘Evan said...’ or ‘Bobby said...’ as a way to validate decisions. We need conversations where people ask, ‘What is best for our company?’”

Snap still doesn’t have Friday Q&A sessions like many Silicon Valley companies, so some newly hired employees arrive to feel information is lacking. Snap said it’s trying to communicate more clearly with its fast-growing workforce in other ways. A month ago, the company started its own Snapchat Discover channel, providing an internal information source on its own application. Weekly editions show profiles of new hires and spotlight the work of various teams.

Even when inviting input, Spiegel doesn’t always appreciate it. Several former employees spoke of his dismissive reactions to concerns about Instagram affecting Snap’s growth. Instagram copied one of Snap’s most popular products, Stories, which lets friends share short videos for 24 hours before they disappear. Spiegel said the company needed to instead focus on resolving problems with its Android application.

Instagram is out of Snap’s control. But the company went public with several other uncertainties. 

It’s rare for companies of Snap’s size to take that step without visibility into their own revenue trajectory. Snap changed the way it sells ads a few months after its IPO, shifting to an automatic bidding model that opened the system to more advertisers, but dropped the average price dramatically, leading to revenue numbers that disappointed investors for its first three quarters.

Kylie Jenner

Photographer: Dimitrios Kambouris/Getty Images North America

It also redesigned its application, making advertising revenue even more unpredictable. People use Snapchat to talk to their friends, sending photos and videos that may be annotated with fun masks and stickers. That draws people to the app, where they find other content from media companies and celebrities and a map that shows what people are snapping publicly around the world. The changes separated friend snaps from the rest of the content, spurring intense public criticism, including from celebrity Kylie Jenner. “Only history will dictate if it was the right choice” to redesign the app that way, said James Cakmak, an analyst at Monness Crespi Hardt & Co.

The most welcome change for employees in recent months is related to compensation. Snap had a future-weighted stock vesting schedule, so an employee would have 10 percent of their options vest in the first year on the job, 20 percent in the second year, 30 percent in the third and 40 percent in the fourth. Now, for new hires, a quarter of the options vest each year, which is standard for Snap’s competitors, according to people familiar with the matter. The company confirmed the new system, which started in late January.

The various fixes meant to improve employee morale doesn’t necessarily mean it will be easier to work at Snap. At a Goldman Sachs conference last month, Spiegel explained that he likes his executive team to operate “just below the boil,” where there’s a lot of intensity and energy, but enough clarity and focus to get things done. “Like when you heat water, and it’s really f--king hot, but it’s just below the boil.”

Snap’s quick turnover for its executive team is just a continuation of how the company worked before the IPO, according to Rich Greenfield, an analyst at BTIG. Greenfield, like other analysts covering the company, was disappointed with Snap’s 2017 sales. But ultimately, as long as Spiegel continues to deliver products that lead to an increase in users, investors will be happy, he said.

“Facebook’s first year public was an even crazier roller coaster,” Greenfield said.

(Updates with general counsel’s previous work in the fifth paragraph.)
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