* asking an employee to give up a certain number of options
* firing the employee, making further option vesting impossible
By not firing immediately and by not requesting 100% of options be cancelled out, Zynga was actually playing nice. If you were among people affected by that offer, the writing as far as future career prospects at Zynga was on the wall.
If someone had $1M in unvested options, and you ask them to renegotiate for $200k and keep them there as an employee, that's really tone deaf. Do you really think that employee is going to give their best efforts after you just cheated them out of $800k?
From strictly rational perspective, choosing between two messages - "you're costing the company too much, therefore we're reducing your package" and "you're costing the company too much, you're fired, Jonathan will walk you from the building" - is a no-brainer for employees.
Is it really a negotiation mistake, rather than a result of growing valuation?
The point of stock options is to grant and receive them early at a low price. There's a good chance that they won't amount to much, but there's also a hope that they will be worth a lot. That's the entire point of accepting stock options over salary as an early employee.
But if stock options are likely to be cancelled if they appreciate in value, then their expected value quickly falls to zero, and it would make more sense to just offer yearly cash bonuses instead.
Probably not. But you've just saved enough for ~3->5 person years of work. Hire new employees!
I wouldn't work for such a company unless the alternative were starvation.
That's not why Zynga did it. They weren't playing nice, they wanted people to stay on with a reduced compensation.
http://www.businessinsider.com/huge-stock-clawbacks-prove-ma...
Going in, a startup employee gets some stock (upside) in exchange for risk (downside). Zygna used their relative power to reneged on that agreement to capture the employee's upside. "You can give us your money or we can take it AND fire you. Hey, but its your choice."
They were in no way being nice.