Friday, June 24, 2011

Fwd: Former Skype Employees Find Devil in Options Contract Details

---------- Forwarded message ----------
From: Harrison
Date: Fri, Jun 24, 2011 at 9:01 AM
Subject: Fwd: Former Skype Employees Find Devil in Options Contract Details
To: John Sokol

This is why it is so important to read the paperwork carefully and fully. 


---------- Forwarded message ----------
From: Eric C.
Date: Fri, Jun 24, 2011 at 2:50 AM
Subject: Former Skype Employees Find Devil in Options Contract Details
To: stanford <>

Former Skype Employees Find Devil in Options Contract Details
2011-06-23 21:00:00.12 GMT

By Peter Burrows and Joseph Galante
    June 24 (Bloomberg) -- For decades, people such as Yee Lee  have been coming to Silicon Valley lured by the chance to work for a salary and by stock options that give employees the right to buy a chunk of the company they work for and cash in big when it goes public or gets acquired.
    It's so much a part of the culture that most experienced high-tech hands don't bother hiring a lawyer to read the fine print on a prospective employer's stock-option plan, just as they wouldn't hire a benefits expert to check the health plan.   Which is why Lee says he was surprised by what happened after he left Skype Technologies SA, the Luxembourg-based Internet-calling service, in April.
    Normally options give employees the right to buy shares at the price on the grant date, once they've worked at the company for a time. After a month of back-and-forth with Skype's human resources department, Lee learned that even his "vested" options were worthless, Bloomberg Businessweek reports in its June 27 issue.
    It turns out the investor group, led by private-equity firm Silver Lake Partners that bought Skype from San Jose, California-based EBay Inc. in 2009 had secured a repurchase right that gave them authority to buy back the shares at the grant price.

                       'Ounce of Flesh'

    "I've never heard of a company taking away vested options," says compensation expert and Bloomberg News consultant Graef Crystal. "It invalidates the meaning of the word 'vested.'"   The policy may be even more infuriating to some recently departed Skype employees. Just weeks ago, on May 10, they were elated when Microsoft Corp., the world's biggest software maker, agreed to buy the company for $8.5 billion, more than four times the $2 billion the Silver Lake-led group offered EBay. Given that massive payday, Lee says he can't understand why Silver Lake would begrudge him the $70,000 or so gain he would have made on the shares he'd earned for his 13 months of work at the company.
    "If you've already made so much money, why do you have to squeeze every ounce of flesh out of every person?" he asks.    Silver Lake, based in Menlo Park, California, declined to comment.
    When asked about Lee's situation, Skype spokesman Brian  O'Shaughnessy said, "You've got to be in it to win it. The company chose to include that clause in the contract in order to retain the best and the brightest people to build great products. This individual chose to leave, therefore he doesn't get that benefit."

                       Fired Executives

    Lee and another past employee say the policy is particularly unfair to top executives such as former Chief Strategy Officer Christopher Dean and Don Albert, head of advertising, who are among six senior managers fired in recent weeks. They, after all, were part of the crew that expanded Skype to the point that Redmond, Washington-based Microsoft was willing to pay $8.5 billion to acquire it.
    The other ex-Skyper, who declined to be named because he wasn't authorized to discuss the issue, estimates the total payout to these executives would have been less than $20 million. That works out to 0.3 percent of the profits Silver Lake and the other investors will pocket from the Microsoft acquisition (assuming shareholders approve the deal).

                      Lobbying the Board

    Such talk can't help Skype as it tries to attract top  talent. Google Inc., Apple Inc., Facebook Inc., and other companies are throwing rich packages at tech veterans such as Lee, who has held jobs at PayPal Inc., the online-payments platform owned by EBay, and Slide Inc., a San Francisco-based photo-sharing site.     While most technology companies distribute options to a high percentage of employees, Silver Lake had initially wanted to give them only to the ten top executives, say two people familiar with the negotiations who requested anonymity because the information isn't public. Only after former CEO Josh Silverman lobbied the board did they agree to give options to 60
percent of the workforce.     While Lee concedes the legal documentation exists for the  repurchase right, he says nobody at the company mentioned it when he joined Skype in March 2010.   "I would have never gone to work there had I known," he says.

                        The Fine Print

    The 11-page stock option agreement he signed looked to him like boilerplate and suggested a typical "one-year cliff" at which point 25 percent of his four-year option grant would vest. The only mention that the company had the right to buy if he  left in less than five years came in a single sentence toward the end of the document that referred him to yet another document, which Lee says he didn't seek out.     By early 2011, Lee had tired of a grueling travel schedule and decided to take a job at Silicon Valley startup Katango.When he asked Skype for a form on April 6 so he could exercise his vested shares, an HR staffer promised to send it to him by the end of the week.
    She got back to him 11 days later with the bad news: His vested shares were worthless. Worse than worthless, because the company's decision to repurchase would also cause him a personal tax hit. After three more weeks of e-mails, on May 25, Lee wrote to Skype Chief Executive Officer Tony Bates, citing "unusual and potentially unethical business practices." He asked Bates, hired the previous September, not to enforce the repurchase clause and let Skype staffers leave with some windfall.     "For me personally, the sum of money involved here is not life changing," Lee wrote. "So I knew that the dollar amounts have even less impact on Skype as an enterprise."

gsb-videogames mailing list

No comments: