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Zynga’s Tough Culture Risks a Talent Drain

Zynga’s chief executive, Mark Pincus, got an earful from employees last month.

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In dozens of e-mails to a companywide list, frustrated workers complained about the long hours and stressful deadline periods. The quarterly staff survey solicited 1,600 responses, with plenty of criticism, including one person who said he planned to cash out and leave after the initial public offering.

Mr. Pincus took note, going through the comments and highlighting select excerpts. At a Zynga meeting several days later, he read some of the most acerbic words. Mr. Pincus said he was aware of the problems, but needed the staff’s guidance to fix them.

Few Internet start-ups have grown as swiftly as Zynga, creator of a sprawling network of virtual farms, cities, and poker tables that is preparing to go public in one of the most highly anticipated offerings this year.

Led by the hard-charging Mr. Pincus, the company operates like a federation of city-states, with autonomous teams for each game, like FarmVille and CityVille. At times, it can be a messy and ruthless war. Employees log long hours, managers relentlessly track progress, and the weak links are demoted or let go.

But that culture, which has been at the root of Zynga’s success, could become a serious liability, warn several former senior employees who agreed to speak on the condition of anonymity because of fear of reprisals.

As the discord increases, the situation may jeopardize the company’s ability to retain top talent at a time when Silicon Valley start-ups are fiercely jockeying for the best executives and engineers. It could also hamper deal-making, a critical growth engine for Zynga, which has spent about $119 million on acquisitions in the last two years.

“Zynga should be an example of entrepreneurship at its best,” said Roger McNamee, a co-founder of the venture capital firm Elevation Partners. “Instead it’s going to be a Harvard Business School case study on founder overreach — this will be a cautionary tale.”

Already, signs of trouble are emerging.

In July, Zynga lost a bid for PopCap, a mobile game company. Zynga offered $950 million in cash.

But PopCap’s founders worried about the company’s reputation after hearing rumors of the company’s rescinding share awards and fierce internal competition, said two people with first-hand knowledge of the situation. Instead, PopCap agreed to a rival offer from Electronic Arts, worth $750 million in cash and stock and the potential of an additional $550 million if certain earnings goals were met.

Several start-ups have also rebuffed Zynga this year, including Rovio. This summer, Rovio, the maker of the popular mobile game Angry Birds, walked away from discussions of a deal worth roughly $2.25 billion in cash and stock, three people briefed on the situation said.

With the IPO fast approaching, competitors are preparing to poach disgruntled staff members. This month, one recruiting firm sent cookie baskets to some 150 Zynga employees.

“I expect a lot of game and tech companies will begin recruiting Zynga’s talent after their equity becomes liquid,” said Gabrielle Toledano, head of human resources for Electronic Arts. “Competitors will make the case that they offer much more compelling opportunities for creative people.”

Zynga declined to comment, citing the mandatory quiet period before its IPO.

While from the outside Zynga may have the fun and whimsy of the Willy Wonka chocolate factory, the organization thrives on numbers, relentlessly aggregating performance data, from the upper ranks to the cafeteria staff.

General managers submit weekly reports, measuring factors like traffic and customer satisfaction. Every quarter, teams assess their priorities under an Intel-pioneered system called “objectives and key results.” And Mr. Pincus, a professed data obsessive, devours all the reports, using multiple spreadsheets, to carefully track the progress of Zynga’s games and its roughly 3,000 employees.

“It’s very similar to a New York investment bank,” said Lou Kerner, an analyst at the brokerage firm Liquidnet, who has followed Zynga for years. “It’s data-driven, and it’s intense.”

The data pipeline allows Zynga to fine-tune its games to optimize engagement, helping the company attract some 270 million unique users each month, many through Facebook. The four-year-old Zynga, which has emerged as the web’s largest social game company, recorded $828.9 million in revenue in the first nine months of 2011, more than double the period a year earlier. It is also the rare Internet start-up that is profitable, earning $121 million since the start of 2010.

But the heavy focus on metrics, in this already competitive industry, has also fostered an uncompromising culture, one where employees are constantly measured and game designers are pushed to meet aggressive deadlines. While some staff members thrive in this environment, others find it crushing. Several former employees describe emotionally charged encounters, including loud outbursts from Mr. Pincus, threats from senior leaders and moments when colleagues broke down into tears.

For the top performers, the rewards are handsome. Zynga dispenses lavish gifts like vacations and $100,000 in vested stock. After the game Mafia Wars reached a milestone two years ago, Zynga sent the team to Las Vegas to celebrate, buying some 80 plane tickets and providing $500 in cash for each person and luxury hotel accommodations, according to one former senior employee.

Those who do not perform can perish.

In March 2009, Zynga hired its chief people officer, Colleen McCreary, who formalized the hiring structure and started to trim weak performers, cutting about 30 employees by that summer. Mr. Pincus began drafting “M.I.A.,” or missing-in-action, lists to keep track of senior employees who were not doing a good job or who needed to be placed on more ambitious projects.

That year, Zynga also started to reduce equity packages through demotions. Some employees were offered a choice: take another role with the same salary and a smaller equity package, or leave the company. It affected only a limited number of senior employees, several people close to the company said.

“If I was egregiously failing, then maybe it would be O.K.,” said one former senior employee, who left after being asked to give back some equity. But “it seemed systematically driven.”

The practice, even if rarely applied, runs counter to the traditional Silicon Valley model, where people join risky, unproven start-ups in exchange for substantial equity. But Mr. Pincus, a graduate of Harvard Business School and a former Wall Street hand, sees Zynga in a different mold, aiming to build a more perfect meritocracy, according to people close to him.

“Mark Pincus has the reputation that he is driven to the point of a madman,” said Michael Pachter, a Wedbush Securities analyst. “Zynga is driven because it has a gigantic competitive advantage right now.”

But Zynga could face a serious reaction.

In the spring of 2009, Zynga was courting MyMiniLife, a game company that later developed the underlying technology for FarmVille and many of Zynga’s games. During one meeting, the topic turned to compensation. A Zynga senior vice president, clad in jeans and leather cowboy boots, whipped out his wallet and a stack of hundred-dollar bills. He chucked the money at a MyMiniLife founder and asked him if that was enough, said one person present at the meeting.

“It was insulting,” this person said.

While MyMiniLife eventually agreed to a deal that formed the backbone of FarmVille, discontent soon surfaced. The team was stretched, juggling tough deadlines, technical flaws and demands for more data, according to two former employees. A few months later, as FarmVille approached 20 million users a day, a respected project manager abruptly quit the team. Soon after, the majority of the game’s staff members, including those of the just-acquired MyMiniLife team, threatened to walk out unless Zynga replaced the group’s general manager, these people said. The company relented.

While such a culture is not uncommon in the game industry, it can create problems. Employees at Electronic Arts and Activision Blizzard have filed lawsuits against their employers, with claims of hostile work conditions and withheld compensation. In 2006, Electronic Arts settled two class-action lawsuits by game artists and programmers for about $15 million each. The Activision suit is still pending.

Zynga has made efforts to change its ways. The company has added data centers and expanded teams to ease the burden on its engineers. It is also encouraging managers to schedule a bigger buffer between project phases and to give teams the week off before a game’s debut. Zynga — which offers employee perks like acupuncture, Friday happy hours and a cafeteria with organic food — is also spending millions on focus groups and other initiatives to strengthen its manager training programs.

Mr. Pincus is also trying to soften his managerial style. Ms. McCreary has spent significant time with the executive, coaching him on his tone and constructive criticism. In 2010, the company also hired an outside consultant to do a “360-degree review” of Mr. Pincus. The consultant interviewed employees and board members and produced a report filled with feedback.

Still, rivals say Zynga will have to do more to bolster its image, or risk losing its appeal as an employer at a time when resources are scarce. Zynga’s towering public valuation — a boon for investors — may only further dissuade recruits, who may turn to younger start-ups with more potential.

“We’ve learned that when companies treat talent as a commodity, the consequences are severe,” said Ms. Toledano of Electronic Arts. “It takes years to repair a reputation.”