Thursday, March 08, 2007

$26 Million*? Really?

Another letter from (what sounds like) a current Yahoo!.... I've commented elsewhere on this.

Plan B sounds great - some execs need to leave (primarily Semel). I disagree with letting go of talent. In the current job market in Silicon Valley, it would be hard to replace that talent if it were deemed necessary in the future. Slowing down hiring and being more selective (and then aggressive on those selected) would be a better plan there.

Outside the hiring issue, I'm all for it.

We have another issue. I question the board's competence. Execs should be paid for performance. The stock dropped over 30% in 2006 and Panama was delayed multiple times. I would say that is poor performance. Why, then, would the board grant 800,000 shares - immediately vested AND allow them to be exercised 3 years after he leaves the company? Pay for poor performance? Seems like a strange theory. How would we include revoking such offers in this bid? Compensation should be removed from the grasps of the board - which in reality, are a group of peers - and the "you scratch my back, I'll scratch yours" philosophy reigns supreme. Motley Fool has a rule to NOT invest in a company when the board/execs are more worried about lining their pockets than doing what is right for the company. I mean - come on - "saving the company money" by trading his $600K salary for 6M shares of options... again, fully vested and with the same post-employment 3 year window. Insanity!

In some ways, you can't blame Terry Semel for taking home $575MM since he arrived in 2001. The blame lies squarely at the feet of Yahoo!'s board.

That's why, in "Plan B," we're advocating all shareholders vote "withhold" for 7 of the 10 current directors. We're only recommending "for" votes for Yang, Kozel, and Joshi. I've also nominated myself for the board.

The only way to change this -- to use a word -- 'insanity,' is to change the monitors. It's probably unlikely that we'll be able to change any retroactive pay. However, we can certainly correct over-payment for under-performance going forward.

Keep those letters coming.

PS Yahoo! PR notes that Mr. Semel's options are still under water --- which is correct. Their final value is unknown today, although you could use Black-Scholes to estimate their future value. They are worth nothing today; as they are under-water. He has 7 years to exercise them. This means that, if Yahoo!'s share price rises substantially in the coming years, they could be worth far more than $26 million.

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Anonymous said...

Eric -

I recommend reading the following post and correction from the WSJ regarding Semmel's '06 pay package.

Perhaps you should update your post...

Eric Jackson said...

It's a fair point. Thanks for the note. Will try to get to it soon.

Anonymous said...

Thanks for updating the postscript, although the dye was cast with your original post. Should Yahoo's share price rise "substantially" (using your words) over the next 7 years, wouldn't all share holders benefit? Personally, I believe you subvert your argument - Terry didn't do anything to "earn" the options since share price declined although profit improved - by getting caught up in the money aspect.

The fact is Terry did not earn $26M - he has the potential to earn that much over 7 years, slightly less than $4M annually at a share price growth of 10% (inline with projected index growth) over that span. This is fairly achievable and a salary comparable to other CEOs in his position. Now, if he can accelerate growth and share price to, say, 20% annually over 7 years raising Yahoo shares to $115 (a stretch, mind you over that span), he nets $66M over 7 years, just under $9M annually. Personally, if he can achieve the stretch goal, I'd say he earned his money - and so most investors. Now, if Terry can't deliver that kind of growth, then he won't have a job and those options are worthless.

xxxiggyxxx said...

I think the plan B is right on target. It's about time there management was changed. I would add a view more points to the plan though if your interested.

xxxiggyxxx said...