A Yahoo Investor Hopes to Provide Impetus for Change

From today's WSJ:

By KEVIN J. DELANEY
June 9, 2007; Page A2

Yahoo Inc. shares have dropped about 10% from a year ago, and its revenue growth has fallen every quarter. That has disgruntled some investors, who plan to confront the Internet company's management at its annual meeting Tuesday.

That shareholder confab isn't expected to produce any immediate changes to the Sunnyvale, Calif., company's management or strategy. But at least one activist investor believes it could add momentum to campaigns to overhaul its top brass and shift tacks.

High on the list of shareholder complaints is the allegedly outsize compensation of Chief Executive Terry Semel, a former Hollywood executive who joined Yahoo in 2001. Mr. Semel's total compensation last year of $71.7 million put him at the top of the list of highest-paid CEOs at Standard & Poor's 500 companies that have filed with regulators this year, according to an Associated Press analysis of the filings.

Proxy-advisory services Institutional Shareholder Services Inc. and Proxy Governance Inc. are recommending that shareholders vote against re-electing members of Yahoo's compensation committee to its board because of concerns about what they see as excessive awards to Mr. Semel. "Semel is rewarded when times are good -- pay for performance -- and when times are bad -- retention," wrote ISS in its report. Mega options grants to the CEO are "particularly troubling in light of the company's recent poor stock performance and corporate performance," it added.

Speculation has swirled for years around the timing of the retirement of Mr. Semel, who is 64 years old, but Yahoo has always dismissed it. A Yahoo spokeswoman said the company's executive compensation is designed to "attract and retain key executive and employee talent and to link compensation to the company's performance and increases in long-term stockholder value." As part of a three-year arrangement, Mr. Semel's salary dropped to $1 in May 2006 from $600,000 previously. He was also awarded stock-option grants (priced at the market value of Yahoo shares when granted) on 6.8 million shares as part of his 2006 bonus and the three-year retention pact.

Shareholder activist Eric Jackson of Naples, Fla., says investors holding about two million Yahoo shares, or less than 1% of its capital, have agreed to back his "Plan B" for the company. That plan includes replacing Mr. Semel and the majority of the company's directors for missteps, including failing to gain on rival Google Inc. in search advertising. Mr. Jackson predicts heated questions from shareholders during Tuesday's meeting. But he says his main hope for change is for co-founders Jerry Yang and David Filo, who each hold smaller-than-10% stakes in Yahoo, to look at the shareholder-meeting votes and the company's performance and "come to the decision themselves that the company needs to move in a new direction."

The Yahoo spokeswoman said the company is always interested in its shareholders' views. But she said that Mr. Semel had outlined a clear strategy focused on three key priorities: "narrowing the gap in search monetization, extending our lead in display advertising and securing leading positions in the major emerging areas of social media, video and mobile access."

Yahoo investors Tuesday will also vote on two shareholder proposals that stem from Yahoo's disclosure of information to the Chinese government that helped lead to the imprisonment of at least one dissident. One proposal calls for the creation of a board committee on human rights and the other for new company policies related to censoring and disclosing information at a government's request. Yahoo's board has recommended that shareholders vote against the proposals, saying the company is already taking measures to address such issues.

Write to Kevin J. Delaney at kevin.delaney@wsj.com

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