Thursday, September 10, 2009

Carol Bartz "didn't sell anything"

Carol Bartz, CEO of Yahoo! appeared on CNBC's Squawk Box this morning talking about their search deal with Microsoft, that she would've taken the MSFT buyout offer at $33 or $34 ("you think I'm stupid?"), their investment in Alibaba, and the analysis I did last week which showed she sold $2mm in stock between Feb. 1 and June 30th this year.

Carol's response (at the very end of the video below) to Joe Kernan's question of "You're going to be there a while, I guess, huh? If you sell for tax reasons that doesn't mean anything, right?" was: "I didn't sell anything.... I bought this...." Joe's follow-up was: "You reacquired it, right?" Carol said: "Yeah." And, later, she said: "I'm around a long time." [Her comp plan says she'll be around for 4 years, by the way.]

What's the upside for any big media journalist (at CNBC or elsewhere) to pull a Mike Wallace and aggressively question Bartz? The risk is that you will lose access to her in the future. Therefore, I understand why big media takes a friendly approach. Nevertheless, Bartz -- and other CEOs -- deserve to be asked legitimate (even if they are uncomfortable) questions and they should be forced to answer them -- not laugh them off.

She didn't sell anything?

This is the SEC filing, dated March 31st, where she states she disposed of 65,323 YHOO shares at $12.81 for a total of $836,787.63.

This is the SEC filing, dated June 30th, where she states she disposed of 73,131 YHOO shares at $15.66 for a total of $1,145,231.46.

What's all this stuff about selling for tax reasons? It relates to part -- and just part -- or her total compensation agreement she signed when she joined at the start of February. The relevant SEC filing is here.

In that filing, it lays out that Yahoo! agreed to give her 639,386 shares of YHOO in 2009. Those shares (or restricted stock units, but they effectively become shares) vest in 25% blocks (or 159,846.50 shares) on March 31, June 30, September 30, and December 31, 2009.

What this means is that -- at current prices -- Carol will get about a $10mm bonus if she sticks around until the end of the year (before taxes).

She sold 40.9% of her vested shares on March 31st and 45.8% of her vested shares on June 30th. Yahoo!'s argument appears to be that she had to pay a tax bill to the IRS. So, rather than dig into her own nest egg and pay the bill (and we don't know exactly what she owed to the IRS) and hang on to all of these 639,386 YHOO shares hoping the stock would go up more, she's decided to let YHOO shareholders pay her tax bill. Presumably she negotiated this large grant with this tax idea in mind. If she keeps taking out money from the vested shares on September 30th and December 31st, when the rest of the granted shares vest, she will net about $5 -6 mm in stock grants for her first year on the job (after tax). Of course, she will still own those shares which might go up or down in value. She will have only "dumped" the 200,000+ shares along the way to pay the tax man.

In Carol's comments, she alludes to reacquiring shares, yet the SEC filings make no mention of that.

There are some conclusions here:

  • YHOO has used its shareholders to "gross up" Carol's first-year bonus or signing bonus so that it's very likely she'll clear $5mm for the first year on the job (not including other comp she'll get).
  • It's not clear exactly what she owed to the IRS when these shares vested. She should clarify.
  • It's not clear why she cashed out 41% of her vested shares in Q1 but 46% in Q2. Did her tax bill increase in that next quarter?
  • She shouldn't obfuscate the issue by saying she reacquired shares without a full explanation. I suspect she doesn't want to give a full explanation because she'd have to talk more fully about just how much money she's making in year one on the job.
  • The broader conclusion here is that Bartz, other YHOO insiders, and insiders in general (not just at YHOO) have learned how to negotiate so that the vast majority of their generous compensation is guaranteed -- no matter what the performance of the company is.
I don't begrudge Bartz making money for taking the job at Yahoo! and working to turn things around. She's doing many of the things I and other YHOO shareholders and employees were calling on back in 2006. I hope she makes a lot of money and gets the stock up. However, I still say she's getting a boatload of cash way too soon, thanks to a generous YHOO compensation committee (consisting of Roy Bostock, Ron Burkle, and Art Kern), on the shareholders' dime.

She should have been smarter and agreed to make her boatloads of cash down the road, after first making lots more money for shareholders.

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