Yahoo spends $58 million to fire its chief operating officer

http://www.washingtonpost.com/news/morning-mix/wp/2014/04/17/yahoo-spends-58-million-to-fire-its-chief-operating-officer/?tid=hp_mm

by xmpir • 12 years ago

119 109 12 years ago

washingtonpost.com

omegant2• 12 years ago

Honest question, could somebody please explain why a big corporation like Yahoo, doesn't have some kind of cliff and progresive compensation? It's the Article accurate?

anonu• 12 years ago

http://www.sec.gov/Archives/edgar/data/1011006/0001193125141... Page 83 of the preliminary filing shows that exact number. Its accurate!

smackfu2• 12 years ago

From the SEC filing linked below, this compensation was primarily because Yahoo gave him a large number of RSUs upon joining to make up for compensation he was giving up by leaving Google. Otherwise he would have lost money by taking the new job. Those "make-whole" RSUs then vested early upon termination, which is good negotiating, but not surprising.

He also got performance options, which were granted upon termination because he met the performance goals of the stock price.

hga2• 12 years ago

In addition to the other good answers as I write this, there's the general principle that a troubled company like Yahoo has to pay extra to attract top talent.

And based on all that I've heard, even more to work for a CEO like Marissa Meyer.

omegant2• 12 years ago

I agree that you have to pay more for top talet, but I don't understand how it's not vested. He is not aligned in getting results beyond a year this way. The moment the stock rises he can make himself fired and cashout.

Could you please explain a bit what do they say about Marissa?

chollida1• 12 years ago

This happens fairly often with C level execs, and generally with anyone who gets big bonuses that are restricted over time, specifically hedge fund employees is the area I'm familiar with.

If you want to hire them away, its common for you to have to make up the loss they would take from walking away from the restricted portion of their bonus.

I've seen payouts to traders and technologists of up to 3 million, 50+ million is, well, that's a lot of money to make up:)

sillysaurus32• 12 years ago

I've been wondering: How's Marissa Meyer doing as CEO? I haven't heard much about Yahoo recently except that they acquired some companies in order to get talent in the mobile space. It's been about 1.75 years since she became CEO. Is that enough time for a non-Steve Jobs CEO to change the trajectory of a company?

goldenkey• 12 years ago

The article mentions that she was involved in his hiring.

Theodores• 12 years ago

You are forgetting: Marissa redesigned the logo! All by herself!!!

Seriously though, what do Yahoo actually do? The mail has gone the way of 'compuserve' in that you don't very often get to see a yahoo address in an email these days. Search was something they just gave up on, then there portal style homepage, does anyone actually go there?

They should have stuck with search, it was something that they were reasonably good at, but, having dropped that it is now not an easy game to get back in to.

Perhaps they should just give up on being a branded entity and become a faceless holding company.

stingraycharles3• 12 years ago

I have to disagree. I'm currently in Asia and /everyone/ appears to be using a yahoo email. I even created some gmail addresses for them, but it just doesn't appeal to them.

josefresco• 12 years ago

Meyer's pitch to Yahoo! was that she was product focused. The guy they passed over for CEO wanted to turn Yahoo! into a "media" company, with a focus on advertising. I can't say which approach is better, but the clock is ticking for Meyer, albeit slowly because of Alibaba.

threeseed• 12 years ago

Yahoo is the number 4 website in the world with profits of over $300 million per quarter. Do you think Twitter or Amazon should also become a faceless holding company ?

http://www.alexa.com/topsites

matthewmacleod• 12 years ago

This is just bombastic and ill-informed.

To start with, Yahoo has >10% of the US search market[1] – down YoY, but nothing to sneeze at. Their sites also see more unique visitors from the desktop than anybody else – >195m in December[2], and that's the sixth month is a row. There are still loads of email users; finance, sport, shopping, everything that legacy portal sites typically had.

Furthermore, Yahoo was never really a good search engine. It was basically a curated directory until it started using Google's search in 2000 or whenever. I think it used it's own crawler for a while, but it's been powered by Bing since 2010 or so.

I'm aware that I live in a bit of a tech bubble — I don't use Yahoo properties, but there are loads of people out there who use the web in a totally different way. Yahoo's got a lot of obvious issues to deal with, but they've also got lots of money and talent; I don't see any reason that they won't succeed with a bit of restructuring and some strong management.

[1] http://www.comscore.com/Insights/Press_Releases/2014/4/comSc...

[2] http://www.cnet.com/uk/news/yahoo-tops-the-most-trafficked-w...

jgalt212• 12 years ago

Yahoo mail works just fine, and I'd argue that it's a solid product. Further, by using Yahoo mail, and not gmail, that's one less area of my life Google is invading.

EA• 12 years ago

Flickr has 1 TB of free storage. Old Flickr Pro accounts have "unlimited" storage space.

She bought Tumblr.

Will she release some hardware?

pan69• 12 years ago

Maybe they should do a phone. Yeah that would be good. A phone with their own OS. It's gonna be big I tell ya.

reustle• 12 years ago

for a non-Steve Jobs CEO

What does that even mean?

sillysaurus32• 12 years ago

Just that Jobs turned a company from the brink of failure to the most successful tech company pretty quickly. But since Apple is an outlier, I was interested in hearing about any other examples of CEOs who have caused big improvements in short amounts of time.

rokhayakebe2• 12 years ago

I recently talked to a friend, an actual user of Yahoo products, who expressed happiness with the improvements they've made recently. They were referring to both the portal and web mail and they are very happy with the company as is.

yesiamyourdad2• 12 years ago

Then there's my wife who calls me in for tech support on Yahoo mail on a daily basis. Hates it more with every update.

I use Yahoo Finance frequently, and they've put some lipstick on that pig, but it essentially hasn't changed since about 2002.

If Yahoo is doing anything useful in terms of development, they're doing a lousy job showing it off.

talmand• 12 years ago

I don't use the web mail but I have stuck with the web mail through the bad years. It has improved quite a bit but sometimes their Android app is an exercise in frustration. They do seem to update it frequently so most of the really annoying things have been dealt with.

For example, they just recently implemented the idea of an email not automatically downloading images and having a button to load them on demand. Seems odd to ignore such an important feature for so long.

lifeisstillgood2• 12 years ago

I'd have done it for them for half that :-)

barking• 12 years ago

Stop underselling yourself!!

lifeisstillgood2• 12 years ago

Wow, I think that's my biggest ever karma loss. Ah well.

6d0debc071• 12 years ago

Yahoo seems to have a certain difficulty in making the best use of the people it works with. Flickr springs to mind. If they're firing him just because he gives sucky presentations - which seems to be the only guess the article has - then that's on them.

malanj• 12 years ago

That has to be one of Marissa's most public mistakes yet. She was the one who pushed very hard for Yahoo to hire him. It's interesting that a few articles I read mention that he's really smart but not good with people. I've read that Marissa has the same characteristics, I wonder if that gave her a blind spot on this one?

dspillett• 12 years ago

I've read that Marissa has the same characteristics, I wonder if that gave her a blind spot on this one?

Or assumed the similarity could mean they would work well together and that very much didn't happen?

Or they worked together fine but the rest of the board couldn't stand the combination!

mathattack2• 12 years ago

This is old news, right? The money and mistake was already baked into the stock price.

To your point, we tend to like hiring people similar to ourselves because it's comfortable and validating. In reality what we need is people who cover our blind spots rather than share them. The great partnerships have this.

erichurkman• 12 years ago

To quote Carnegie's self-written epitaph: Here Lies A Man Who Knew How to Enlist in His Service Better Men Than Himself.

zaidf• 12 years ago

I really feel for Jerry Yang. It seems like every Yahoo CEO and Board has been riding the coattails of his Alibaba investment while his name is left for the footnotes.

grmarcil• 12 years ago

Fair point, but don't feel too bad for him: http://www.forbes.com/profile/jerry-yang/

bedhead3• 12 years ago

It's really sad how wildly distorted executive compensation has gotten. The best phrase I heard was "entrepreneurial reward for managerial duty", and I fear it's become all-too-common. My eyes popped out of my head recently when I saw that Coca-Cola (yes, that same drink company that's done just fine for over a hundred years and whose organic growth rate might be 1% if they're lucky) was trying to give management $13 BILLION over the next four years. It's insanity. And when it's not simple pay, it's severance packages that give Fuck-You money to people whose performance provably dreadful. Leo Apotheker made $25 million on his way out the door from HP, after vaporizing over $6 billion in buying a fraudulent company and doing virtually no due diligence. It's madness, pure madness. Executive comp is a bubble, these people aren't worth anything near this much, but I have no idea when it will pop.

chrisgd• 12 years ago

God that is the truth. And the push for stock buybacks just continues to gloss over the issue. Stock outstanding continues to decline, but the amount of money spent on buybacks should be pushing shares out down twice as fast. Instead ridiculous stock options (executives need to be invested in the Company!) continue to dilute the impact of buybacks.

kolbe4• 12 years ago

Side note: asset bubbles pop. Executive pay is not an asset.

I don't know where you work or what you do for a living, but I've heard a similar rant about executive pay from hundreds of people, whereas I've only ever seen a handfull of people trying to do something about it.

So, I propose to you, if this hurts your sensibilities so much, what are you doing about it? Are you continuing to feed the machine by working as one of their employees? Are you participating by trying to create an aqui-hirable startup? Or are you pushing to enact change?

thenewbtg2• 12 years ago

There is nothing we can do, really. Money is very close to power, and obviously the relatively poor (those who rely on a salary) have far less say and control than the extravagantly paid (those who do not require a salary). It is a fundamental trait of our free and capitalist society. We're merely mourning obvious inefficiencies, "bugs" in the convoluted system of laws and philosophies and culture that govern our society.

This is a suboptimum outcome, in our opinion. Watching inequality rise dramatically over a few short decades only bolsters the belief that these are suboptimal outcomes.

And watching these unmeritorious fools perform poorly while being paid thousands of times the average pay of their own staff is disheartening. It's obviously not a meritocracy. It's obvious that the extravagant, suboptimal pay scheme isn't buying quality leadership, nor is it rewarding any kind of out-sized risk on the part of management. Tiny risk compared to venture or entrepreneur, small or negative benefit, massive reward.

wpietri4• 12 years ago

I think the underlying problem here is managerialism [1], which is mainly a cultural problem [2].

The way that one solves cultural problems is mainly by talking about them. If enough people are saying, "Hey, this prohibition thing doesn't work," and do it for long enough, then eventually the unquestioned cultural assumptions dissolve.

So my question for you is: why are you standing in the way of people doing something about it by being a jerk?

[1] http://en.wikipedia.org/wiki/Managerialism

[2] http://www.amazon.com/Confronting-Managerialism-Business-Eco...

wpietri4• 12 years ago

Regarding the first bit, bubbles: executive pay isn't an asset. Executives are the asset. And given the enormous historical run-up in executive pay, it's not unreasonable to ask whether it will return to its earlier baseline.

It's different than the typical asset bubble in that most of the people setting executive pay are also executives. But it could still just as well be a bubble.

sentientmachine• 12 years ago

You say Executive pay is not an asset. So if an executive owns the deed to a house, you'd agree that's an asset, but if the executive maintains a skill to be hired for 200k/day, that this is not an asset?

Doesn't an executive's ability to convince a company to pay 200k/day fluctuate based on market forces just like how people price homes or tulip bulbs?

Florin_Andrei3• 12 years ago

Historically, when too much power migrates towards the top, the only way to restore balance is via some sort of violent commotion. But perhaps things have changed now - at least I hope so.

what are you doing about it? Are you continuing to feed the machine by working as one of their employees? Are you participating by trying to create an aqui-hirable startup? Or are you pushing to enact change?

The nature of this imbalance is a positive (self-reinforcing) feedback loop. Power begets power (and lack of it begets a deeper deficit). Again, we're back to square 1 - explosive social upheaval.

Human nature sucks.

bedhead3• 12 years ago

I manage a hedge fund, so I'm close to the issue. I have read more proxies than I care to think about, it's always the first thing I read when looking at a company.

Your question about what I'm doing about it is fair, so here goes another rant. As a manager, my feet are held to the fire every day, and my compensation is 100% formulaic. If I don't perform well, I don't get paid well, PERIOD. My pay isn't subjective, or based on what Ken Griffin earned. I have put in measures that ensure I cannot get rich for simply "showing up". Do you know what else I did? I did something that almost no other hedge fund manager in the country does, which was put in a clawback. (My auditor, who did about 2,000 hedge fund audits last year, told me exact two other fund have this) If I make money in year 1 and lose money in year 2, I will end up giving back possibly a significant portion of my year 1 fees to my investors. Why should I get to get rich from one great year, then suck afterwards with no consequences? In my industry at least, I'm doing more than 99.9% of people to fix the problems.

I WANT my incentives to be aligned. I WANT to make a lot of money, but I refuse to do it without merit or in a way that I can't feel good about explaining it to my kids. So I guess that's why I'm so maddened by the executive comp bubble, because I am trying to do something about it.

nrao123• 12 years ago

Here is Marc Andreeseen's interesting take on why exec compensation maybe high:

Conventional theories of exec compensation being so high either (1) what market can bear or (2) board/mgmt agency problem out of control. Alternate theory is exec comp so high as insurance policy against catastrophic visible public failure; exec firings can be career ending. From this standpoint, top exec especially at highly visible and controversial public co should demand a lot due to career risk of failure. Particularly since exec blowups at this level not always based on performance; can be lots of political juju, need for fall guy, etc. Fourth theory, however, my personal favorite—exec comp so high as motivation/prize for best lower-level people to stay at big company. Versus leaving to go to increasingly attractive (1) venture-backed startups or (2) private-equity-backed buyouts. I.e. paying a few people at the top a huge amount of money keeps lots of lower level people on the hook due to enticing future payoff. My guess: exec comp levels go up from here, as end markets get larger, tech & market change happens faster, and jobs get more dangerous. http://pmarcatweetsasblogposts.tumblr.com/post/73998948125/w...

yesiamyourdad2• 12 years ago

I was just reading "Predictably Irrational" where he speculates that it's because in the early 90's, public companies were forced to make executive compensation public, so executives suddenly knew what others were making and that gave them a huge lever in negotiations. He draws a correlation between the creation of the rule and the sudden rise in executive compensation in the early 90's.

Is correlation causation in this case? Seems like it's worth exploring. I don't know how boards get away with the gigantic exit packages though, except that it's probably because all these C-level execs sit on each others' boards.

As for career-ending, how does this explain things like Robert Nardelli? Personally, the only thing I see ending an exec's career is prison.

smacktoward• 12 years ago

Or there is the simpler explanation that executive compensation is high because there's nothing to stop executives from looting their companies anymore. The traditional forces that would have restrained them (public shame, strong boards, shareholder conservatism, labor unions, tax consequences, etc.) are all at historically weak levels today, so there's nothing stopping executives from raiding the cookie jar. And each time one of them does, he pushes the compensation level all the other ones feel they have to reach to be "in the game" higher, creating a vicious circle.

Like most things in life, executive compensation is about power. And when one side has all the power, it's not surprising to see them use it to enrich themselves.

Florin_Andrei3• 12 years ago

Alternate theory is exec comp so high as insurance policy against catastrophic visible public failure; exec firings can be career ending.

Sweet. Now show me where is the insurance against career-ending events (as in: being fired and not being able to find equivalent work again) for rank-and-file engineers.

What do you say? "No such thing?" Yeah, that's my point, precisely.

_delirium• 12 years ago

Wouldn't the fourth theory only make sense if companies routinely hired executives internally? In the old model of "assembly-line worker eventually works his way up to Ford CEO" I could see high compensation at the top being used as a kind of carrot to keep people motivated about climbing the internal career ladder, instead of jumping elsewhere. But afaict most companies nowadays don't hire execs from internal candidates. The COO in question here, for example, was not a Yahoo employee prior to being brought in as COO (he was hired away from Google, not promoted from within Yahoo).

bedhead3• 12 years ago

Here's my theory on it. The main problem is that companies only use one method for determining pay: comps. That's it. They just look around at peer companies and pick a number that's average or higher. It's a perpetual arms race with things only moving in one direction. One guy gets a raise? Effectively everyone does, too, because the median/mean just went up. After 30 years, the compounding effect of this becomes unimaginable.

But that's only half the problem, the other half is that using comps with respect the executive pay is boundless in practice. Think of it compared to housing prices. Home prices rely heavily on comps to help determine the market, but real prices can only go so high because there's only so much debt burden buyers can accept. Prices are effectively capped (in the short-run) by income. This is not the case with companies, particularly bigger, stable companies that are more-or-less on autopilot. Technically, the "market can bear" paying the management billions since these companies are large and profitable. It's just a skimming operation.

What we have now is people, oftentimes interchangeable and generic people (and sometimes even downright morons) making unspendable fortunes for simply showing up to work. Someone else built this thing. Other investors provided the capital. And somehow, you get Fuck-You money. There's no incentive alignment anymore.

ChuckMcM3• 12 years ago

Let me play devil's advocate for a minute.

The guy's cash compensation, $500k. That is a about 2x what Google pays their top engineers (about $250k) The rest of his package was stock. [1]

The compensation theory goes that if you do well the stock will do well, if you do poorly the stock will do poorly. So most of your compensation is a chunk of stock, in this case about 2.5M shares as "RSUs" (a restricted stock grant with performance tuners tweaked to company performance)

de Castro's stock did well because of the Alibaba thing not because of what he did. So that left him with a chunk of stock. Had the company done poorly that would have been worthless. It could still become worthless. The filing indicates he got 1.5M shares in restricted stock, he no doubt will have to sell a chunk of that to pay the taxes on those shares (it will be treated as ordinary income by the IRS) and California.

When these stories are reported they pick the biggest cash number they can, but the actual value may be significantly less. Large stock grants are a tool to keep executives interests aligned with the company interests, they are given a lot of stock and huge restrictions are placed on their ability to sell that stock.

Had he stayed at the company, the restrictions on selling would have prevented him from realizing that stock value immediately.

[1] http://www.sec.gov/Archives/edgar/data/1011006/0001193125141...

finkin1• 12 years ago

It's possible he filed an 83b election and paid taxes at the value of the stock when he received it (even though it hadn't fully vested). If so, his tax liability would be significantly less.

aqme28• 12 years ago

I have no problem with stock compensation, but why so much equity compensation? 1.5M shares in restricted stock is mind-bogglingly unnecessary.

And even if you factor in taxes, he got a heck of a payday.

benaston• 12 years ago

An excellent case study for the Macleod Heirarchy. http://gapingvoid.com/2004/06/27/company-hierarchy/

stormqloud• 12 years ago

This is a testament to how top management destroy shareholder value and an operating company in their own massive short term gains.

"I'll hire you for $50 million, then you hire me for $60 million, think how much value we just brought to the company."

smackfu2• 12 years ago

If you're the COO, and most of your compensation is in stock or bonuses related to the stock price, and the stock nearly triples during your reign (15.92 to 41.07)... you're going to get a big payout.

I also don't really buy that firing him cost this much, since much of it seems to have been a sunk cost. That stock was going to vest eventually whether he was fired or not, it just vested faster because he was fired.

stingraycharles3• 12 years ago

This needs to be higher on top, because it appears to be a point many people are missing.

hkphooey• 12 years ago

There should be claw-back provisions if an employee don't perform.

RighteousFervor2• 12 years ago

Anyone else notice that the comments at washingtonpost.com are more insightful and succinct than here at HN?

SandB0x• 12 years ago

Can you point out three insightful comments from below the Washington Post piece? (Time of posting ~16:19 GMT.)

I'm seeing the standard "1%" and Disgruntled of Tunbridge Wells type comments that you see under every newspaper article and not a great deal of insight.

RighteousFervor2• 12 years ago

Overall, the comments there are a more enjoyable read.

pachydermic• 12 years ago

That video is painful to watch... I know there's clearly a bit of a language barrier, but this guy sounds like a complete dingus. Then again, he's the guy making a cool ~$60 mil a year so what does that suggest?

I wonder what a guy like that actually does on a day-to-day basis. I could see there being a huge amount of pressure and work to do, but maybe they just hand it off to their underlings secure in the thought that they have a fat severance package waiting for them if anything goes wrong.

How can you expect someone to give a damn when they have no skin in the game? So this guy did an apparently horrible job and made millions. How does that make sense? Wouldn't you only want him to make an obscene amount of money if he did a good job? It really is fascinating how massive companies like that work - I guess you can draw some similar conclusions as in politics.

gcb0• 12 years ago

I always assumed that hiring price included him bringing clients from Google. As that is usually what happens when you hire anyone from sales from your competitor...

leccine• 12 years ago

Executives salaries are always a hot topic in certain countries, not to much in the US though. Swiss people got so upset there is an entire movement limiting the CEO salaries to something sane. http://blogs.reuters.com/great-debate/2013/11/15/swiss-outra... I guess it would be good to put a cap on exec compensation, it is just simply unfair to other workers especially given the poor performance...

ausjke• 12 years ago

Whoever hired him should pay the cost of this mis-judgement, at least partially. All hires should be paid bonus _after_ you made contributions, before then you have your regular salary. This is ridiculous.

kereta• 12 years ago

Let's email Mayer to work for 15 months and get $58 million too!

Yahoo spends $58 million to fire its chief operating officer

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