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Tuesday, September 05, 2006

Yahoo!: Will The Last One To Leave Please Turn Out The Lights?


Yahoo! lost another senior manager extending the defections that have plagued it and other, older internet companies like eBay. Keeping talent when the stock is going nowhere is tough.

Yahoo!’s treasurer, Gideon Yu, left for red-hot start-up You Tube, a video site that now gets 100 million views a day.

Yu appears to have been a fairly important figure at Yahoo! having assisted in some of the company’s key M&A transactions, among other things.

As companies like Yahoo!, eBay and Microsoft enter “mature” phases of their evolution, stock options are unlike to hold the best talent. While Google’s stock may be up four-fold over the last two years, it is clearly an exception. Over the last two years, Yahoo!’s stock is down about $1 to $29.

Paying managers more at maturing technology companies is probably not the answer, Even if senior officers made $2 or $3 million a year in cash compensation, it does not measure up to the tens of millions that many Microsoft and Yahoo! employees made in stock options because their were with the companies during their greatest growth spurts.

Many of these companies may have to turn to restricted stock grants. Microsoft has already. With the grant, the shares retain the value that the market gives them. They cannot go “underwater” as options can when they drop below their grant prices. Out of the money options may have led to some of the practices that caused the recent options pricing scandal.

A restricted stock grant worth $10 million can still vest over two or three years, with a portion of it going to the executive at the end of each year. If the manager leaves, he forfeits the portion of the grant that has not vested.

With flat or falling stock prices, some of the former high flying internet firms are bound to lose key people, but it would benefit shareholders if new compensation programs could be put in place and disclosed to shareholders. It might help them sleep better at night.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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