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Yahoo! Insiders Cash Out: Activist

Wasn't Carl Icahn supposed to be a white knight to save the shareholders from Yahoo!'s "insulting" and "deceitful" board? After his beginning-with-a-bang-but-ending-with-a-whimper proxy contest, Icahn and two of his nominees, Frank Biondi and John Chapple, joined Yahoo!'s board last summer. The first order of business for Yahoo!'s board was loading up the newcomers with free money written from the shareholders' checkbook.

According to Yahoo!'s 2009 proxy statement, the three shareholder activists each immediately received an option to purchase common stock with a grant data fair value of about $250,000 and restricted stock units with a grant date fair value of about $200,000. Call it a half-a-million-dollar signing bonus. It's been a very effective strategy which Yahoo!'s board followed for silencing their biggest critics: co-opt them on to the board and make them fat and happy by paying them off with big compensation.

No doubt, if asked, all these Yahoo! officers and directors would explain the $233 million in stock sales over the past two years - as Icahn recently did - as "portfolio rebalancing." I'm sure their confidence in the company is as strong as ever.

So what should be done about this problem of excessive compensation for poor performance? Most people don't have Jerry Yang's net worth and willingness to work for $1 a year. The problem with the current system of compensation at most public companies is that executives expect guaranteed bonuses, stock grants, and zero price stock options. There is no variable component to their compensation. It's always guaranteed and it's always going up.

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