Yahoo!'s Defense of CEO Stock Sales Is Lame: Activist

My comments about Bartz' stock sales and her egregious pay package, which was approved by Yahoo!'s compensation committee in January, have been neither inaccurate nor misleading. From a shareholder's perspective, Bartz shouldn't have sold these shares in order to pay taxes on them. To demonstrate her belief in the long-term value of the shares, she should have paid the tax bill herself.

The group deserving the most blame in this compensation debate is, of course, Yahoo!'s compensation committee, which signed off on Bartz's employment contract. The committee is chaired by Art Kern and has members Ron Burkle and Frank Biondi, Carl Icahn's right-hand man. They should be ashamed of the following aspects of Bartz's employment agreement:

1. If Bartz sticks around for four years and maxes out her possible annual bonuses and if Yahoo!'s stock price trades for more than $25 for 20 consecutive trading days before February 2016 -- seven years from now -- she will receive a total compensation package for her four years of work of $187 million. Although Yahoo!'s stock was trading around $12 when she took the job at the start of this year, is it really that much of a "stretch goal" for Bartz to get Yahoo!'s stock above $25 for 20 straight trading days in the next seven years? After all, getting the stock back to $25 would bring it to a level that's still 20% less than what Microsoft(MSFT) offered to pay for the whole company 18 months ago. This would be a lot of money for a relatively low hurdle. I'm all for executives making money for performance, but not easy money.
2. They gave Bartz a $10 million "makeup grant" in cash and stock for options she left on the table at Autodesk when she signed her Yahoo! employment contract in January. However, according to SEC filings, Bartz's remaining Autodesk options were only worth $3.3 million at that time. Why did Yahoo!'s compensation committee triple the size of the "makeup grant"?
3. When Bartz is getting a potential $187 million for getting Yahoo!'s stock back to $5 less than Microsoft's buyout offer, isn't Bartz being sufficiently "made up" for the Autodesk options she left behind? Does she need a "makeup grant" on top of all her other compensation? Most reasonable executives would conclude that getting $187 million was better than $3.3 million. This "makeup grant" was padding and should never have been given in the first place.
4. Why did Yahoo! agree to pay the taxes on Bartz's RSUs related to her "makeup grant" that she receives this year? Bartz would have had to pay her taxes out of pocket on her $3.3 million of remaining Autodesk stock options. Why should Bartz now pay taxes for a $10 million grant out of that grant, and not out of her pocket?
5. Why did Yahoo! agree to pay Bartz "up to $140,000" for the financial advice she received as part of negotiating her employment contract? This was a great perk for her, but not for Yahoo!s shareholders. Yahoo!s public relations team or Bartz have yet to account for this slap in the face to shareholders.

A majority of Yahoo!'s board deserves to be replaced for so poorly negotiating the potential buyout of the company by Microsoft. All of the members of the compensation committee deserve to be replaced for overpaying Bartz's predecessor, Terry Semel, and for approving Bartz's contract.

But let's be clear: Bartz is no babe in the woods. She's been around the block negotiating employment contracts and knew exactly what she was demanding. Her compensation, perks and tax gross-up demands are excessive. She should immediately pay back Yahoo! shareholders the $140,000 for the high-priced advisers she used to negotiate her employment contract. She should also show her shareholders and employees that her heart is in the right place when it comes to this company's future.

To that end, I call on Bartz to spend $25 million of her own aftertax income on open-market Yahoo! stock purchases. She can keep her $187 million for getting the stock back to a 20% discount to the Microsoft offer, but let's see her put some of her money where her mouth is -- and actually at risk.

-- Written by Eric Jackson in Naples, Fla.

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