Searching for clues in Yahoo’s 10-Q…

November 8, 2011

When it comes to one of the hot questions buzzing around the business and tech world — specifically, “What the heck is going on at Yahoo?” — we’ve got a few more data points to add to the mix, thanks to the 10-Q filed by the beleaguered Internet-search company on Monday afternoon. They aren’t definitive, but they may be illuminating.

First, let’s remember where Yahoo (YHOO) is at the moment. Shira Ovide, over at the WSJ’s Deal Journal, on Friday had what may be the best, most succinct summary of Yahoo’s recent travails:

You may have read somewhere that Yahoo’s board has been under siege. It fired CEO Carol Bartz, who called the board —doofuses. Yahoo’s board has been weighing a sale of the company, or doing other complicated things that aren—t quite a sale. A Yahoo co-founder, Jerry Yang, may or may not be freelancing on plans for the company’s future. A big investor is very displeased.

This is in a blog post that quotes at some length a Yahoo statement that is neatly summed up by Ovide’s headline: “Yahoo Says Its Board Is Doing a Great Job.”

Certainly, Yahoo’s board isn’t looking back: Carol Bartz’s name is nowhere to be found in the document, less than two months after her ignominious (but high-priced) exit. True, Apple also didn’t mention Steve Jobs in its recent 10-K, as Michelle footnoted late last month — but somehow we think the underlying sentiments are a little different.

Maybe more interesting is the money that Yahoo’s board has been throwing at the top executives it’s kept around. In a quiet little attachment to the 10-Q — 319 words blandly titled Exhibit 10.12, “Summary of Compensation Payable to Named Executive Officers” — Yahoo lays out the salary, bonus and other annual pay for the folks running the ship. Only careful comparison with previous filings shows that some of them are getting nice raises.

The 25% raise given to Timothy R. Morse, Yahoo’s chief financial officer and interim chief executive, was widely reported earlier, when Yahoo disclosed it in a mid-September 8-K. But that model of brevity (the filing was a mere 59 words) failed to mention that, in addition to boosting his salary to $750,000 from $600,000, the company somewhere along the way also goosed his bonus target to 120% of his salary, up from his prior target of 100%.

Two other top executives saw similar increases: Chief Product Officer Blake Irving saw his pay rise to $755,000 from the $500,000 he was promised when Yahoo hired him away from Pepperdine University 18 months ago; his bonus target also rose, to $906,000 from about $500,000. And General Counsel Michael J. Callahan, saw his salary rise to $500,000 from just over $460,000 last year, with a target bonus of $475,000, up from $345,000.

However, as tantalizing as raises in a time of turmoil can be, we’re not really sure what all this says about Yahoo. Morse’s raise makes a certain kind of sense, given the guy’s interim duties. But the others are less clear-cut: They don’t seem to reflect the additional work that might accompany Bartz’s departure, given that the filing says the raises “became effective on April 1, 2011”. (As far as we can tell, this is the first time the company has disclosed them.)

As everyone knows, hefty raises can be a good way to get people to stick around in the face of turmoil, or board-CEO conflict for that matter. And it turns out Yahoo’s board isn’t completely oblivious to the risks swirling around its leadership decisions.

The company, after all, added a new warning to the risk factors laid out in the 10-Q, noting that the board is “engaged in a comprehensive strategic review” including “the full range of options available to return our company to increased growth and innovation”, even while it’s looking for a new CEO. The filing then offers a litany of potential fallout that could grow out of “related speculation and uncertainty regarding our future business strategy and direction,” including:

“— disruption of our business or distraction of our employees and management;

— difficulty recruiting, hiring, motivating and retaining talented and skilled personnel, including a permanent chief executive officer;

— increased stock price volatility; …”

The filing continues:

“If we are unable to mitigate these or other potential risks related to the uncertainty caused by the strategic review and chief executive officer search, it may disrupt our business or adversely impact our revenue, operating results, and financial condition.”

We’ve filed that under stating the obvious, but it’s good to know the board’s aware of it.

Image source: Yahoo website

footnoted is powered by Morningstar Document Research

Leave a Reply

You must be logged in to post a comment.