Proxy advisory service Proxy Governance has just released its report on Yahoo and is recommending that shareholders vote against three board members: Chairman Roy Bostock and directors Ron Burkle and Arthur Kern. These are the same three directors -- who constitute the board's compensation committee -- that another proxy advisory service, Glass Lewis, also recommended votes against earlier this week.
That's interesting enough grist for the mill. But wait until you hear what Proxy Governance has to say about how Yahoo's been paying its executives.
The report, forwarded to BNET by the firm, notes that Yahoo has performed roughly in line with its peers over the last five years and that it ranks in the 49th percentile with respect to the S&P 1500, compared to its peers that sit at the 55th percentile. Proxy Governance does note that Yahoo's performance has been improving by about four percentile points a year.
Also, composite performance over the last five years seems to have lagged behind a peer group including Akami Technologies, Google, Verisign, and eBay, among others.
However, average three-year compensation paid to named executives at Yahoo is 4.8 times as large as the median compensation paid to executives at peer companies. Among the peers considered were Accenture, Adobe, Nvidia, eBay, Time Warner, and EMC.
We have concerns regarding the company's executive compensation, which is high compared to peers and given the company's financial performance relative to peers. Historically the company has relied heavily on equity incentive awards combined with relatively modest cash compensation. In 2006 equity grants played an even larger part than usual in senior executives' compensation packages. The board justified these grants by noting that the company began developing a new strategic plan and launched its new advertising system, Project Panama. Consequently, the Compensation Committee argued, it was imperative to ensure that current management remain with the company throughout the reorganization. It therefore approved performance and retention agreements with former Chairman/CEO T. Semel, former COO D. Rosenweig, CFO and Head of Advertiser and Publisher Group S. Decker and former CTO and Head of Technology F. Nazem. Under these arrangements, in 2006 each executive received a large grant of options, which would vest over periods ranging from two to four years.But Proxy Governance questioned the effectiveness of the incentives, as Rosenweig left in March 2007 and both Semel and Nazem left in June 2007.
Compensation has lessened since, but that's mostly because Jerry Yang was willing to take a $1 salary and the the fact taht three out of the four most highly compensated executives are gone. According to Proxy Governance, the compensation committee didn't significantly change its practices. The report also indicates that all three candidates faced "relatively high percentages of withheld votes" -- just under a third -- in last year's annual meeting.
Update, 7/29/08: Must have missed this before, but influential proxy advisor RiskMetrics/ISS recommended that Yahoo shareholders support the current board, and Egan-Jones Proxy Services did the same. It's a different take than Glass Lewis, but it's not necessarily all that supportive. Both were concerned about the compensation issues that had concerned Glass Lewis. With Yahoo's board and Carl Icahn coming to agreement, there will be sizeable support for shareholder interests.