Yahoo makes changes to controversial severance plan

Yahoo said today it has amended a controversial employee severance agreement it adopted last February less than two weeks after Microsoft made its unsolicited offer to buy the Internet giant, according to a regulatory filing. The severance program guaranteed a mix of cash and stock payments to all 13,800 Yahoo employees if they were fired or quit after being reassigned to a new job within two years after a Microsoft takeover.

The number of months of severance that were to be paid under the plan were called “eye-popping” by John Fox, a veteran Silicon Valley employment attorney. Billionaire investor Carl Icahn called the employee-severance policy that would make a takeover of the Internet company more costly ”obscene” and said it shouldn’t be legal.

Among the changes, which were made as part of the company’s settlement of a shareholder lawsuit alleging that the Yahoo board improperly thwarted Microsoft’s takeover offer, was the reduction of the period during which the termination of an eligible employee would trigger eligibility for severance benefits from two years following a takeover to one year.

The agreement also spelled out that neither the election of a board made of a majority of new members, or a sale of Yahoo’s search business, would constitute a formal change in control.

The circumstances permitting an employee to terminate their own employment for “Good Reason”  were also changed, although no details were supplied.

The filing came the same day that Yahoo began laying off 1,500 employees as the Sunnyvale company tries to boost its sagging bottom line.


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  • We should expect a sale of Yahoo’s search business soon. The changes to the severance plan have conveniently addressed precisely such a situation i.e a sale of Yahoo’s search business. Yahoo has managed to kill 2 birds with one stone- settle a pending lawsuit as well as make itself more attractive to a potential offer.