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Yahoo reins in stock options for cash

Yahoo CEO Terry Semel has started injecting bonuses with cash instead of volatile Internet stock, amid a wider backlash against options grants in the tech industry.

Add stock options to the list of dot-com ideals that have worn out their welcome at Yahoo under the leadership of Terry Semel, the Silicon Valley outsider brought in to right the stumbling Web portal nearly two years ago.

Known for lavishing movie stars with new cars and Rolex watches during his stint as studio head for Warner Bros., the Yahoo CEO has started injecting employee bonuses with cash instead of volatile Internet stock.

"As companies like Yahoo are maturing, (options) aren't the sole form of compensation for employees," Yahoo spokeswoman Joanna Stevens said. Nowadays, management is taking a more "holistic compensation approach. Cash will be a factor but options won't go away," she said.

Semel has scaled back the number of stock options awarded to Yahoo employees from 5.6 percent of the company's outstanding shares when he joined the company in May 2001 to 1.4 percent in 2002. The percentages reflect the net amount of stock options granted to employees.

Yahoo projects it will offer less than 2 percent of its stock to employees in 2003, significantly less than the average of 6 percent doled out by technology firms last year, according to the company.

Long the staple of the Silicon Valley dream, stock options turned twenty-somethings into multimillionaires during the late 1990s, when Yahoo's stock rose to $200 a share. Since then, Yahoo's share price has declined by more than 90 percent, making stock options less attractive as an incentive.

Yahoo's reduced reliance on options comes amid a wider backlash against stock option grants in the technology industry. Options have been linked to tax loopholes and to a sharp increase in executive pay over the past decade. In addition, financial analysts say options carry costs for companies that are not always reflected in company statements--leading to calls for accounting reforms.

Earlier this week, in an interview with the Financial Times, Semel criticized the practice of granting stock options as "not a healthy way to reward people."

"Some people became very wealthy, and some people struck out," he was quoted as saying.

That's not to say Semel himself shuns the gamble of stock options. Yahoo's board of directors granted him 10 million options when he was hired in 2001, and he was granted an additional 1 million shares as a performance bonus in March 2002. At that time, Semel owned 3,625,380 shares of Yahoo, according to a regulatory filing.

Semel's vested shares would net nearly $10 million if sold at Yahoo's closing share price of $19.38 Wednesday.

In 2001, Semel received a salary of $254,853 and no cash bonus, according to a securities filing.