Who said scouring through SEC filings is boring? According to Yahoo!'s
If you take a peek at Yahoo!'s filing on sec.gov, you find the following: "The Compensation Committee believes that Mr. Semel's leadership has contributed to the Company's success in establishing its brand and creating shareholder value. There is also recognition that Mr. Semel's unique skills, experience spanning the internet and media industries, and repeated past success make him an attractive candidate to competing organizations that believe they could leverage his compensation into significant shareholder returns. Consequently, the Compensation Committee took aggressive action in 2004 to retain Mr. Semel. This was done primarily through equity-based grants designed to position him in the top-quartile of major global-company CEOs, provided that the Company is in the top quartile of shareholder value creation and he remains employed as the Company's CEO."
Even though Semel did not receive an increase to his $600,000 salary (which the company contends is lower than salaries of comparable companies' CEOs), apparently he made quite a chunk of change in options last year, exercising $230 million worth. Semel's 7.2 million stock options in 2004 included 1.2 million that were provided instead of a cash bonus. Taking into consideration the controversies surrounding options-based compensation, this news is of great interest to Yahoo! shareholders.
Proxy statements are good for this sort of thing. They solicit shareholders' votes on important corporate matters, and they hold a lot of important information within their pages, such as board member bios, management compensation, and so forth. Given its links to issues that require a shareholder vote, one might argue that it's an important piece of the shareholders' voice.
Back to the issue at hand. Although some investors might cheer the idea that Semel's compensation is linked to his performance in creating value for shareholders, there is, of course, a problem. First of all, is there really no cost for a company to issue a boatload of options, like Yahoo! has done? By not expensing them, it's argued that companies are artificially inflating earnings, free cash flow, and other important metrics. Secondly, of course, many companies must buy back shares to combat the dilutive effects of issuing additional shares to keep up with options grants.
Thus, there's a very real contention that many investors hold, which is that stock-based compensation needs to be expensed in companies' books. The Financial Accounting Standards Board has decreed that companies must begin expensing options this June -- a move that will make many of us watch many of the options-friendly tech giants such as Yahoo!, where there may be some chilling impacts to earnings.
Here's more biting -- and informative -- Foolish commentary on options expensing:
- Options: The Choice of Californians and Crooks, by Seth Jayson
- Coalition of the Greedy, by Whitney Tilson
- Yahoo! Goes Retro, by Tim Beyers
Alyce Lomax does not own shares of Yahoo!