Tuesday, September 8, 2009

Why Carol Bartz' stock sales make sense - and the pundits should know better

There are a number of posts winging through the web today about Carol Bartz selling $2M of stock so far this year. You can see here about "investors getting concerned" or here that "Insiders treat Yahoo like their personal ATM".

The misunderstanding of the analysis astonishes me. Now, I don't expect every reader to understand how executive pay works - and how tax selling works - but it is not rocket science so I do expect journalists to have a better grip.

The Yahoo filing on Carol's compensation is very clear. There is a salary component ($1M per year), she has significant options grants ($5M worth) that only vest when Yahoo stock goes up and stay up (great alignment with shareholders), she has a promise of future grants ($8M worth) in the annual grant cycle for executives and then - the item that is probably the root cause of the consternation - an initial stock grant (stock NOT options) for $7.5M (along with $2.5M in cash).

This last grant was direct compensation for money she was walking away from in her old position. This is very usual logic - the Yahoo board wants you to walk away from $10M+ in compensation - they offer $10M as a hire on incentive. In this case the $7.5M restricted stock grant vests over 4 quarters in 2009.

Now to her sale of $2M of stock that is being hyperboled about. Carol is being granted $7.5M in restricted stock which is taxable at the time of the grant during 2009. This means (in California) she owes at least 35% in tax (probably more) this year. That is at least $2.6M in tax. It is absolutely normal for executives and board members to put plans in place (governed under rule 10b5-1 so they are not insider trading) to sell some restricted stock at the time of the grant in order to pay the tax due. When the tax bill is over $2M it makes basic business sense to do this.

Why then are the bloggers & press frothing about it? Yahoo has clearly stated this is tax selling. Please do your research first and then only whip up the crowd if you find something that is out of the ordinary or signs of inconsistency.

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