SAN FRANCISCO – Yahoo’s recently fired chief operating officer, Henrique de Castro, left the Internet company with a severance package of $58 million even though he lasted just 15 months on the job.
The disclosure in a regulatory filing Wednesday may lead to more second-guessing about Yahoo CEO Marissa Mayer’s decision to hire de Castro as her second-in-command in October 2012.
Mayer dumped de Castro in January after concluding he wasn’t executing on her plan for reviving Yahoo’s lacklustre ad growth. De Castro had been in charge of ad sales.
“Ultimately, Henrique was not a fit and that’s a very regrettable conclusion,” Mayer told analysts in late January. “And it’s a conclusion that we tried very hard to avoid, but it was the right decision in the end for the company.” After making the expensive mistake, Mayer has said she won’t pick another chief operating officer.
De Castro’s severance pay more than doubled the amount that Yahoo paid Mayer last year. Mayer’s compensation was valued at $24.9 million, a 32 per cent decline from the previous year. The decrease stemmed primarily from a stock award of $35 million that she received in July 2012 when Yahoo persuaded her to leave her previous job as a top Google Inc. executive to become its CEO.
Yahoo Inc. previously disclosed de Castro would be getting a severance package, but didn’t reveal the amount until Wednesday.
The company’s board said most of the severance stemmed from the costs of luring de Castro from his previous job at Google. Like many other senior Google executives, de Castro would have received millions in stock by staying at the company. That prompted Yahoo to make up for some of the Google awards he had to relinquish when he defected.
“The board believed at the time Mr. de Castro was hired that he had a unique set of highly valuable skills and experiences that would be key to returning the company to long-term growth and success,” Yahoo’s compensation committee said in its defence of de Castro’s severance pay.
The compensation committee ended up having such a dim view of de Castro’s performance in 2013 that it decided not to give him a bonus, according to Wednesday’s filing. He was eligible for a bonus of up to $540,000, or 90 per cent of the $600,000 salary that he received last year.
De Castro’s severance package wouldn’t have been worth nearly as much if Yahoo’s stock hadn’t more than doubled during de Castro’s brief tenure with the company.
But those gains had little to do with the managerial acumen of de Castro, Mayer or any other Yahoo executives. Analysts trace almost all the increase in Yahoo’s stock price to the company’s 24 per cent stake in China’s Alibaba Group, which is running some of the world’s fastest-growing and most-profitable e-commerce sites. Alibaba is planning to go public on the New York Stock Exchange and when that happens, Yahoo will be able to reap a multibillion dollar windfall from its holdings in the company.
Yahoo’s own business remains in a funk. The Sunnyvale, Calif., company’s revenue, minus ad commissions, dipped 1 per cent last year. Advertising sales showed some signs of modest improvement during the first three months of this year, but Yahoo is still lagging the overall growth of Internet marketing.
Had Yahoo’s stock price remained at roughly the same level as when de Castro joined the company, his severance package value would have been worth about $17 million.