ALTABA INC. DEF 14A 2015
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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701 First Avenue, Sunnyvale, CA 94089
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 24, 2015
We will hold the annual meeting of shareholders of Yahoo! Inc., a Delaware corporation (the Company), at the Santa Clara Marriott, located at 2700 Mission College Boulevard, Santa Clara, California, on June 24, 2015, at 8:00 a.m., local time, for the following purposes:
These items of business, including information about the director nominees, are more fully described in the proxy statement accompanying this Notice.
The Board of Directors has set the close of business on April 27, 2015 as the record date for determining the shareholders entitled to notice of and to vote at the annual meeting and any adjournment or postponement thereof.
All shareholders are cordially invited to attend the annual meeting in person. Whether or not you plan to attend the annual meeting in person, you are urged to submit your proxy or voting instructions as promptly as possible to ensure your representation and the presence of a quorum at the annual meeting. If you submit your proxy or voting instructions and then decide to attend the annual meeting, you may still vote your shares in person by following the procedures described in the proxy statement. Your proxy is revocable in accordance with the procedures set forth in the proxy statement. Only shareholders of record as of the close of business on April 27, 2015 are entitled to receive notice of, to attend and to vote at the annual meeting. If you are a beneficial owner as of that date, you will receive communications from your broker, bank or other nominee about the meeting and how to direct the vote of your shares, and you are welcome to attend the annual meeting, all as described in more detail in the related questions and answers in the attached proxy statement.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on June 24, 2015. The proxy statement and the Companys 2014 Annual Report to Shareholders are available electronically at yahoo2014.tumblr.com.
By Order of the Board of Directors,
Ronald S. Bell
General Counsel and Secretary
April 29, 2015
TABLE OF CONTENTS
701 First Avenue, Sunnyvale, CA 94089
This proxy statement is furnished in connection with the solicitation by the Board of Directors (the Board) of Yahoo! Inc., a Delaware corporation (Yahoo, the Company, we, or us), of proxies for use in voting at the 2015 annual meeting of Yahoo shareholders (the annual meeting or the meeting) to be held at the Santa Clara Marriott, located at 2700 Mission College Boulevard, Santa Clara, California, on June 24, 2015, at 8:00 a.m., local time, and any adjournment or postponement thereof. On or about May 6, 2015, proxy materials for the annual meeting, including this proxy statement and the Companys 2014 Annual Report to Shareholders (the 2014 Annual Report), are being made available to shareholders entitled to vote at the annual meeting. The date of this proxy statement is April 29, 2015.
HOW TO VOTE
in advance of the annual meeting
This summary highlights information generally contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.
Annual Meeting of Shareholders
Record Date: Shareholders of record as of the close of business on April 27, 2015 are entitled to attend, and to vote at, the annual meeting.
Admission Requirements: You must bring proof that you owned Yahoo stock on the record date in order to be admitted to the annual meeting. For details, see Questions and Answers about our Proxy Materials and the Annual MeetingCan I attend the annual meeting? What do I need for admission? on page 9. Please also be prepared to provide a form of government-issued identification that includes your photo, such as a drivers license or a passport.
Voting Matters and Board Recommendations
The Boards Director Nominees (page 16)
2014 Business Highlights
The following chart shows the percentage change in the daily closing price per share of Yahoo common stock on the NASDAQ Stock Market LLC (Nasdaq) from December 31, 2013 through December 31, 2014, using the December 31, 2013 closing price as the base price:
Yahoo Stock Price Percentage Change
from December 31, 2013 through December 31, 2014
Questions and Answers about our Proxy Materials and the Annual Meeting
The Notice of Internet Availability was sent to most of our shareholders by mail in accordance with the rules of the U.S. Securities and Exchange Commission (the SEC). Shareholders on the record date who did not receive a Notice of Internet Availability will receive a complete copy of our proxy materials by mail (or by e-mail). You can access our proxy materials through the voting website identified in your Notice of Internet Availability. By following the instructions on that website, you may also:
Our proxy materials are also available on our annual review website at yahoo2014.tumblr.com.
Yahoos 2014 Annual Report includes a letter to shareholders from our chief executive officer (CEO), our audited financial statements, managements discussion and analysis of financial condition and results of operations, and certain other required information.
For a shareholder proposal to be properly presented at the annual meeting, the shareholder that submitted the proposal (or a qualified representative of that shareholder) must appear at the annual meeting to present the proposal. For these purposes, to be considered a qualified representative of a shareholder, a person must be a duly authorized officer, manager or partner of such shareholder or be authorized by a writing executed by the shareholder or an electronic transmission delivered by the shareholder to act for the shareholder as proxy at the annual meeting, and such person must produce the writing or electronic transmission, or a
QUESTIONS AND ANSWERS
reliable reproduction of the writing or electronic transmission, at the annual meeting. Pursuant to our Bylaws, the chairperson of the annual meeting will determine whether any business proposed to be transacted by the shareholders has been properly brought before the meeting and, if the chairperson should determine it has not been properly brought before the meeting, the business will not be presented for shareholder action at the meeting, even if we have received proxies in respect of the vote on such matter.
We will also consider other business that properly comes before the annual meeting.
QUESTIONS AND ANSWERS
All attendees will be asked to present a government-issued photo identification, such as a drivers license or passport, and must meet the following requirements for admission:
If you do not provide a government-issued photo ID and comply with the other procedures outlined above, you will not be admitted to the annual meeting.
Please note that cameras, sound or video recording equipment, smartphones or other similar equipment, electronic devices, large bags, briefcases or packages may not be allowed (or their use may be restricted) in the meeting room.
QUESTIONS AND ANSWERS
The granting of proxies electronically is allowed by Section 212(c)(2) of the Delaware General Corporation Law. If you do not attend the annual meeting, you can listen to a webcast of the proceedings on Yahoo Finance at finance.yahoo.com/topics/yahoo-2015-shareholders-meeting. If you plan to listen to the webcast of the annual meeting, please note that you will not be able to vote your shares during the webcast. Therefore, please vote your shares in advance as described above so that your vote will be counted at the annual meeting.
QUESTIONS AND ANSWERS
Other Proposals. Approval of each of the other proposals (namely, the Companys proposals to approve our executive compensation and to ratify the appointment of PricewaterhouseCoopers LLP, as well as the two shareholder proposals) requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the proposal.
Please note, however, that the vote on the Companys proposals to approve our executive compensation and to ratify the appointment of PricewaterhouseCoopers LLP, as well as the vote on the two shareholder proposals, will be advisory only and will not be binding. The results of the votes on these proposals will be taken into consideration by the Company, our Board or the appropriate committee of our Board, as applicable, when making future decisions regarding these matters.
QUESTIONS AND ANSWERS
Broker Non-Votes. A broker is entitled to vote shares held for a beneficial owner on routine matters, such as the ratification of the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm, without instructions from the beneficial owner of those shares. On the other hand, a broker is not entitled to vote shares held for a beneficial owner on non-routine items absent instructions from the beneficial owners of such shares. Each of the other proposals to be considered and voted on at the annual meeting (namely, the election of directors, the advisory approval of the Companys executive compensation and the shareholder proposals) are considered non-routine items. Consequently, if you hold shares in street name and you do not submit any voting instructions to your broker, your broker may exercise its discretion to vote your shares on the proposal to ratify the appointment of PricewaterhouseCoopers LLP but may not vote your shares on any of the other proposals. If this occurs, your shares will be voted in the manner directed by your broker on the proposal to ratify the appointment of PricewaterhouseCoopers LLP but will constitute broker non-votes on each of the other proposals. Broker non-votes will not be counted in determining the outcome of the vote on each of the non-routine items, although they will count for purposes of determining whether a quorum is present.
Other than the matters and proposals described in this proxy statement, we have not received valid notice of any other business to be acted upon at the annual meeting.
QUESTIONS AND ANSWERS
Requirements for Shareholder Proposals to be Considered for Inclusion in Proxy Materials:
Shareholders interested in submitting a proposal for inclusion in the proxy materials we distribute for the 2016 annual meeting of shareholders may do so by following the procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act). To be eligible for inclusion, shareholder proposals must be received by us no later than January 7, 2016 and must comply with the Companys Bylaws and Rule 14a-8 under the Exchange Act regarding the inclusion of shareholder proposals in company-sponsored proxy materials. If we change the date of the 2016 annual meeting of shareholders by more than 30 days from the anniversary of this years meeting, shareholder proposals must be received a reasonable time before we begin to print and mail our proxy materials for the 2016 annual meeting of shareholders. Proposals should be sent to Yahoos Corporate Secretary at 701 First Avenue, Sunnyvale, California 94089.
Requirements for Shareholder Proposals Not Intended for Inclusion in Proxy Materials and for Nomination of Director Candidates:
Shareholders who wish to nominate persons for election to the Board at the 2016 annual meeting of shareholders or who wish to present a proposal at the 2016 annual meeting of shareholders, but who do not intend for such proposal to be included in the proxy materials distributed by us for such meeting, must deliver written notice of the nomination or proposal to the Corporate Secretary at the above address no earlier than February 25, 2016 and no later than March 26, 2016 (provided, however, that if the 2016 annual meeting of
QUESTIONS AND ANSWERS
shareholders is held earlier than May 30, 2016 or later than July 19, 2016, nominations and proposals must be received no later than the close of business on the tenth day following the day on which the notice or public announcement of the date of the 2016 annual meeting of shareholders is first mailed or made, as applicable, whichever occurs first). The shareholders written notice must include certain information concerning the shareholder and each nominee and proposal, as specified in the Companys Bylaws, and must comply with the other requirements specified in the Companys Bylaws.
In addition, shareholders may propose director candidates for consideration by the Companys Nominating and Corporate Governance Committee (the Nominating Committee) by following the procedures set forth under Consideration of Director Candidates beginning on page 24 of this proxy statement.
Copy of Bylaws:
To obtain a copy of the Companys Bylaws at no charge, you may write to Yahoos Corporate Secretary at 701 First Avenue, Sunnyvale, California 94089. A current copy of the Bylaws is also available on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
Your electronic delivery enrollment will be effective until you cancel it. If you have questions about electronic delivery, please contact us by mail at Investor Relations, Yahoo! Inc., 701 First Avenue, Sunnyvale, California 94089 or by telephone at (408) 349-3382.
Proposal 1 Election Of Directors
Our Board currently consists of nine directors. At the annual meeting, shareholders will have the opportunity to elect nine directors to serve until the 2016 annual meeting of shareholders and until the directors respective successors are elected and qualified or their earlier death, resignation or removal. Our Board has nominated all of our incumbent directors to stand for re-election at the annual meeting. Unless marked otherwise, proxies received will be voted FOR the election of each of the nine nominees named below.
Shareholders are not entitled to cumulate votes in the election of directors. All nominees named below have consented to being named in this proxy statement and to serving as directors, if elected. If any nominee of the Board is unable to serve or for good cause will not serve as a director at the time of the annual meeting, the persons who are designated as proxies intend to vote, in their discretion, for such other persons, if any, as may be designated by the Board. As of the date of this proxy statement, the Board has no reason to believe that any of the persons named below will be unable or unwilling to stand as a nominee or to serve as a director if elected.
Our Bylaws provide that, in an uncontested election, each director nominee must receive a majority of votes cast in order to be elected to the Board. A majority of votes cast means the number of shares voted FOR a director nominee exceeds the number of shares voted AGAINST that director nominee. Our Corporate Governance Guidelines include a director resignation policy that requires each incumbent director nominee to submit to the Board an irrevocable letter of resignation from the Board and all committees thereof, which will become effective if that director does not receive a majority of votes cast and the Board determines to accept such resignation. In the event that an incumbent director nominee is not elected, the Nominating Committee, composed entirely of independent directors, will evaluate and make a recommendation to the Board with respect to the submitted resignation. The Board must decide whether to accept or reject the resignation within 90 days following certification of the shareholder vote. No director may participate in the Nominating Committees or the Boards consideration of his or her own resignation. Yahoo will publicly disclose the Boards decision to accept or reject the resignation including, if applicable, the reasons for rejecting a resignation.
The majority voting standard does not apply, however, in a contested election, as further described in our Bylaws. The election of directors at the 2015 annual meeting will not be contested and each director nominee must receive a majority of votes cast in order to be elected to the Board.
DIRECTORS AND CORPORATE GOVERNANCE
The Board has selected the following nine persons as its nominees for election to the Board at the 2015 annual meeting. Set forth below are their names, their ages as of April 1, 2015, their positions with the Company, and certain other information about them:
Each director nominee was elected as a director at the Companys annual meeting of shareholders held on June 25, 2014, to hold office until the next annual meeting.
We believe that each of the director nominees possesses (i) an ability, as demonstrated by recognized success in his or her field and, prior contributions to the Board, to make meaningful contributions to the Boards oversight of the Companys business and affairs and (ii) an impeccable reputation of integrity and competence in his or her personal and professional activities.
Set forth below is a brief biographical description of each of our director nominees. The primary experience, qualifications, attributes and skills of each of our director nominees that led to the conclusion of the Nominating Committee and the Board that such nominee should serve as a member of the Board are also described in the following paragraphs.
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Corporate Governance Guidelines
The Board, on the recommendation of the Nominating Committee, has adopted Corporate Governance Guidelines to assist the Board in the discharge of its duties and to set forth the Boards current views with respect to selected corporate governance matters considered significant to our shareholders. The Corporate Governance Guidelines direct our Boards actions with respect to, among other things, Board composition, director membership criteria, selection of the Chairman of the Board, composition of the Boards standing committees, director stock ownership, shareholder and other interested party communications with the Board, succession planning, and the Boards annual performance evaluation. The Corporate Governance Guidelines can be found on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
The Corporate Governance Guidelines provide that a majority of our directors must be persons who, in the business judgment of the Board, qualify as independent directors under applicable Nasdaq listing standards. There are no family relationships among any of our directors or executive officers.
Each directors relationships with the Company that have been identified were reviewed, and only those directors (i) who in the opinion of the Board have no relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and (ii) who otherwise meet the requirements of the Nasdaq listing standards are considered independent.
DIRECTORS AND CORPORATE GOVERNANCE
The Board has determined that each of Ms. James, Mr. Levchin, Mr. McInerney, Mr. Schwab, Mr. Scott, Dr. Shaw, and Mr. Webb is independent under applicable Nasdaq listing standards for membership on the Board. The Board has also determined, as further described below, that each of these directors is independent under applicable SEC rules and Nasdaq listing standards for service on the various committees of the Board on which they serve. Ms. Mayer and Mr. Filo are not independent (as a result of their employment with the Company as Chief Executive Officer and Chief Yahoo, respectively). The Board also previously determined that John D. Hayes and Peter Liguori, who each resigned from the Board effective June 25, 2014, were independent under applicable SEC rules and the Nasdaq listing standards for membership on the Board and on all committees of the Board on which they served prior to their respective resignations.
The Board considered the transactions described below (none of which involved professional, advisory, or consulting services) in making its affirmative determination that each non-employee director is independent (or, in the case of former directors, was independent prior to his resignation) pursuant to the Nasdaq listing standards and the additional standards established by Nasdaq and the SEC for members of the audit committee and members of the compensation committee. In each case, the Board affirmatively determined that, because of the nature of the directors relationship with the entity and/or the amount involved, the relationship did not, or would not, interfere with the directors exercise of independent judgment in carrying out his or her responsibilities as a director.
Meetings and Committees of the Board
During 2014, the Board held 22 meetings. During 2014, each incumbent director other than Mr. Schwab attended at least 75 percent of the aggregate of the total number of meetings of the Board and of the committees on which he or she served, held during the portion of the year for which he or she was a director or committee member. (Mr. Schwab was present at 77 percent of such Board meetings, however he attended 74 percent of the aggregate of such Board and committee meetings due to missing several meetings at the end of the year due to illness.)
Independent directors of our Board meet in regularly scheduled sessions without management. The Chairman of the Board chairs the executive sessions of the Board.
DIRECTORS AND CORPORATE GOVERNANCE
The Board has a standing Audit and Finance Committee (Audit Committee), a standing Compensation and Leadership Development Committee (Compensation Committee), and a standing Nominating and Corporate Governance Committee. The Board also forms special committees and subcommittees from time to time. Each standing committees current chair and members are listed below, along with the number of times each standing committee met during 2014:
Audit and Finance Committee. The Board has determined that each member of the Audit Committee is an independent director within the meaning of applicable SEC rules and the Nasdaq listing standards. The Board has determined that each of Ms. James, Mr. McInerney, and Mr. Schwab qualifies as an audit committee financial expert within the meaning of SEC rules and satisfies the financial sophistication requirements of the Nasdaq listing standards.
The Audit Committee is governed by a charter, a copy of which is available on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
The overall purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company. In fulfilling this purpose, the Audit Committees duties and responsibilities include, among other things:
DIRECTORS AND CORPORATE GOVERNANCE
Compensation and Leadership Development Committee. The Board has determined that each member of the Compensation Committee is an independent director within the meaning of the Nasdaq listing standards, an outside director under Section 162(m) of the U.S. Internal Revenue Code (Section 162(m)) and a non-employee director under Exchange Act Rule 16b-3. The Compensation Committee is governed by a charter, which is available on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
The Compensation Committees primary purpose is to oversee the Companys compensation and employee benefit plans and practices. In carrying out this purpose, the Compensation Committee has, among others, responsibilities that include:
The Compensation Committee is also responsible for reviewing and discussing with management the Companys Compensation Discussion and Analysis and, based on such discussion, making a recommendation to the Board on whether the Compensation Discussion and Analysis should be included in the Companys proxy statement and/or Annual Report on Form 10-K. The Compensation Committee prepares the Compensation Committee Report for inclusion in the Companys proxy statement and/or Annual Report on Form 10-K.
The Compensation Committee may form subcommittees and delegate to its subcommittees such power and authority as it deems appropriate, except that the Compensation Committee may not delegate to a subcommittee any power or authority required by any law, regulation or listing standard to be exercised by the Compensation Committee as a whole. The Compensation Committee has not delegated and has no current intention to delegate any of its authority with respect to determining executive officer compensation to any subcommittee. The Compensation Committee may confer with the Board in determining the compensation for the Chief Executive Officer. In determining compensation for executive officers other than the Chief Executive Officer, the Compensation Committee considers, among other things, the recommendations of the Chief Executive Officer. However, the Compensation Committee is solely responsible for making the final decisions on compensation for the individuals listed in the Summary Compensation Table in this proxy statement (the Named Executive Officers).
DIRECTORS AND CORPORATE GOVERNANCE
Pursuant to its charter, after considering such independence factors as required by the Nasdaq listing standards or applicable SEC rules, the Compensation Committee may retain or obtain the advice of a compensation consultant, legal counsel or other advisers as it deems necessary and appropriate to carry out its duties. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other advisers retained by them. In accordance with the Compensation Committees charter, it is the intention of the Compensation Committee that a compensation consultant engaged to advise the Compensation Committee with respect to executive and director compensation will not engage in work for the Company that is unrelated to executive and director compensation without prior approval of the Compensation Committee. The Compensation Committee retained Frederic W. Cook & Co., Inc. (FW Cook) as its independent compensation consultant for 2014, and FW Cook advised the Compensation Committee solely on executive and director compensation. To assist the Compensation Committee during 2014, FW Cook reported on trends and regulatory developments in executive and director compensation; identified peer companies as points of comparison; assessed compensation-related risk; compiled market data on compensation levels and practices; and made recommendations from supporting analyses covering executive compensation philosophy, program design and structure, and compensation levels and mix for our executive officers and Board members. The Compensation Committee has assessed the independence of FW Cook and concluded that its engagement of FW Cook does not raise any conflict of interest with the Company or any of its directors or executive officers.
Compensation Committee Interlocks and Insider Participation. Ms. James (former member), Mr. Webb (former Chair and current member), and Dr. Shaw (current Chair) served on the Compensation Committee during 2014. No person who served as a member of the Compensation Committee during 2014 was or is an officer or employee of the Company. No executive officer of the Company serves or served as a director or member of the compensation committee of another company who employed or employs any member of the Companys Compensation Committee or Board.
Nominating and Corporate Governance Committee. The Board has determined that each member of the Nominating Committee is an independent director within the meaning of applicable Nasdaq listing standards. The Nominating Committee is governed by a charter, which is available on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
Under its charter, the responsibilities of the Nominating Committee include:
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Consideration of Director Candidates. The Nominating Committee will consider director candidates recommended by shareholders. In considering director candidates, whether submitted by management, current Board members, shareholders, or other persons, the Nominating Committee will consider the qualifications and suitability of the candidate, and with regard to a candidate submitted by a shareholder, may also consider the number of shares held by the recommending shareholder and the length of time that such shares have been held.
To have a candidate considered by the Nominating Committee, a shareholder must submit the recommendation in writing and must include the following information:
The Nominating Committee may require additional information as it deems reasonably required to determine the eligibility of the director candidate to serve as a member of the Board.
The shareholder recommendation and information described above must be sent to the chair of the Nominating Committee in care of the Corporate Secretary at Yahoo! Inc., 701 First Avenue, Sunnyvale, California 94089. For a candidate to be considered by the Nominating Committee for nomination to the Board at an upcoming annual meeting, a shareholder recommendation must be received by the Corporate Secretary not less than 120 days prior to the anniversary date of the Companys most recent annual meeting of shareholders.
The Nominating Committee believes that the minimum qualifications for service as a director of the Company are that a nominee possess:
Pursuant to its charter, the Nominating Committees criteria for evaluating potential candidates are consistent with the Boards criteria for selecting new directors. Such criteria include the possession of such knowledge, experience, skills, expertise, integrity, diversity, ability to make independent analytical inquiries, and understanding of the Companys business environment as may enhance the Boards ability to manage and direct the affairs and business of the Company and, when applicable, the ability of Board committees to fulfill their duties, considered in the context of the Committees assessment of the perceived needs of the Board at that time. The Nominating Committee also takes into account, as applicable, the satisfaction of any independence requirements imposed by any applicable laws, regulations or rules and the Corporate Governance Guidelines.
While the Nominating Committee does not have formal objective criteria for determining the diversity desired or represented on the Board, the committee also considers and assesses the effect that potential candidates may have on Board diversity (which may include, among other things, an assessment of gender, age, race, national origin, education, professional experience, and differences in viewpoints and skills) when evaluating the Boards composition and recommending candidates for nomination.
In connection with the Nominating Committees consideration of a potential director candidate, the committee may also collect and review publicly available information regarding the person to assess the suitability of the candidate and determine whether the person should be considered further. If the Nominating Committee determines that the candidate warrants further consideration, the chair or another member of the Nominating Committee may contact the candidate. Generally, if the candidate expresses a willingness to be considered and to serve on the Board, the Nominating Committee may request information from the candidate, review his or her accomplishments and qualifications and conduct one or more interviews with the candidate and members of the committee or other Board members. The Nominating Committee may consider all this information in light of
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information regarding other candidates that the Nominating Committee is evaluating for membership on the Board. In certain instances, Nominating Committee members or other Board members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have first-hand knowledge of the candidates accomplishments. The Nominating Committees evaluation process does not vary based on the source of a recommendation of a candidate, although, as stated above, in the case of a candidate recommended by a shareholder, the Board may take into consideration the number of shares held by the recommending shareholder and the length of time that such shares have been held.
Board Leadership Structure
Our Board is currently led by an independent director serving as non-executive Chairman. Mr. Webb is currently serving as Chairman of the Board. Our Board has determined that having an independent director serve as the non-executive Chairman of the Board is in the best interests of shareholders at this time because it allows the Chairman to focus on the effectiveness and independence of the Board while the Chief Executive Officer focuses on executing the Companys strategy and managing the Companys operations and performance. In the event our Chairman of the Board is not an independent director, our Corporate Governance Guidelines provide that the independent directors of the Board will appoint from among themselves a lead independent director with such duties and other responsibilities as may be assigned from time to time by the Board.
The Boards Role in Risk Oversight
The Board, as a whole and through its committees, serves an active role in overseeing management of the Companys risks. The Companys officers are responsible for day-to-day risk management activities. The full Board monitors risks through regular reports from each of the committee chairs and the General Counsel, and is apprised of particular risk management matters in connection with its general oversight and approval of corporate matters. The Board and its committees oversee risks associated with their respective areas of responsibility, as summarized below. Each committee meets with key management personnel and representatives of outside advisers as required.
The Audit Committee reviews risks and exposures associated with financial matters, particularly financial reporting, tax, accounting, disclosures, internal control over financial reporting, investment guidelines and credit and liquidity matters, programs and policies relating to legal compliance and strategy, and the Companys operational infrastructure, particularly reliability, business continuity and capacity.
The Compensation Committee discusses and reviews compensation arrangements for the Companys executive officers and other compensation programs to avoid incentives that would promote excessive risk-taking that are reasonably likely to have a material adverse effect on the Company. With respect to the Companys compensation arrangements, the Company has reviewed its compensation policies and practices and concluded that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. In particular, the Compensation Committee, with input from its independent compensation consultant, FW Cook, assessed the compensation arrangements for the Companys executive officers and reviewed incentive and commission arrangements below the executive level, and concluded that they do not encourage unnecessary or excessive risk-taking. The Compensation Committee believes that the design of the Companys annual cash and long-term equity incentives for its officers provides an effective and appropriate mix of incentives to focus them on long-term shareholder value creation and does not encourage taking short-term risks at the expense of long-term results.
The Nominating Committee oversees risks associated with operations of the Board and its governance structure.
Our Board believes that the processes it has established for overseeing risk would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of leadership structure as described under Board Leadership Structure above.
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Policy Against Hedging and Pledging
The Company recognizes that hedging against losses in Company shares may disturb the alignment between shareholders and executives that the Companys stock ownership policy (as described below in the section titled Compensation Discussion and Analysis) and equity awards are intended to build. Accordingly, the Company has incorporated prohibitions on various hedging activities within its insider trading policy, which applies to directors, officers and employees. The policy prohibits all short sales of Company stock and any trading in derivatives (such as put and call options or forward transactions) that relate to Company securities. The insider trading policy also prohibits pledging Company stock as collateral for a loan, purchasing Company stock on margin, and holding Company stock in a margin account.
Code of Ethics
The Board has a code of ethics, which is available on the Corporate Governance section of the Companys Investor Relations website at investor.yahoo.net/documents.cfm.
The Companys code of ethics applies to the Companys directors and employees, including our Chief Executive Officer, Chief Financial Officer, and Global Controller and Chief Accounting Officer, and to contractors of the Company. The code of ethics sets forth the fundamental principles and key policies and procedures that govern the conduct of the Companys business. We intend to disclose any amendment to, or waiver from, the code of ethics for our directors and executive officers, including our Chief Executive Officer, Chief Financial Officer, or Global Controller and Chief Accounting Officer or persons performing similar functions, as may be required by applicable SEC and Nasdaq rules by posting such information on our website, at the address and location specified above.
Management Succession. The Board considers succession planning and senior management development to be one of its most important responsibilities. In accordance with the Corporate Governance Guidelines, the Board is responsible for reviewing the Companys succession planning and senior management development, considering, among other factors the Board deems appropriate, the Companys strategic direction, organizational and operational needs, competitive challenges, leadership/management potential and development, and emergency situations. To assist the Board with its review, the Corporate Governance Guidelines require the Chief Executive Officer to provide the Board with a performance assessment of senior management and their succession potential to the position of Chief Executive Officer, including in the event of an unexpected emergency, along with a review of any development plans recommended for such individuals. Members of management with high potential to succeed in the Company are provided with additional responsibilities to expose them to diverse areas within the Company, with the goal of developing well-rounded and experienced senior leaders. These individuals may also be positioned to interact more frequently with the Board so that the directors can become familiar with these executives. The Board and the Chief Executive Officer also have the authority to consider persons outside of the Company and to engage third-party consultants or search firms to assist in the succession planning process. In addition, the Compensation Committee is responsible for periodically reviewing the Companys organizational development activities in order to retain and attract top leadership talent. The Compensation Committee reports the summary results of this assessment to the Board.
Director Succession. In accordance with the Corporate Governance Guidelines, succession planning for directors is the responsibility of the full Board, with the assistance of the Nominating Committee. As described above under Nominating and Corporate Governance Committee, the Nominating Committee regularly reviews the composition of the Board and assesses the balance of knowledge, experience, skills, expertise, and diversity that is appropriate for the Board as a whole. The Board also discusses the results of the Boards annual self-evaluation to determine what action, if any, would improve Board and committee performance. When it is determined that a new director should be added to the Board or that a successor to a current director is necessary or desirable, the Nominating Committee considers the appropriate mix of experience, skills and other attributes that a director candidate should possess or exhibit in order to complement and enhance the effectiveness of the Board as a whole. Based on these ideal attributes, the Nominating Committee identifies and recommends to the Board individuals qualified to serve as directors of the Company. The full Board then evaluates and selects director
DIRECTORS AND CORPORATE GOVERNANCE
nominees for election to the Board at the annual meetings of shareholders and for filling vacancies or new directorships on the Board that may occur between annual meetings. The Nominating Committee may periodically engage a third-party search firm to assist the Nominating Committee and the Board in identifying potential director candidates for appointment to the Board in the event of both planned and unplanned vacancies on the Board. The Board also periodically evaluates whether potential successors to the position of Chairman of the Board are qualified for such role based on the ideal skills, experience, and characteristics of a chairman that the Board deems to be in the best interest of the shareholders at that time.
Communications with Directors
The Board has established a process to receive communications from shareholders and other interested parties. Shareholders and other interested parties may contact any member (or all members) of the Board, or the non-employee directors as a group, any Board committee or any chair of any committee by mail or electronically. To communicate with the Board or any member, group or committee thereof, correspondence should be addressed to the Board or any member, group or committee thereof by name or title. All such correspondence should be sent c/o Corporate Secretary at 701 First Avenue, Sunnyvale, California 94089 or electronically to CorporateSecretary@yahoo-inc.com.
All communications received as set forth in the preceding paragraph will be opened and reviewed by the Corporate Secretary or his or her designees for the sole purpose of determining whether the contents represent a message to our directors. The Corporate Secretary or his or her designee will forward copies of all correspondence that, in the opinion of the Corporate Secretary or his or her designee, deals with the functions of the Board or its committees or that he or she otherwise determines requires the attention of any member, group or committee of the Board.
Policy for Director Attendance at Annual Meeting of Shareholders
It is the Companys policy that directors are invited and encouraged to attend the annual meeting of shareholders. At the 2014 annual meeting of shareholders, all but one of the directors elected to the Board were in attendance.
We pay our non-employee directors annual cash retainer fees and grant them restricted stock units (RSUs), as described below.
Cash Compensation. Our non-employee director compensation program includes a basic annual cash retainer for serving as a director, plus additional retainers for members who take on additional roles. In 2014, our Board approved changes to the retainer amounts, which are effective for 2015, as shown below. All of the cash retainers are paid quarterly in arrears (and are pro-rated for partial periods of service).
DIRECTORS AND CORPORATE GOVERNANCE
Equity Awards in Lieu of Cash Fees. Under the terms of the Yahoo! Inc. Directors Stock Plan (the Directors Plan), each non-employee director may elect to have his or her fees that would otherwise be paid in cash converted into an equity award. Elections need to be made in advance (generally by December 31 of the prior year, or prior to joining the Board in the case of newly-elected or appointed directors) and awards are immediately vested upon grant. For 2014, directors could elect either stock options or RSUs. Commencing in 2015, the stock option alternative has been eliminated.
Annual RSU Award. Our non-employee director compensation program also includes an annual award of restricted stock units, generally granted on the date of our annual meeting to the directors elected (or re-elected) at the meeting. Under the terms of the Directors Plan, in 2014 the number of annual RSUs was determined by dividing $220,000 by the closing price of the Companys common stock on the date of grant. Starting with the 2015 annual meeting, the annual RSU award under the Directors Plan will be based on a value of $240,000.
New directors appointed or elected to the Board other than in connection with an annual meeting will receive an initial award of RSUs upon their appointment or election, with the number of RSUs determined as described above and pro-rated based on the portion of the year that has passed since the last annual meeting.
These RSUs granted on the date of the annual meeting are scheduled to vest ratably, on a quarterly basis in arrears, with the final installment scheduled to vest on the first anniversary of the date of grant (or, if earlier, the day before the next annual meeting of shareholders). Vesting is subject to continued service on the Board through the vesting date. The vesting schedule for a pro-rated award to a new director will coincide with the remaining vesting dates of the awards granted on the date of the prior annual meeting.
Under the Directors Plan, all vested RSUsincluding annual awards and RSUs in lieu of cash feesare generally paid in an equivalent number of shares of common stock on the earlier of the date the non-employee directors service terminates and the first anniversary of grant, subject to any valid election by the non-employee director to defer the payment date. Subject to the aggregate share limit set forth in the Directors Plan, the Board may from time to time prospectively change the relative mixture of stock options and RSUs for the initial and annual award grants to non-employee directors and the methodology for determining the number of shares of the Companys common stock subject to these awards without shareholder approval.
The Directors Plan provides certain benefits that are triggered by certain corporate transactions or death or total disability. In the event of the dissolution or liquidation of the Company, consummation of a sale of all or substantially all of the assets of the Company, or consummation of the merger or consolidation of the Company with or into another corporation in which the Company is not the surviving corporation or any other capital reorganization in which more than 50 percent of the shares of the Company entitled to vote are exchanged (a Corporate Transaction), options and RSUs granted under the Directors Plan will become fully vested, and the Company will provide each director optionee either a reasonable time within which to exercise the option or a substitute option with comparable terms as to an equivalent number of shares of stock of the corporation succeeding the Company or acquiring its business by reason of such Corporate Transaction. Outstanding RSUs will generally be paid in an equivalent number of shares of common stock immediately prior to the effectiveness of such Corporate Transaction. In the event of the directors death or total disability, options and RSUs granted under the Directors Plan will become fully vested and, in the case of RSUs, immediately payable.
DIRECTORS AND CORPORATE GOVERNANCE
In addition, non-employee directors may participate in the Companys matching charitable awards program, which provides up to $1,000 in matching contributions per calendar year to eligible non-profit organizations. The Company also reimburses its non-employee directors for their out-of-pocket expenses incurred in connection with attendance at Board, committee and shareholder meetings, and other business of the Company.
Director Stock Ownership Guidelines
The Board has adopted stock ownership guidelines for the Companys non-employee directors as set forth in the Corporate Governance Guidelines with the exact share ownership requirements periodically established by the Board. The current share ownership requirements set by the Board provide that each non-employee director should own shares of the Companys common stock equal in value to five times the annual Board cash retainer then in effect (or $300,000 in 2015 based on the Boards current annual cash retainer of $60,000). A non-employee director who does not satisfy the required Company stock ownership level must retain at least 50 percent of the net shares he or she receives upon exercise or payment, as the case may be, of Company equity awards. For this purpose, the net shares received upon exercise or payment of an award are the total number of shares received, less the shares needed to pay any applicable exercise price of the award. Vested but unpaid RSUs count toward satisfaction of this requirement, but unexercised options do not (regardless of whether they are vested). Shares held in a trust established by the director (and/or his or her spouse) for estate planning purposes count toward satisfaction of this requirement if the trust is revocable by the director (and/or his or her spouse) or for the benefit of his or her family members.
Director Compensation Table2014
The following table presents fiscal year 2014 compensation information for Yahoos non-employee directors who served during any part of the year. Yahoos two employee directors during 2014, Ms. Mayer and Mr. Filo, received no additional compensation for their service on the Board. (For their compensation as employees, see the Summary Compensation Table on page 71.)
The Stock Awards and Option Awards columns below present the aggregate grant date fair value of equity awards (as computed for financial accounting purposes) and do not reflect whether the recipient has realized a financial benefit from the awards (such as by vesting in stock or exercising options).
DIRECTORS AND CORPORATE GOVERNANCE
DIRECTORS AND CORPORATE GOVERNANCE
Each of the directors will be elected by a majority of votes cast, meaning that the number of shares voted FOR a director nominee must exceed the number of shares voted AGAINST that director nominee. This required vote is explained above in the section titled Proposal 1Election of DirectorsVoting Standard.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES NAMED ABOVE. PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED ABOVE UNLESS YOU SPECIFY OTHERWISE IN THE PROXY.
Proposal 2 Advisory Vote To Approve Executive Compensation
We are providing our shareholders with the opportunity to cast a non-binding, advisory vote to approve the compensation of our Named Executive Officers as disclosed in this proxy statement (including in the compensation tables and narratives accompanying those tables as well as in the Compensation Discussion and Analysis). This proposal is referred to as a say-on-pay proposal.
Compensation Philosophy. The Compensation Committee believes in a disciplined pay-for-performance approach to executive compensation and has established a rigorous, performance-oriented compensation program for our executive officers. The core goals of our executive compensation philosophy are to:
Key Features of our Compensation Programs. Some of the key features of our current executive compensation program include:
Alignment with Shareholder Interests. In years such as 2014, when our stock price increased 25 percent from the start of the year to the end of the year (reflecting $6.3 billion of increased market capitalization and value created for shareholders), our executives will have the potential to realize gains through their equity-based compensation. In years in which we do not perform as well, the value our executives may realize from their equity-based compensation will similarly reflect that performance and will be lower. As discussed in more detail in the Compensation Discussion and Analysis, the rigor of our performance-based goals is evidenced by the fact that, despite the strong performance of our stock price in 2014, our performance-based equity awards that were tied to 2014 financial performance vested at significantly less than the target levelsvesting results were 69 percent of the target shares for the performance options, and only 36 percent of the target shares for our Named Executive Officers performance RSUs.
SAY ON PAY PROPOSAL
We also believe that shareholder interests are further served by other executive compensation-related practices that we follow. These practices include:
Response to Last Years Say on Pay Vote. At our annual meeting in June 2014, approximately 91.5 percent of votes cast were in favor of our executive compensation program. The Compensation Committee believes these results demonstrate that shareholders support the rigorous performance-based compensation program we put in place in late 2012 and early 2013 and which we retained in 2014. We have implemented a similar rigorous performance-based compensation program for 2015.
In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act) and the related rules of the SEC, the Board requests your advisory vote on the following resolution at the annual meeting:
RESOLVED, that the compensation paid to the Companys Named Executive Officers, as disclosed in this proxy statement pursuant to the SECs executive compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved.
This vote is an advisory vote only and will not be binding on the Company, the Board or the Compensation Committee, and will not be construed as overruling a decision by, or creating or implying any additional fiduciary duty for, the Board or the Compensation Committee. However, the Compensation Committee will consider the outcome of the vote when making future compensation decisions for Named Executive Officers.
The Companys current policy is to provide shareholders with an opportunity to approve the compensation of the Named Executive Officers each year at the annual meeting of shareholders. It is expected that the next such vote will occur at the 2016 annual meeting of shareholders.
SAY ON PAY PROPOSAL
The affirmative vote of the holders of a majority of the Companys common stock present at the annual meeting in person or by proxy and entitled to vote on this proposal is required to approve, on an advisory basis, the Companys executive compensation.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF EXECUTIVE COMPENSATION. PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THIS PROPOSAL UNLESS YOU SPECIFY OTHERWISE IN THE PROXY.
Proposal 3 Ratification of Appointment of Independent Registered Public Accounting Firm
We are asking our shareholders to ratify the Audit Committees appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2015.
PricewaterhouseCoopers has served as the Companys external auditor continuously since February 1996 and has been appointed by the Audit Committee to continue as the Companys independent external auditor for 2015. The members of the Audit Committee and the Board believe that the continued retention of PricewaterhouseCoopers to serve as the Companys independent external auditor is in the best interests of the Company and its shareholders.
The Board of Directors Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the independent external audit firm retained to audit the Companys financial statements. In conjunction with the legally mandated rotation of the audit firms lead engagement partner, the Audit Committee and its Chair were directly involved in the selection of PricewaterhouseCoopers current lead engagement partner, whose period of service began in 2013. Furthermore, in order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a rotation of the independent external audit firm.
Although ratification of the appointment of PricewaterhouseCoopers is not required by our organizational documents or applicable law, the Audit Committee and the Board believe it is a good corporate governance practice to request shareholder ratification of the Audit Committees appointment of the Companys independent registered public accounting firm. In the event that ratification of this appointment is not approved by a majority of the shares of common stock of the Company represented at the annual meeting in person or by proxy and entitled to vote on the matter, the Audit Committee will consider this fact in connection with its future appointment of an independent registered public accounting firm. Even if this appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and its shareholders.
Representatives of PricewaterhouseCoopers will be present at the annual meeting. The representatives will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the Companys common stock present at the annual meeting in person or by proxy and entitled to vote on this proposal is required to ratify the appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2015.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANYS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2015. PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR THIS PROPOSAL UNLESS YOU SPECIFY OTHERWISE IN THE PROXY.
Proposal 4 Shareholder Proposal
Mr. John Harrington, 1001 2nd Street, Suite 325, Napa, CA 94559, has represented that he owns 500 shares of the Companys common stock and has given notice of his intention to present a proposal at the annual meeting. The proposal and the proponents supporting statement appear below in italics.
The Board opposes adoption of the proposal and asks shareholders to review the Boards response, which follows the proposal and the proponents supporting statement.
The Board recommends that you vote AGAINST the shareholder proposal.
Whereas, while Human Rights have traditionally been the domain of international law, in the era of globalization and technological change, privacy and freedom of expression have become among the most salient policy issues for multinational corporations;
Whereas, it is internationally acknowledged that existing legal frameworks .are no longer appropriate for handling the explosion of communications and content crossing international boundaries, and conceptualizations of existing human rights laws have not kept up with the modern and changing communications and surveillance capabilities1;
Whereas, our international exposure to conflict in human rights is significant as Yahoo operates in 50 countries in a highly competitive, elaborate network of partners and subsidiaries with complex social demands and complicated legal systems, all in an extremely unsettled regulatory environment;
Whereas, Yahoo works in countries with poor human rights records, have faced legal claims including unlawful activity and personal injury, and are continually at risk of negatively affecting human rights through our operations and compliance with foreign governments;
Whereas, our company is facing mounting uncertainties regarding national and international government regulations and human rights laws;
Whereas, Yahoo is exposed to significant harm to our business operations and financial condition because of extraordinary demands on our resources with the unprecedented surveillance frequency, capacity, and government requests for data, as well as increasing compliance costs for numerous and sometimes conflicting US and foreign laws, regulations, and their interpretations;
Whereas, all of these risks may expose Yahoo to potentially significant civil or criminal liabilities, penalties, and negative publicity, damaging our reputation and our business;
Whereas, nations, democratic and authoritarian alike, are actively crafting rules regarding free speech and privacy2, and multinational corporations are increasingly influencing legal and regulatory frameworks and proving a defining force in technological global governance3;
Whereas, none of our current Directors or Corporate Committees have any explicit responsibility for overseeing human rights issues, including privacy and freedom of speech; be it therefore
RESOLVED that shareholders request the Board to direct the Governance Committee to create a standing committee to oversee the Companys responses to domestic and international developments in human rights that affect our company.
The committee should be directed, as a minimum to address human rights issues of private and government surveillance, and rights of freedom of expression and association. As one of our Executives recently wrote on a corporate blog regarding surveillance and human rights, The United States should lead the world when it comes to transparency, accountability, and respect of civil liberties and human rights.4 With the growing importance of multinational corporation participation in the defining of new, international laws and regulations, and with the significant harm our company faces in the wake of this new era, our company needs to actively consider human rights issues at the highest level.
Board of Directors Statement AGAINST Shareholder Proposal
The Board opposes the proposal because Yahoo already has extensive policies and practices that the Board believes are effective to oversee Yahoos responses to domestic and international developments in human rights affecting Yahoo, including freedom of expression and privacy rights. We note that shareholders overwhelmingly rejected, by more than 96% of the votes cast, a nearly identical proposal submitted by the proponent at Yahoos 2014 annual meeting of shareholders.
In 2008, in recognition that Yahoos business, products, technology and operating footprint increasingly intersect with freedom of expression and privacy issues around the world, Yahoo launched the Yahoo Business & Human Rights Program (the BHRP). The BHRP is guided by Yahoos commitment to human rights and brings together a team of senior professionals from across Yahoo to integrate human rights decision-making into Yahoos business operations. The BHRP implements its mission through a number of core initiatives, including:
Through Yahoos leadership role as a founding member of the Global Network Initiative (GNI), Yahoo is also working to translate the principles of freedom of expression and privacy into practical standards for use in Yahoos business. GNI resulted from a collaborative, multi-year effort involving an international group of information and communications technology companies, human rights organizations, academics, investors and technology leaders. GNI members are committed to protecting freedom of expression and privacy, partnering with others in a multi-stakeholder setting to ensure collective governance and accountability, and promoting the GNI and its objectives throughout the world.
The GNI has produced principles that provide direction and guidance to ICT companies to assist them in protecting and advancing freedom of expression and privacy when they encounter laws, regulations and policies that interfere with these fundamental human rights. Yahoo has adopted policies and procedures to implement these principles and, along with other participating companies has been assessed by an independent third party, accredited by the GNI, to ensure that the principles are reflected in Yahoos business operations.
In January 2014, the GNI published on its website (www.globalnetworkinitiative.org) the results of the independent third partys 2013 assessment of Yahoos human rights policies, which found that Yahoo is making good faith efforts to implement GNIs principles. In November 2014, the BHRP provided an update to the GNI board based on a self-assessment against the recommendations made in 2013. Yahoo will be assessed again in 2015.
In 2013, Yahoo also published its first global transparency report on government requests for user data and committed to regularly update this information on its website. Yahoo published updates to this report in February, March, and September 2014, and March 2015. In its September 2014 update, Yahoo expanded the report to include government requests for content removal. Copies of these reports are available in the Corporate Governance section of Yahoos investor relations website, investor.yahoo.net, under Transparency.
The head of Yahoos BHRP, who reports to Yahoos Vice President and Deputy General Counsel, Global Public Policy, is responsible for overseeing the initiatives described above and for leading Yahoos efforts to promote privacy and free expression on the Internet and to identify innovative solutions to human rights challenges. Yahoos Board receives updates prepared by the BHRP on issues related to global human rights risks and opportunities through periodic policy reports from Yahoos General Counsel and in July 2014, the BHRP also presented and discussed its activities directly with the Board. The Board believes that the BHRP and its core team of Yahoo employees, under the oversight of Yahoos Vice President and Deputy General Counsel, Global Public Policy, and Yahoos General Counsel, are in the best position, through their day-to-day involvement in Yahoos business operations and detailed understanding of the legislative and regulatory landscape in which Yahoo operates, to oversee Yahoos human rights practices and initiatives and to make informed judgments as to what policies and practices are most likely to promote the best interests of Yahoos users, shareholders and other stakeholders.
Through the policies and practices described above, the Board believes that Yahoo has in place an effective system for overseeing Yahoos responses to domestic and international developments in human rights affecting Yahoo and that the creation of a standing committee of the Board is not necessary or advisable and would involve making regular BHRP updates to a subset of the Board, rather than to the full Board, as is Yahoos current practice.
The affirmative vote of the holders of a majority of the shares of common stock present, in person or represented by proxy, and entitled to vote on the proposal is required to approve this proposal.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS PROPOSAL. PROXIES RECEIVED BY THE COMPANY WILL BE VOTED AGAINST THIS PROPOSAL UNLESS YOU SPECIFY OTHERWISE IN THE PROXY.
Proposal 5 Shareholder Proposal
Mr. John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, has represented that he owns no fewer than 260 shares of the Companys common stock and has given notice of his intention to present a proposal at the annual meeting. The proposal appears below in italics.
The Board opposes adoption of the proposal and asks shareholders to review the Boards response, which follows the proponents proposal.
The Board recommends that you vote AGAINST the shareholder proposal.
Proposal 5 Right to Act by Written Consent
Resolved, Shareholders request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent is to be consistent with applicable law and consistent with giving shareholders the fullest power to act by written consent consistent with applicable law. This includes shareholder ability to initiate any topic for written consent consistent with applicable law.
Wet Seal (WTSLA) shareholders successfully used written consent to replace certain underperforming directors in 2012. This proposal topic also won majority shareholder support at 13 major companies in a single year. This included 67%-support at both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent.
Taking action by written consent in lieu of a meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle. A shareholder right to act by written consent and to call a special meeting are 2 complimentary ways to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle.
A shareholder right to act by written consent is one method to equalize our limited provisions for shareholders to call a special meeting. Delaware law allows 10% of shareholders to call a special meeting. However 25% of Yahoo! shareholders are required to call a special meeting.
Our clearly improvable corporate governance (as reported in 2014) is an added incentive to vote for this proposal:
Marissa Mayer was given $24 million in 2013 Total Realized Pay while shareholders could have a 15% potential stock dilution. GMI said unvested equity pay partially or fully accelerates upon CEO termination. Accelerated equity vesting allows executives to realize lucrative pay without necessarily having earned it through strong performance. Yahoo! had not disclosed specific, quantifiable performance objectives for our CEO. Disclosure of performance metrics is essential for investors to assess the rigor of executive incentive pay plans. Our CEOs annual incentives did not rise or fall in line with annual financial performance.
GMI Ratings, an independent investment research firm, said multiple related party transactions and other potential conflicts of interest involving our companys board or senior managers should be reviewed in greater depth. David Filo was an executive on our board in addition to our CEO. Fortunately Mr. Filo was not assigned to any board committee.
Returning to the core topic of this proposal from the context of our clearly improvable corporate governance, please vote to protect shareholder value:
Right to Act by Written ConsentProposal 5
Board of Directors Statement AGAINST Shareholder Proposal
The Board has carefully considered the proposed right for shareholders to act by written consent without a meeting and, for the reasons outlined below, the Board believes that it is not in the best interests of Yahoo and its shareholders.
The Board believes that our shareholders are better served by holding shareholder meetings for which all shareholders receive notice, and at which all shareholders have an opportunity to consider and discuss the proposed actions and vote their shares. Consistent with this view, our Bylaws give shareholders owning at least 25 percent of our outstanding common stock the right to call a special meeting. With this special meeting right, our shareholders already have the opportunity to raise important matters both on an annual basis at our annual meeting of shareholders as well as at special meetings held outside the annual meeting process.
Shareholder meetings offer important protections and advantages that are absent from the written consent process, including the following:
In contrast to shareholder meetings, the written consent process, as proposed, undermines the important deliberative process in which the informed views of all shareholders, management and the Board are considered. Shareholder action by written consent would make it possible for the holders of a bare majority of our outstanding common shares to take significant corporate action without any prior notice to the Company or other Yahoo shareholders, and without giving all shareholders an opportunity to consider, discuss and vote on shareholder actions that may have important ramifications for both Yahoo and our shareholders. Further, because shareholder action by written consent can be effected without soliciting the consents of all shareholders, this approach could be used to disenfranchise selected and smaller shareholders by denying them the opportunity to participate in the written consent. The Board believes that these possible outcomes are contrary to principles of shareholder democracy and good corporate governance.
The written consent process also has the potential to create confusion since multiple groups of shareholders would be able to solicit written consents at any time and as frequently as they choose on a range of issues, some of which may be duplicative or conflicting. Addressing such actions could impose significant administrative and financial burdens on the Company with no corresponding benefit to shareholders. Additionally, shareholder action by written consent could be used by a group of shareholders to pursue personal agendas or significant corporate actions that are not in the best interests of all shareholders.
The Board believes its existing strong corporate governance practices make adoption of this proposal unnecessary. In addition to the right of shareholders to call special meetings at a 25 percent threshold, the following Yahoo corporate governance provisions empower shareholders to express their views or take action and promote Board accountability:
Finally, the Board notes that the proposal contains assertions regarding the Companys executive compensation and related party transactions that we believe are incorrect and are not relevant in evaluating the proposals advisability.
For the reasons outlined above, the Board believes the adoption of this proposal is not in the best interests of Yahoo and its shareholders.
The affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy and entitled to vote on the proposal is required to approve this proposal.
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE AGAINST THIS PROPOSAL. PROXIES RECEIVED BY THE COMPANY WILL BE VOTED AGAINST THIS PROPOSAL UNLESS YOU SPECIFY OTHERWISE IN THE PROXY.
Beneficial Ownership of Principal Shareholders and Management
The following table presents the number of shares of our common stock that were beneficially owned as of April 1, 2015 (except where another date is indicated) by (i) known beneficial owners of five percent or more of our common stock, (ii) each current director and director nominee, (iii) each Named Executive Officer, and (iv) all current directors and current executive officers of the Company as a group.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Companys directors, executive officers and, subject to certain exceptions, persons who beneficially own more than 10 percent of the Companys common stock (collectively, Reporting Persons) to file with the SEC initial reports of ownership on Form 3 and changes in ownership of the Companys common stock on Forms 4 or 5. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 2014 all filing requirements applicable to the Reporting Persons were timely met.
Equity Compensation Plan Information
The following table presents information as of December 31, 2014 regarding shares of our common stock that may be issued under our equity compensation plans, including the Stock Plan, the Directors Plan, and the Employee Stock Purchase Plan. Each of these plans has been approved by our shareholders. We do not maintain any equity incentive plans that have not been approved by shareholders.
EQUITY COMPENSATION PLANS
Our Executive Officers
Executive officers are elected by and serve at the discretion of the Board. The names of our current executive officers, their ages as of April 1, 2015 and their positions with the Company are set forth below, followed by certain other information about them:
Please refer to Proposal 1Election of DirectorsNominees for biographies of Ms. Mayer and Mr. Filo.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) describes our executive compensation program for 2014 and the goals that drive the design of the program. Our Compensation Committee is responsible for reviewing our executive compensation program and approving the compensation arrangements for our executive officers.
Highlights of this CD&A, explained in greater detail throughout this discussion, include:
2014 Company Overview
Marissa A. Mayer joined the Company as Chief Executive Officer in July 2012 and, under her leadership, we have created a performance-oriented culture. At the center of this performance-oriented culture is Ms. Mayers and the Boards vision for long-term growth and increasing shareholder value.
Building Shareholder Value
Besides re-investing in the business, during 2014 we returned approximately $4.2 billion to our shareholders through stock repurchases. Our stock price has increased 182 percent since Ms. Mayer was hired on July 16, 2012, from a closing price on Nasdaq of $15.65 that day to $44.13 on April 1, 2015. With approximately 1.2 billion shares of Yahoo common stock outstanding on July 16, 2012 and approximately 937 million shares outstanding on April 1, 2015, these stock price increases resulted in the creation of over $22.7 billion of shareholder value from July 16, 2012 through April 1, 2015.
The following chart shows the percentage change in the daily closing prices of Yahoo common stock and the Nasdaq-100 index from July 16, 2012 through April 1, 2015, using the closing prices on July 16, 2012 as the base.
Yahoo Stock Price Percentage Change
from July 16, 2012 (CEO hire date) through April 1, 2015
In addition, on January 27, 2015, we announced a tax-efficient plan to distribute additional value to our shareholders through a spin-off all of our remaining holdings in Alibaba Group into a newly-formed independent registered investment company, the stock of which will be distributed pro rata to our shareholders.
Over the last two and a half years, Yahoo management has focused on returning Yahoo to its iconic position in the technology industry. In late 2012, our leadership team began a multi-year transformation of our core business, shifting from a declining desktop web-based strategy, to a mobile first strategy that has already yielded significant growth. We ended 2014 with GAAP mobile revenue of $254 million for the fourth quarter and $768 million for the full year of 2014 (compared to immaterial mobile revenue in prior years). This strategic shift has already made us one of the top three mobile players today in terms of U.S. audience reach (according to comScore).
Through 2014, we not only invested in our mobile products, but also in video, native, and social (collectively with mobile, our Mavens offerings) which represent the fastest growing areas of digital advertising. In 2014, our Mavens offerings generated $1.1 billion of GAAP revenue. In just two years, we have created more than a billion dollars of additional annual revenue.
In addition to these investments, we believe strongly in the virtuous cycle of growthnecessary to drive substantial change and transformation in our business. It all starts with hiring talented people to build engaging products, those products drive increased user traffic, and the increased traffic generates greater advertiser interest, which ultimately drives revenue growth.
People. We are committed to hiring the best talent and we recruited impressive talent across the Company in 2014. In particular, we hired a new head of sales for the Americas region, a new Chief Information Security Officer, and world class editorial voices to lead each one of our ten digital magazines, as well as continuing to hire critical technical talent. We also continued to focus on our talent management initiatives including: setting aggressive quarterly and annual goals for the Company, teams and individual employees, and conducting rigorous quarterly performance reviews. We operate in a competitive, fast-paced industry. These quarterly goal setting and review cycles promote the focus, accountability and effectiveness necessary to execute our transformation strategy and position the Company for long-term growth.
Products. In 2014, we accelerated the pace of innovation, launching more than three dozen new product experiences across strategic pillars of search, communications and digital content to strengthen and expand our core products, which drew accolades at year end. Google Play recognized three of our mobile apps, and Apples iOS store recognized four of our mobile apps, on their respective Best of 2014 lists.
Traffic. We continued to see user growth in 2014 and currently our global base is over one billion monthly active users, including Tumblr. Over 575 million of those monthly users come to us via mobile devices. Our Tumblr audience grew 14 percent year over year and the number of registered blogs grew 33 percent. Mobile monthly users for the Tumblr mobile app grew by 32 percent.
Revenue. The fourth quarter of 2014 marked our 12th consecutive quarter of revenue ex-TAC growth (year- over-year) in our search business and our highest quarterly search revenue ex-TAC since 2009. In 2014, we made important progress in our Mavens investment areas. As noted above, our Mavens offerings generated revenue of more than $380 million for the fourth quarter and $1.1 billion for the full year of 2014. Our mobile first strategy in particular paid off, generating $768 million in GAAP mobile revenue in 2014, which represented a significant increase from our mobile revenue in 2013.
We generated $590 million of free cash flow in 2014 and ended the year with nearly $7 billion in cash, cash equivalents, and marketable securities (net of $3.3 billion in taxes relating to our sale of American Depositary Shares in Alibaba Groups IPO). The Company is well positioned in 2015 with the financial flexibility to make key investments for growth as needed.
Pay for Performance
The Compensation Committee, listening to shareholder input and believing in a disciplined pay-for-performance approach to executive compensation, established rigorous, performance-oriented compensation programs for 2014. The three key pillars of this approach are:
In addition, the Compensation Committee seeks to align the Companys short term performance compensation metrics with the Companys strategy. For 2014, the Compensation Committee made increasing mobile revenue a key financial performance metric in our Executive Incentive Plan, and for 2015, the Compensation Committee is making increasing Mavens revenue a key financial metric in the Executive Incentive Plan.
We value and regularly solicit shareholder input. Over the past year we reached out to our top shareholders to explain the Companys strategic focus and how it informs our executive compensation decisions, and to solicit their views. Since last years annual meeting, we engaged with and received input from most of our top 30 investors. These meetings generally included Ms. Mayer or Mr. Goldman, and often included the Chairman of the Board, who was also Chair of the Compensation Committee. We considered all feedback received on our executive compensation programs.
Named Executive Officers
Our Named Executive Officers are the executive officers listed in the Summary Compensation Table on page 71. They include:
As a founder, Mr. Filo has a significant ownership interest in Yahoo (he owned 7.5 percent of our issued and outstanding common stock as of April 1, 2015); he receives an annual base salary of $1, and during 2014 he did not participate in any of the equity incentive programs we provided to our other executive officers. Although he was eligible to participate in our Executive Incentive Plan for 2014 as described below, Mr. Filo requested not to receive a bonus for 2014. In accordance with applicable SEC rules, Henrique de Castro, former Chief Operating Officer, is also a Named Executive Officer. Mr. de Castro left the company in January 2014. Except where expressly noted, references to Named Executive Officers in this CD&A generally do not include Mr. Filo and Mr. de Castro.
2014 Shareholder Say-On-Pay Vote
Yahoo annually offers shareholders the opportunity to cast an advisory vote on our executive compensation program. This annual vote is known as the say-on-pay vote. At our annual meeting in June 2014, approximately 91.5 percent of votes cast were in favor of our executive compensation program for 2013. The Compensation Committee believes these results demonstrate that shareholders support the rigorous performance-based compensation programs that we began implementing in late 2012. We have maintained these performance-based executive compensation programs setting rigorous performance targets aligned with the Companys growth strategy in 2013, 2014 and 2015. When making future compensation decisions for Named Executive Officers, the Compensation Committee will continue to consider the opinions that shareholders express through say-on-pay votes.
Compensation Goals and Practices
Our core executive compensation philosophy is to:
We also believe shareholder interests are further served by other executive compensation-related practices that we follow. These practices include:
To determine compensation for our Chief Executive Officer, the Compensation Committee confers with the Board. To determine the compensation for the other Named Executive Officers, the Compensation Committee considers, among other factors, the Chief Executive Officers recommendations. In the end, though, the Compensation Committee alone decides the appropriate compensation for the Chief Executive Officer and our other Named Executive Officers.
Executive Compensation Program Elements
To attract key people and keep them invested in Yahoos future, we strive to offer them market-competitive total direct compensation, which refers to the combination of the executives base salary, annual cash bonus opportunity, and annualized long-term incentive equity award value based on customary grant-date valuation principles.
Mix of Compensation to Emphasize Performance
We provide base salaries that the Compensation Committee believes are competitive. The Compensation Committee believes, however, that our executives will be incentivized to make their greatest contribution to Yahoo if a substantial portion of their compensation is tied to Yahoos stock price or other performance goals. To that end, we design annual cash bonuses and long-term equity incentives that reward executives for attaining performance goals and creating shareholder value. These incentives make up the majority of each executives total direct compensation opportunity. Because these incentives depend on Yahoos performance, our executives actual compensation could be significantly lessor morethan the targeted levels.
Our emphasis on equity- and performance-based compensation is reflected in the following chart which shows that 93.3 percent of the intended mix of Ms. Mayers target annual total direct compensation for 2014 is performance-based and/or dependent upon the value of our common stock.
Ms. Mayers intended mix of annual compensation includes:
The above chart includes the annual equity awards that the Compensation Committee approved for Ms. Mayer in 2014. The chart does not include awards made to Ms. Mayer in prior years that have tranches vesting based on 2014 performance. For purposes of the above chart, the grant date value of annual equity awards is presented by multiplying the total number of shares subject to the awards approved by the Compensation Committee in 2014 by the fair market value of a share of our common stock on the date of the award, with the performance-based portion of the award presented at the target level. Equity awards granted to Ms. Mayer in prior years that have tranches vesting based on 2014 performance appear as 2014 compensation for Ms. Mayer in the Summary Compensation Table. Due to the significant appreciation in our stock price, the value of these awards reflected in the Summary Compensation Table is significantly higher than the value of such equity awards when they were originally approved by the Compensation Committee. See the discussion under CEO Equity Awards on page 64 for more detail.
Determining Compensation Levels
In setting specific salary, target annual cash bonus, and equity award levels for each Named Executive Officer and our other senior officers, the Compensation Committee considers and assesses, among other factors it may consider relevant:
The Compensation Committee gives no single factor any specific weight. Each executives compensation level, as well as the appropriate mix of equity award types and other compensation elements, ultimately reflects the Compensation Committees business judgment in consideration of these factors and shareholder interests. Executive compensation levels and elements of our executive compensation program are not targeted to specific market or peer group levels.
Elements of Compensation
The current elements of our executive compensation program are described below.
2014 Executive Compensation Program
2014 Base Salaries
In February 2014, the Compensation Committee reviewed the base salaries of our Named Executive Officers and kept them at their 2013 levels: $1.0 million for Ms. Mayer, and $600,000 for each of Mr. Goldman and Mr. Bell. The base salaries of Ms. Mayer and Mr. Goldman were negotiated in their offer letters in 2012 and have not been increased since then. The Compensation Committee determined in its judgment that these salary levels continued to be appropriate based on its assessment of the factors identified under Determining Compensation Levels, above.
2014 Annual Cash Bonuses under the Executive Incentive Plan
In keeping with Yahoos performance-based compensation philosophy, the Compensation Committee approved the 2014 annual cash bonus plan for the Named Executive Officers, which we call our Executive Incentive Plan, in February 2014. Bonuses under the Executive Incentive Plan are determined by multiplying an executives target bonus opportunity by a Company Performance Factor, and by an Individual Performance Factor, within an overall limit, as shown by this diagram:
There is no minimum bonus payment guaranteed under the plan, and the Compensation Committee has discretion under the plan to reduce (including to $0) the amount of any bonus otherwise payable to a participant based on performance. We believe that Compensation Committee discretion to reduce the amount of any bonus is appropriate to help mitigate the risks associated with the short-term nature of annual bonus plans. Each executives maximum bonus under the Executive Incentive Plan was capped at 200 percent of the executives target bonus amount (or, if less, a percentage of our adjusted EBITDA for the year as described below).
Target Bonus. The Compensation Committee assigned each Named Executive Officer a target bonus expressed as a percentage of annual base salary. In February 2014, the Compensation Committee reviewed the target bonus levels of these executives and kept them at their 2013 levels: 200 percent of base salary for Ms. Mayer, and 90 percent of base salary for each of Mr. Goldman and Mr. Bell. Prior to 2014, Mr. Filo did not participate in any of our incentive programs, however, in 2014, he was made eligible to participate in the Executive Incentive Plan for 2014 with an established target bonus of $1.0 million. The Compensation Committee determined in its judgment that these target bonus levels were appropriate based on its assessment of the factors identified under Determining Compensation Levels, above.
Company Performance Factor. The Company Performance Factor under the plan was determined based on the Companys attainment of financial goals and operational performance. The financial performance measures selected by the Compensation Committee for 2014 were revenue as determined under GAAP (or revenue) and mobile revenue. The Compensation Committee chose revenue and mobile revenue as the financial metrics for the 2014 Executive Incentive Plan because the Committee believed it was critically important for the Company to focus on growing revenue and, as discussed above, specifically mobile revenue in 2014. The Compensation Committee set performance goals of $5 billion for total revenue, and $500 million for mobile revenue based on the Companys 2014 financial plan.
The Compensation Committee further provided that, for purposes of calculating the overall financial performance payout factor, the revenue payout percentage would be multiplied by the mobile revenue payout percentage, thereby increasing the potential rewards for performance above 100 percent of target, while reducing rewards for below-target results. Mobile revenue was chosen as the multiplier because of the critical importance of increasing mobile revenue to position the Company for long-term growth as users shift to mobile platforms.
The Executive Incentive Plan provided for revenue, mobile revenue and (as discussed below) adjusted EBITDA to be determined on an adjusted basis to mitigate the financial statement impact of certain types of events not contemplated by our 2014 financial plan. Specifically, adjustments were made to eliminate the financial statement impact of certain acquisitions and divestitures, changes in accounting standards, restructuring charges, goodwill impairments, and legal settlements. The purpose of these adjustments is to mitigate extraordinary events that may occur during the year and align bonus payouts with measures that reflect managements actual performance during the year.
To assess our operational performance, the Compensation Committee identified a number of objectives for the year that targeted key areas for growing our business. The operational objectives included:
Operational objectives are intended to enhance executives focus on key operating objectives that we believe are important to our long-term success. No specific measurement metrics were assigned to the operational goals and the Compensation Committee retained discretion to determine their level of attainment, as well as to apply additional or alternate operational goals.
Bonus Limit. As noted above, bonuses under the 2014 Executive Incentive Plan were capped at 200 percent of the executives target bonus. In addition to this cap, aggregate bonuses payable to the Named Executive Officers were subject to a maximum of three percent of our adjusted EBITDA for 2014. This additional performance-based limit on bonuses was intended to help preserve Yahoos tax deduction for bonuses paid under the plan, and was allocated among the Named Executive Officers. For these purposes, adjusted EBITDA means our income from operations before depreciation, amortization and stock-based compensation expense, adjusted as described above. Under this framework, Ms. Mayers maximum bonus was capped at 1.5 percent of our 2014 adjusted EBITDA, and the maximum bonus for each of Messrs. Goldman, Bell and Filo was 0.5 percent of our 2014 adjusted EBITDA. In setting each executives final bonus, the Compensation Committee could exercise only downward discretion from these limits. After the end of 2014, the Compensation Committee determined that our 2014 adjusted EBITDA (adjusted in accordance with the Executive Incentive Plan as described above) was $1,367 million. This framework resulted in a maximum bonus for each Named Executive Officer that was greater than 200 percent of the executives target bonus. Accordingly, each executives potential bonus was capped at 200 percent of the executives target bonus amount.
2014 Executive Incentive Plan Payout. In the first quarter of 2015, the Compensation Committee determined the bonuses to be awarded to each executive under the 2014 Executive Incentive Plan.
The Compensation Committee applied the following payout scales, which were set by the Committee in February 2014 in connection with the approval of the plan, to determine the payout factor for the financial performance component of the plan:
For 2014, the Compensation Committee determined that our actual performance, and corresponding payout percentages, with respect to these metrics, each after giving effect to the Executive Incentive Plan adjustment provision described above, and the payout factor for the financial performance component of the 2014 Executive Incentive Plan, were as follows (rounded to the nearest whole percentage):
As mentioned above, the Committee had provided for total revenue to be the base goal with mobile revenue as a multiplier, because of the critical importance of increasing mobile revenue to position the Company for long-term growth as users shift to mobile platforms. Therefore, the two payout percentages were multiplied together to determine the financial performance component payout factor.
The Compensation Committee also considered the Companys operational performance for the year. While the Compensation Committee considered the operational objectives noted above and managements assessment of the Companys performance against those objectives, the Compensation Committee exercised its discretion to assess the overall operational performance of the Company for the year and did not assign any particular weighting to any of the objectives. Based on its assessment, the Compensation Committee assigned an achievement level of 90 percent for the operational performance component. The Compensation Committee believed that this achievement level appropriately reflected managements strong operational performance during the year. In particular, the Committee recognized the hiring of key technical talent and key media talent; the revitalization of the employee base and building of a strong performance culture; the growth in mobile users and revenue and other Mavens revenue; the significant increase in product innovation, including the launch of new digital magazines and original content; the negotiation of strategically important new partner deals; the completion of key strategic acquisitions, including Flurry and Brightroll; and the development of new simplified ad platforms for advertisers. The Compensation Committee weighted the financial and operational metrics under the Executive Incentive Plan 80 percent and 20 percent, respectively, to give greater emphasis to the objective financial measures. Accordingly, the Compensation Committee determined that the Company Performance Factor under the 2014 Executive Incentive Plan was 36 percent (4/5 multiplied by 22 percent, plus 1/5 multiplied by 90 percent, rounded to the nearest whole percentage).
The Compensation Committee also determined an Individual Performance Factor for each Named Executive Officer based on its assessment of the executives performance during the year. The Compensation Committee assigned Individual Performance Factors of approximately 150 percent of target for each of Ms. Mayer, Mr. Goldman, and Mr. Bell, because of their strong individual performance and efforts during the year, which the Compensation Committee believed contributed significantly to the Companys strong operational performance during the year as discussed above. More specifically:
After taking into account the individual accomplishments noted above, the Compensation Committee believed it was appropriate to align the Individual Performance Factors for the Named Executive Officers at approximately 150 percent each to recognize the collaborative effort that was required in 2014 to achieve the Companys strong operational performance during the year as discussed above.
In light of his significant equity stake in the Company and given that the Company is still in a period of transition, Mr. Filo requested that the Committee not award him a bonus this year.
The table below shows the target bonus and final bonus amount for each Named Executive Officer who received a bonus under the Executive Incentive Plan for 2014.
Long-Term Incentive Equity Awards
2014 Annual Grants. In February 2014, the Compensation Committee approved regular annual equity awards for the Named Executive Officers. As with our annual grants for 2013, these award values were approximately 50 percent in the form of RSUs with time-based vesting requirements, and 50 percent in the form of RSUs with time- and performance-based vesting requirements (specific performance goals need to be achieved and the executive must satisfy continued employment requirements in order for vesting to occur). The Compensation Committee believes that this combination strikes an appropriate balance between creating a long-term retention incentive for our executives and establishing performance goals that further align the executives interests with Yahoos business objectives for that year and with increasing shareholder value.
In determining the levels for these grants, the Compensation Committee considered the factors identified above under Determining Compensation Levels. Ms. Mayers offer letter with Yahoo also contemplates that the target value of her annual awards will not be less than $12 million, which is the value of the annual equity award she was granted. The Compensation Committee determined that the appropriate target level of 2014 annual equity awards for each of Mr. Goldman and Mr. Bell was $3 million.
Each of these 2014 awards (other than those to Ms. Mayer) is subject to a four-year vesting schedule in order to help promote retention of the executive team. Ms. Mayers awards are subject to a three-year vesting schedule, which is consistent with the Compensation Committees intent when it negotiated Ms. Mayers offer letter in 2012. All of the 2014 awards that are subject only to time-based vesting requirements vest on a monthly basis after a one year cliff to better align with the Compensation Committees assessment of competitive practices.
2014 Performance Goals. The performance RSUs approved for 2014 are structured so that a portion of each award (a tranche) is allocated to each year covered by the award and will vest only to the extent the performance goals established by the Compensation Committee for that year are met. This structure is similar to the structure for the performance RSUs we granted in February 2013 to each of the Named Executive Officers, as described in detail in our proxy statement filed in 2014. Under the terms of these awards, the performance metrics and goals for each annual tranche are set near the beginning of each year covered by the award. In February 2014, the Compensation Committee set performance goals for the second tranche of the 2013 awards and the first tranche of the 2014 awards. The Company operates in a highly competitive, rapidly changing industry and is in transition as the management team executes its transformation strategy to position the Company for long-term growth. It would be difficult during this period of transition to set multi-year performance targets. Selecting metrics and setting goals on an annual basis at this time allows the Compensation Committee to assess progress and developments in our business and changes in our industry to ensure that the metrics and goals selected are rigorous and align with the Companys progress and strategic priorities and what the Compensation Committee believes are in the Companys long-term best interests.
The metrics used to measure performance for 2014 for purposes of the awards granted in 2013 and 2014 (and their weightings) were GAAP revenue (70 percent) and adjusted EBITDA (30 percent). As noted above, these are key metrics used by management to measure the performance of the business. The Compensation Committee
believed it was appropriate to use revenue for the performance equity awards for 2014 to maintain managements focus on revenue growth to continue to build shareholder value. The Committee focused on revenue because, as advertisers migrate away from traditional desktop display ad formats, the Committee believed it was critically important to incentivize management to find ways of monetizing our growing mobile presence as well as to develop new desktop revenue strategies, such as native ads. Adjusted EBITDA (as defined above) was chosen as the second metric for the performance equity awards because it is a key metric used by management to evaluate operating performance and to help ensure that revenue growth was not pursued to the detriment of earnings. Although these choices resulted in some overlap between incentive programswith GAAP revenue being a goal for both the performance equity awards and the Executive Incentive Plan2014 bonuses under the Executive Incentive Plan were also determined based on mobile revenue, operational performance, and individual performance factors. The Compensation Committee considered the partial overlap to be appropriate in light of the critical importance of revenue growth to the Companys turn-around strategy and long-term stockholder value. The Compensation Committee weighted these goals according to its assessment of relative importance, and set performance targets that it believed would be challenging.
The Compensation Committee provided for revenue and adjusted EBITDA to be determined on an adjusted basis to mitigate the financial statement impact of certain types of events not contemplated by our 2014 financial plan. Adjustments were made for the same items as discussed under 2014 Annual Cash Bonuses under the Executive Incentive PlanCompany Performance Factor above.
The Compensation Committee evaluates the appropriate metrics for use under our equity awards and for use under the Executive Incentive Plan each year.
The specific 2014 financial targets for the performance-based RSUs were as follows:
For 2014, the Compensation Committee determined that our actual performance, and corresponding vesting percentages, with respect to these metrics were as follows, each after giving effect to the adjustment provision described above:
Accordingly, the 2014 tranche of the performance-based RSUs awarded in 2013 and 2014 vested on the date of the Compensation Committees determination at 36 percent of target (the weighted average of the vesting percentages in the chart above, rounded to the nearest whole percentage). The Compensation Committee intended the target performance goals for these 2014 tranches to be challenging.
As noted above, we set the goals for each annual tranche of performance-based RSUs near the beginning of the year to which the tranche relates. Under applicable accounting rules, performance based RSUs for a particular performance period are deemed granted on the date the goals are set for the performance period (and the accounting grant date fair value is determined on that date). Accordingly, under applicable SEC rules, the 2014 tranche of the performance-based RSUs we awarded in 2013, and only the 2014 tranche of the performance-based RSUs we awarded in 2014, are shown in our compensation tables below as compensation for 2014. Similarly, the 2013 tranche of the performance-based RSUs we awarded in 2013 is shown as compensation for 2013.
Determination of Vesting of 2012 Performance Options. As described in detail in our proxy statement filed in 2013, in November 2012 Ms. Mayer was granted two stock options and Mr. Goldman was granted one stock option pursuant to their employment offer letters. These options were subject to both time-based and performance-based vesting requirements. In other words, specific performance goals need to be achieved and the executive must satisfy continued employment requirements in order for vesting to occur.
For Ms. Mayers first option grant, which was part of her 2012 annual equity award, the Compensation Committee established three performance periods: the first half of 2013, the 2013 year, and the 2014 year, with one-third of the options allocated to each of these periods. For her second grant, which was part of a one-time retention grant, the Compensation Committee established five performance periods: the first half of 2013 and each year from 2013 through 2016, with one-fifth of the options allocated to each of these periods. For Mr. Goldmans performance option, the Compensation Committee established three performance periods: the 2013, 2014, and 2015 years, with one-third of the options allocated to each of these periods.
For the 2014 tranche of each of these performance options the Compensation Committee established that 70 percent of the options would be eligible to vest based on our revenue relative to the goal established for 2014, and 30 percent of the options would be eligible to vest based on our adjusted EBITDA relative to the goal established for 2014. This is consistent with our belief that growing revenue, but not to the detriment of earnings, is critical to our transformation strategy. With respect to both performance metrics, the Compensation Committee provided for performance to be determined on an adjusted basis to mitigate the financial statement impact of certain types of events not contemplated by our 2014 financial plan. Adjustments were made for the same items as discussed under 2014 Annual Cash Bonuses under the Executive Incentive PlanCompany Performance Factor above.
The following chart shows the specific 2014 financial targets for the performance options and the portion of the 2014 tranche that would vest based on the percentage attainment of the applicable goal:
* For achievement between the stated percentages, vesting is determined by linear interpolation.
In no event, however, would the 2014 tranche of any performance option vest as to more than 100 percent of the shares subject to that tranche.
In March 2015, the Compensation Committee determined that, for 2014, our revenue was $4,594 million (or 92 percent of the goal resulting in a 62 percent vesting percentage), and our adjusted EBITDA was $1,367 million (or 93 percent of the goal resulting in an 86 percent vesting percentage) for purposes of these awards. Applying the 70 percent weighting to the vesting percentage based on revenue and the 30 percent weighting to the vesting percentage based on adjusted EBITDA, and rounding to the nearest whole percentage, the Compensation Committee determined that 69 percent of the 2014 tranche of each of these awards vested. The Compensation Committee intended the target performance goals for these 2014 option tranches to be challenging. Although the performance options had the same financial goals as the performance RSUs, the Committee established a different payout schedule for the options. As shown above, the performance options payout schedule provided for relatively greater vesting percentages for below-target performance (i.e., greater downside protection), and relatively lesser vesting percentages for above-target performance (i.e., lesser upside potential). The Compensation Committee considered this appropriate because performance option vesting is capped at 100 percent of the tranche, whereas performance RSU vesting can reach 200 percent of the tranche.
Similar to the performance RSUs, we set goals for each annual tranche of performance options near the beginning of the year to which the tranche relates. Under applicable accounting rules, performance based options for a particular performance period are deemed to be granted on the date the goals are set for the performance period (and the accounting grant date fair value is determined on that date). Accordingly, under applicable SEC rules, our 2012 performance-based stock options are shown in our compensation tables below as compensation for 2013 and later years (i.e., each tranche is shown as compensation for the year in which its performance goals are set), even though such awards were approved by the Compensation Committee in July 2012. Due to the significant appreciation in our stock price, the value of the tranches of these awards reflected as 2014 compensation in the Summary Compensation Table is significantly higher than the value of such equity awards when they were originally approved by the Compensation Committee. See the discussion under CEO Equity Awards below for more detail.
CEO Equity Awards
A substantial portion of Ms. Mayers equity awards that appear as 2014 compensation in the Summary Compensation Table are the performance-based options approved by the Compensation Committee in 2012 as part of her recruitment package. These performance-based options were part of the retention award and the 2012 annual award that Ms. Mayer negotiated in her July 2012 offer letter when she joined Yahoo. Ms. Mayers other equity awards that appear as 2014 compensation in the Summary Compensation Table include the 2014 tranche of her 2013 award of performance-based RSUs, as well as her 2014 annual award of time-based and performance-based RSUs.
The value of these equity awards in the Summary Compensation Table reflects the significant appreciation in our stock price after the awards were approved by the Compensation Committee. As described in more detail below, the shares subject to these awards had a value of $15 million when the Compensation Committee approved them, but the awards have a value of nearly $40 million in our Summary Compensation Table due to the appreciation in our stock price between the approval date and the accounting grant date required to be reflected in the Summary Compensation Table.
Although the dollar value of the performance options was approved in July 2012, they have multiple performance periods. As described above, Ms. Mayer received two performance option grants. For her first option grant, which was part of her 2012 annual equity award, the Compensation Committee established three performance periods: the first half of 2013, the 2013 year and the 2014 year, with one-third of the options allocated to each of these periods. For her second grant, which was part of a one-time retention grant, the Compensation Committee established five performance periods: the first half of 2013 and each year from 2013 through 2016, with one-fifth of the options allocated to each of these periods. Under applicable accounting rules, for purposes of the Summary Compensation Table, the accounting grant date is deemed to be the date when the performance goals for each of these applicable performance periods are set. Accordingly, for each option having a 2014 performance period, the accounting grant date value was measured in February 2014 when the performance
goals for 2014 were established. As a result of the significant appreciation in our stock (which increased 146 percent) between July 16, 2012 and February 27, 2014, the accounting values for Ms. Mayers stock option awards reflected in the Summary Compensation Table are significantly higher than their original approved values.
Similarly, the 2014 tranche of Ms. Mayers performance-based RSUs awarded in 2013 has an accounting grant date value that was measured in February 2014 when the performance goals for 2014 were established that was higher than the original approved value of the award.
In addition, and as discussed above, Ms. Mayers performance options and performance RSUs are subject to performance-based vesting requirements and the 2014 tranches of each of these awards vested at significantly less than target levels based on actual performance.
The following table presents Ms. Mayers equity awards that are considered to be 2014 grants under SEC and accounting rules, and shows:
CEO Equity Awards
The Compensation Committee has adopted a schedule for granting new-hire and retention equity awards. Under this schedule, equity awards are granted at scheduled meetings throughout the year, except during Closed Window Periods (as defined below), when no equity awards may be granted. This schedule is designed so that awards are not granted during the period commencing on the tenth day of the last month of each quarter and ending two business days after our quarterly earnings release (the Closed Window Period).
Severance and Change-in-Control Severance Benefits
Severance Agreements. We have entered into severance arrangements with our senior officers, including the Named Executive Officers (other than Mr. Filo) currently employed with Yahoo, to provide severance should Yahoo terminate their employment in certain circumstances. These agreements are referred to as Severance Agreements. The Compensation Committee believes that providing our executives with specified benefits in the event of a termination of employment by Yahoo without cause is consistent with competitive practices. It also helps us retain executives and maintain leadership stability. Furthermore, the Compensation Committee believes that adopting uniform terms, as reflected in the Severance Agreements, helps to ensure that our executives are treated fairly and consistently, and helps avoid the need to negotiate severance in connection with each termination of employment.
We provided Severance Agreements to Ms. Mayer, Mr. Goldman and Mr. Bell in the form approved by the Compensation Committee (see Potential Payments upon Termination or Change in ControlExecutive Severance Agreements, below). These Severance Agreements reflect any specific severance arrangements negotiated and included in the executives offer letter.
Change-In-Control Severance. We maintain Change-in-Control Severance Plans that, together, cover all of our full-time employees, including each Named Executive Officer.
The Compensation Committee believes that the occurrence, or potential occurrence, of a change-in-control transaction may create uncertainty for our executives and other key employees. The Change-in-Control Severance Plans are designed to help retain our employees and maintain a stable work environment leading up to and during changes in control by providing employees certain economic benefits in the event their employment is actually or constructively terminated in connection with such a change.
Benefits under the Change-in-Control Severance Plans are provided only on a double-trigger basis, which means that benefits are paid only if two events occur: a change in control of Yahoo and a termination of the participants employment. Furthermore, the plans do not provide tax gross-ups for potential excise or other taxes on any benefits that are paid. We have the ability, subject to certain limitations, to terminate or amend the plans before a change in control.
Equity Award Provisions. Recipients of long-term incentive equity awards are also entitled to limited severance benefits with respect to awards granted before the applicable severance event. The Compensation Committee believes that these benefits are consistent with general competitive practices and that they help maximize executive retention, which is one of Yahoos objectives in making the awards.
The material terms of the Severance Agreements and the Change-in-Control Severance Plans, as well as any benefits that may be provided to the Named Executive Officers under their respective employment or equity award agreements in connection with a termination of their employment or a change in control, are described below in the section titled Potential Payments Upon Termination or Change in Control. That section also includes a brief description of the severance benefits provided to Mr. de Castro on his leaving Yahoo in January 2014.
De Castro Separation. As discussed in the section titled De Castro Separation in the Compensation Discussion and Analysis included in our proxy statement filed in 2014, Mr. de Castros employment with the Company terminated in January 2014. Mr. de Castro received the severance benefits for a termination without cause provided in the compensation agreements he entered into in connection with his joining Yahoo in October 2012. The specific benefits are described below under Potential Payments Upon Termination or Change in ControlDe Castro Separation.
Material Compensation Committee Actions After 2014
In March 2015, the Compensation Committee approved cash and equity compensation for 2015 for each of the Companys Named Executive Officer. The Compensation Committee did not increase any Named Executive Officers base salary or target bonus for 2015.
The Compensation Committee also approved the grant of annual equity awards for 2015 to each of Ms. Mayer, Mr. Goldman and Mr. Bell. These awards were in the form of restricted stock units similar to the annual equity awards for 2014 described above. All of the restricted stock units vest over four years (or three years in the case of Ms. Mayer). One-half of the restricted stock units awarded to each Named Executive Officers are time-based awards that will vest in equal monthly installments. The other half of the restricted stock units awarded to our Named Executive Officers are subject to performance-based vesting requirements each year and vest in annual installments. The performance metrics and goals for these performance RSUs will be set at the beginning of each year. For 2015, the metrics used to measure the Companys performance (and their weightings) for these awards will be the Companys GAAP revenue (one-third), revenue ex-TAC (one-third), and adjusted EBITDA (one-third), each as defined for purposes of the awards and subject to specified adjustments. These metrics will also be used to determine vesting for the tranches of the performance RSUs and performance options granted to our Named Executive Officers in prior years that are eligible to vest based on our 2015 performance.
The Compensation Committee also adopted the 2015 Executive Incentive Plan, which follows the same general framework as our 2014 Executive Incentive Plan described above. Under this plan annual cash bonuses for 2015 will be determined by multiplying each participants target bonus by a company performance factor and an individual performance factor, each as determined after year end. The individual performance factor will be based on the Committees assessment of each participants individual performance for the year. The Company performance factor will be based on the Companys financial performance and operational performance in 2015. The metrics used to determine financial performance will be GAAP revenue, revenue ex-TAC, adjusted EBITDA and Mavens revenue. Similar to our 2014 framework, the average payout percentage for the first three financial metrics will be multiplied by the Mavens revenue payout percentage, thereby making Yahoos cash bonuses for 2015 dependent on growth of our four key Mavens offerings. As with 2014, there is an overall bonus limit based on a percentage of our 2015 adjusted EBITDA and individual bonus limits for each participant. No minimum cash payment is required under the plan and the Compensation Committee retains discretion under the plan to reduce the amount (including to $0) of any bonus otherwise payable to a participant based on performance.
The Committee chose to use GAAP revenue and Revenue ex-TAC as financial metrics for the 2015 performance equity awards and the 2015 Executive Incentive Plan because growing revenue (both through our owned and operated sites and through our distribution network) is the most critical strategic imperative for the Company as it continues to try to get back on a growth trajectory. The Company uses both these measures in evaluating the business and gives quarterly guidance on both to investors. Revenue ex-TAC is the revenue we retain after paying traffic acquisition costs (or TAC) to the sites and services in our distribution network. The Committee also chose to use adjusted EBITDA as a financial metric in both programs to help ensure that revenue growth is not pursued to the detriment of earnings.
The Compensation Committee also chose to use two measures in the short-term cash bonus plan that are not used in the performance-based equity program:
In 2015, the Committee continued the practice of setting annual goals as the Company is still going through a transition period and the Committee believed it needed to maintain the flexibility to assess the Companys evolving progress on its strategic plan to achieve sustainable growth in order to set appropriate and rigorous performance goals. The Committee intends to begin setting multi-year performance goals once the Company is further along in achieving its strategic growth plans and setting long-term goals becomes more feasible.
Independent Consultant and Peer Group
The Compensation Committee retains an independent consultant, Frederic W. Cook & Co. (FW Cook), to advise it on executive and director compensation. FW Cook provides no other services to Yahoo. The Compensation Committee has assessed the independence of FW Cook and concluded that its engagement of FW Cook does not raise any conflict of interest with the Company or any of its directors or executive officers.
To assist the Compensation Committee during 2014, FW Cook reported on trends and regulatory developments in executive and director compensation, identified peer companies as points of comparison, assessed compensation-related risk, compiled market data on compensation levels and practices, and made recommendations from supporting analyses covering executive compensation philosophy, program design and structure, and compensation levels and mix for our executive officers and Board members.
Because we operate in a highly competitive industry, identifying the most comparable competitors was an important first step in the Compensation Committees decision-making process for 2014. FW Cook obtained and evaluated data on peer companies from SEC filings. Where the peer company data on comparable management positions was lacking, the Compensation Committee also considered compensation survey data from the Radford Executive Survey. The Compensation Committee used this information to guide its decisions on executive compensation, including the reasonableness of those arrangements in relation to the competitive demands of our industry.
In consultation with FW Cook, the Compensation Committee considered compensation data for the following companies for 2014:
We refer to this group of companies as our peer group or our peer companies for 2014. We selected these companies as our peers based on the following considerations:
However, given the breadth of our business and the rapidly changing environment in which we compete, we found it difficult to identify directly comparable companies. Each peer group company is comparable to us in certain respects, but not in others. For example, we include Google, Apple, and Microsoft in our peer group even though their market capitalizations and annual revenues are larger than ours because they are among the key technology companies with which we regularly compete for talent. How companies structure their top management also complicates the comparisons. A company still run by its founders, for example, may have a very different compensation arrangement from a company that hires outside executives, which we attempt to take into account.
Based on these criteria, the Compensation Committee determined that the peer group for 2014 would consist of the same companies (identified above) as the peer group for 2013, except that, applying the criteria
noted above, LinkedIn Corporation and Twitter, Inc. were added to the peer group for 2014. Based on publicly available information, as of the beginning of 2014 when the peer group was selected, Yahoo ranked above the median of the peers in revenue, market capitalization and number of employees.
The Compensation Committee believes that the nature of our business and the environment in which we operate require flexibility. When setting compensation, the Compensation Committee considers the facts and circumstances and applies them to each individual executive. The Compensation Committee does not try to target specific market levels or match any particular peers. Instead, the peer group compensation data creates a context for competitive pay levels and informs the Compensation Committees decisions.
Stock Ownership Policy
As described above, we believe that our executive officers should have a significant financial stake in Yahoo. To better align the interests of our executive officers with those of our shareholders, we have adopted a stock ownership policy that requires key personnel to hold specified amounts of Yahoo stock. Under the policy, the Chief Executive Officer should own Yahoo common stock with a value of at least six times his or her base salary, and each of our executive officers should own Yahoo common stock with a value of at least two and a half times the executives base salary. All of our Named Executive Officers holdings currently satisfy the applicable ownership requirement.
Shares subject to unvested or unexercised equity awards are not considered owned by the executive for purposes of the policy. An executive covered by the policy who does not satisfy the applicable stock ownership level must retain at least 50 percent of the net shares that executive receives upon exercise or payment, as the case may be, of a Yahoo equity award for as long as he or she is covered by the policy or until the applicable ownership level is met. For this purpose, the net shares received upon exercise or payment of an award are the total number of shares received, less the shares needed to pay any applicable exercise price of the award and any tax obligations related to the exercise or payment.
We maintain a recoupment (clawback) policy for incentive awards paid to executive officers. In the event of a restatement of incorrect Yahoo financial results, this policy permits the Board, if it determines appropriate in the circumstances and subject to applicable laws, to seek recovery of the incremental portion of the incentive awards paid or awarded, whether in cash or equity, to our executive officers in excess of the awards that would have been paid or awarded based on the restated financial results.
Policy with Respect to Section 162(m)
Under Section 162(m) of the Internal Revenue Code, a corporation cannot take a tax deduction in any tax year for compensation it pays to its Chief Executive Officer and certain other executive officers in excess of $1 million. Compensation that qualifies as performance-based, however, is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals under a plan approved by the corporations shareholders.
The Company and the Compensation Committee review and consider the deductibility of executive compensation under Section 162(m). We believe that the gains realized at the time of exercise of nonqualified stock options granted under the terms of our shareholder-approved stock plan are deductible in accordance with Section 162(m). In addition, the Compensation Committee generally structures performance-based grants of RSUs with the intent that they qualify for deductibility in accordance with Section 162(m). As described above, the Compensation Committee also structured the 2014 Executive Incentive Plan with the intent that bonuses paid
under the plan would qualify for deductibility under Section 162(m). The rules and regulations promulgated under Section 162(m) are complicated, however, and subject to change from time to time, sometimes with retroactive effect. In addition, a number of requirements must be met in order for particular compensation to qualify under Section 162(m). There can be no assurance that the compensation intended to qualify for deductibility under Section 162(m) awarded or paid by the Company will be fully deductible. The Compensation Committee does from time to time approve compensation arrangements for our executive officers that do not satisfy the requirements of Section 162(m) when it believes that other considerations outweigh the tax deductibility of the compensation. In addition, discretionary bonuses and time-based vesting RSUs do not satisfy the requirements of Section 162(m). We also believe time-based vesting RSUs are an appropriate component of our executive compensation program for the reasons discussed above in this CD&A.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the disclosures contained in the CD&A section of this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board that the CD&A section be included in this proxy statement.
Compensation and Leadership Development
Committee of the Board of Directors*
Jane E. Shaw (Chair)
The tables on the following pages present compensation information regarding our Chief Executive Officer, Marissa A. Mayer; our Chief Financial Officer, Ken Goldman; our co-founder and Chief Yahoo, David Filo; and our General Counsel, Ronald S. Bell. As required by SEC rules, the tables also include our former Chief Operating Officer, Henrique de Castro, whose service ended during 2014. These five individuals are our Named Executive Officers. We did not have any other executive officers in 2014.
As required by SEC rules, in these tables performance-based awards are treated as having been granted in the year in which their performance goals were established (and if an award has multiple performance periods, the portion relating to each period is treated as a separate grant).
Summary Compensation Table20122014
The following table presents 20122014 summary compensation information for our Named Executive Officers. As required by SEC rules, stock awards (RSUs) and option awards are shown as compensation for the year in which they were granted (even if they have multi-year vesting schedules), and are valued based on their grant date fair values for accounting purposes. Accordingly, the table includes stock and option awards granted in the years shown even if they were scheduled to vest in later years, and even if they were subsequently forfeited (such as upon the executives termination). Therefore, the stock and option columns do not report whether the officer realized a financial benefit from the awards (such as by vesting in stock or exercising options).
Grants of Plan-Based Awards Table2014
The following table presents all plan-based awards granted to the Named Executive Officers during 2014. For a description of these awards, see the CD&A, above, and the Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table, below.
In accordance with SEC rules, this table treats performance awards as having been granted on the date their performance goals were established (and if an award has multiple performance periods, the portion (or tranche) relating to each period is treated as a separate grant).
The column Grant Date Fair Value of Stock and Option Awards presents the aggregate grant date fair value of each grant (as computed for financial accounting purposes), which does not reflect whether the executive realized a financial benefit from the grant (such as by vesting in stock or exercising options).
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Agreements and 2012 Recruitment Grants
Marissa A. Mayer. In July 2012, the Company entered into an employment offer letter with Ms. Mayer to serve as our Chief Executive Officer. The letter has no specified term, and Ms. Mayers employment with the Company is on an at-will basis. The letter provides that Ms. Mayer will receive an annual base salary of $1 million. She will also be eligible for an annual bonus under the Companys Executive Incentive Plan with a target amount of 200 percent of base salary. Both base salary and bonus are subject to annual review. Ms. Mayer is also eligible to participate in the benefit programs generally available to senior executives of the Company and is entitled to 20 days of vacation per year during the first four years of her employment. The Company agreed to reimburse Ms. Mayer for reasonable legal fees incurred in connection with entering into the letter, up to a maximum of $25,000, and for up to $50,000 of security expenses per year (which the Compensation Committee increased to $125,000 for 2014).
The letter provides for Ms. Mayer to receive the following equity awards, all of which have been granted:
Under the letters express terms, Ms. Mayers cash bonuses and equity awards are subject to the Companys clawback policies as in effect from time to time.
Ken Goldman. In September 2012, the Company entered into an employment offer letter with Mr. Goldman to serve as our Chief Financial Officer. The letter has no specified term, and Mr. Goldmans employment with the Company is on an at-will basis. The letter provides that Mr. Goldman will receive an annual base salary of $600,000 and be eligible for an annual bonus under the Companys Executive Incentive Plan with a target amount of 90 percent of base salary. Both base salary and bonus are subject to annual review. Mr. Goldman is also eligible to participate in the benefit programs generally available to senior executives of the Company and is entitled to 20 days of vacation per year.
The letter provides for Mr. Goldman to receive the following equity awards, all of which have been granted:
Mr. Goldmans cash bonuses and equity grants are subject to the Companys clawback policies as in effect from time to time.
Ronald S. Bell. In May 1999, the Company entered into an employment offer letter with Mr. Bell. The letter has no specified term, and Mr. Bells employment with the Company is on an at-will basis. The letter provides that any dispute related to the terms of the employment relationship or its termination shall be settled by binding arbitration.
Mr. Bells cash bonuses and equity grants are subject to the Companys clawback policies as in effect from time to time.
Henrique de Castro. In October 2012, the Company entered into an employment offer letter with Mr. de Castro to serve as our Chief Operating Officer. The letter had no specified term, and Mr. de Castros employment with the Company was on an at-will basis. The letter provided that Mr.