This excerpt taken from the YHOO DEF 14A filed Apr 4, 2005.
Stock Option and Restricted Stock Grants.
As noted above, the Company has in the past relied substantially on long-term equity-based compensation as an important means of compensating and motivating its executive officers. It is the Company's practice to set option exercise prices for officers at not less than 100% of the fair market value of the common stock on the date of grant. Thus, the value of the stockholders' investment in the Company must appreciate before an optionee receives any financial benefit from the option. Options have generally been granted for a maximum term of ten years. The Company generally makes annual grants of options to a large number of its employees, including its executive officers, in December of each year after conducting its annual compensation review process.
In determining the number of shares subject to the stock option grants to executive officers, the Compensation Committee considers various subjective factors primarily relating to the responsibilities of the individual officers, their expected future contributions and the number of shares owned by the officer or which continue to be subject to vesting under outstanding options previously granted to such officer. In addition, the Compensation Committee examines the quantity and type of equity incentives held by each executive officer relative to the other executive officers' equity positions and their tenure, responsibilities, experience and value to the Company.
As part of the annual compensation review for performance in 2004, the Compensation Committee in December 2004 granted all of the Named Executive Officers of the Company grants of options, which generally vest ratably over a four-year period, following a one year cliff. The Compensation Committee also granted restricted stock awards of 50,000 shares of the Company's common stock each to three of the Company's Named Executive Officers. The restricted stock is subject to the Company's repurchase option, which lapses with respect to 35,000 shares on the third anniversary of the grant date and lapses with respect to the remaining 15,000 shares upon the satisfaction of certain performance-based objectives, but in no event prior to the first anniversary of the grant date. The performance criteria include operating cash flow and revenue targets.
To enhance the retention incentives for certain executives of the Company into 2009, the Compensation Committee in February 2005 granted additional options and shares of restricted stock to the Named Executive Officers (other than Mr. Semel, whose grant is described below). To provide a substantial retention incentive, these retention options vest with regard to one third of the covered shares on the third anniversary of the grant date and the remaining two thirds of the covered shares on the fourth
anniversary of the grant date. The restricted shares vest in full on the third anniversary of the grant date and neither the options nor the restricted shares are subject to accelerated vesting except in the event of death on a pro rata basis. In deciding to make these 2005 retention grants, the Compensation Committee considered, among other things, the performance of the executives, the importance of their retention to the Company, and the vesting dates of the recipients' other outstanding equity grants. Recognizing the value of these additional grants, the Compensation Committee does not intend to make these types of grants to the recipients on a regular basis.