How Did Yahoo!'s Fired COO Get $58 Million? Good Timing

Henrique de Castro Photograph by Tobias Hase/AP Photo

Financial filings from Yahoo! on Wednesday gave a final look into the short, lucrative stint that Henrique de Castro spent as the company’s chief operating officer. After 15 months on the job, De Castro was ousted in January and given a $58 million severance package. Beyond the payout, two things stand out about Yahoo’s experience with its erstwhile executive: Yahoo really didn’t like him, and he should be really thankful for Alibaba.

Yahoo’s dissatisfaction with de Castro can be seen in how it paid him in the year before it let him go. The company breaks down its cash compensation for top executives into two buckets: salary and bonus. De Castro made $600,000 in salary last year, with a bonus target of $540,000. Given the company’s anemic performance, no one got a full amount bonus. The other three top executives got somewhere between 83 percent and 92 percent of their targets in 2013. (In terms of cash, Marissa Mayer made the most, bringing down $1.7 million of a targeted $2 million.) De Castro didn’t receive a bonus at all.

He did get fired at the perfect time, though. The size of De Castro’s severance package was based in part on the company’s performance and in part on how well its stock did. Yahoo foundered during De Castro’s short tenure, missing targets on metrics including revenue, profit, and free cash flow. The stock is another story. Yahoo’s shares rose from $15.68 to $40.34 while he worked at the company. As a result, a severance package that was valued at $17 million when he signed it was worth three and a half times that much when he left. What’s more, De Castro’s termination came during a week when Yahoo’s stock was at its highest level in almost 10 years. Today the company’s shares are worth about 10 percent less than they were on the day he was fired.

The divergence between Yahoo’s stock price and its performance is related, of course, to its stake in Alibaba, the Chinese e-commerce giant whose imminent initial public offering is much more interesting to investors than anything Yahoo itself does. Depending on how you calculate it, almost all of Yahoo’s market value is driven by people looking to invest indirectly in Alibaba. De Castro should spend some of his newfound fortune on some really nice stationery and send a thank-you note to Hangzhou.

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