In 2006, Yahoo shareholders were shocked when the company's chairman and C.E.O., Terry Semel, received a compensation package of $71.7 million, a 26 percent increase from 2005. That year, the company's stock price fell by more than a third, while competitor Google's rose. Pockets of stockholders, objecting to the combination of high pay and poor performance, began rallying for Semel's ouster. At the annual meeting in June 2007, shareholders showed their dissatisfaction, peppering Semel with pointed questions about the company's future and opposing a director who had been close to unanimously reelected the year before. With pressure on the company to make a big, symbolic change, Semel vacated the C.E.O. post within the week (he's now nonexecutive chairman).
How to handle the compensation hot seat if you land there yourself:
1. Explain Yourself
Prepare talking points. These should be anchored in demonstrable fact correlating pay with corporate performance-especially collective rewards to shareholders-to defuse any suggestion that poor performance is being rewarded. The message you should convey is: "I earned this, and many others benefitted because I did."
2. Give the Backstory
If corporate performance has been poor, explain the origin of the incentive-package program. For example: Were these stock options negotiated at the beginning of the contract? What is the justification for high income coinciding with poor performance?
3. Don't Dismiss Any Shareholder Complaint, No Matter How Small The Ownership Stake
"I think you're just trying to be cute," was how Semel responded to a shareholder who asked a question at the annual meeting that he thought he'd already answered. (It's unlikely Semel would have responded to the head of Harvard's investment fund that way.) This questioner, who was representing a group of investors who had only $2.1 million of company stock, became one of the loudest voices in the anti-Semel chatter.
4. Get Friendly Support
Line up allies, internal and external. Who on the board will speak out to justify the package? Which compensation experts will address reporters' inquiries? Which economists and think-tank experts will explain the fundamentals of risk-reward and performance-reward? Even if you resolve your pay issue and keep your compensation intact, your job could be in danger. Have large institutional investors publicly comment about why they believe in your ability to lead the company.
5. Make Concessions
Consider what actions to take if there is continued outrage. Should you give the money back (bonus and/or a portion of salary) to shareholders? Engage in charity or volunteerism? Reevaluate the package going forward?
6. Go on Tour
Get to know your customers, shareholders, and employees. Be seen out on the "campaign trail." Yahoo's new president, Sue Decker, is reportedly spending time talking to executives and employees about how to fix Yahoo. Your objective is to make the storm pass.
7. Defuse Resentment From Your Board
The board approved your big payday and is likely taking the blame for it, which is bound to create ill will. Go on a charm offensive. Target those who are still on your side and provide them with a steady drumbeat of validation of your worth. Remind them of your major accomplishments for the company, compare your pay package to that of other well-paid and successful C.E.O.'s, give them a plan of what you intend to do going forward, and make it clear that you'll need their continued support.
8. Next Time, Be Transparent
Inoculate: If you know a big payday is coming, shareholders should have some kind of warning.