Friday, June 13, 2008

Bodie on Yahoo's "Unconscionable" Employee Severance Plan

Yahoo Who says PrawfsBlawg is boring these days? Not with employment law scholar Matt Bodie (St. Louis) banging on the keys.  Here is Matt's thoughtful post on the employee benefits angle of the Microsoft/Yahoo! take-over brouhaha (which I understand very little about being a labor and employment plebe):

[Carl] Icahn . . . expressed his outrage about the Yahoo employee severance plan that recently came to light. Calling the plan "unconscionable" and "reprehensible," Icahn said the plan was "a complete, total ... I don't want to use bad words ... a travesty. The very people Microsoft wants to keep, it will make it easier for them to leave."  Um, this may be news to Icahn, but the point of the plan is not to let Microsoft keep Yahoo employees -- it's to help Yahoo keep Yahoo employees in the face of a potential takeover.

I'm being a bit glib.  Icahn's view roughly correlates in tone, if not in volume, with the CW about the Yahoo plan.  The plan has been characterized as a just another creative poison pill that has nothing really to do with employees and everything to do with keeping out Microsoft.  Forbes has even deconstructed the Yahoo Q&A to employees about the plan, interspersing its own skeptical commentary.

Here's what's suspicious about the plan:

    * It was apparently adopted in response to the Microsoft offer.
    * It was apparently adopted in secret.
    * Yahoo's efforts to make it seem like a genuine, employee-oriented plan now look disingenuous.

However, I think beneath the cynicism there is potential for this plan and plans like it.  Other companies could use this plan as a starting point for more beneficial opportunities down the road.

Here is what is good about the plan:

    * It does address a genuine concern: employee retention in the face of a potential buyout.  In the case of Yahoo, there's a double whammy.  In most buyouts, employees fear that they might lose their jobs, and thus are more likely to jump to another company before the buyout takes place.  (And a buyout might end up not even happening.)  In Yahoo's case, however, if the employees actually keep their jobs, they will then be working for Microsoft.  (Known in some circles as "the Borg.")  So Yahoo might end up losing a bunch of employees who fear that a buyout might happen -- even if it never happens.

    * Thus, the plan is designed to protect employees against the possibility of a Microsoft buyout.  They will get severance if they lose their jobs or if their job responsibilities change.  This gives the employees more power -- they have some degree of control over whether they want to keep working or instead get a severance.  (It's almost akin to a "no-trade" clause in pro sports.)  Of course, this makes the plan more expensive for any buyer, but it's not gratuitous.  It's based on a legitimate employee concern: losing out post-merger by having to do a substantially different (and less desirable) job and not being able to get the severance package.

    * The plan applies to all employees.  Some have criticized this part of the plan as "nuts."  But I think it's a welcome signal that all of a company's employees have meaningful contributions to add.  Why shouldn't a company seek to retain all of its employees?  I think this plan is a welcome change from the notion that only top-level executives add value to a company.

I hope this plan is just a starting point for plans like this in the future.  There is an opportunity for employee-oriented companies (like Southwest and Budweiser, perhaps?) to create a plan like this that might be more genuinely oriented towards employee interests.  In addition, I think there's an opportunity for creative unions (such as SEIU) to seize on these plans as a win-win for employees, management, and long-term shareholders.

I agree with the never-boring Bodie that here's hoping that public pension funds will not see these types of severance plans as an "anti-shareholder scheme," and rather see these plans as a way of protecting a companies' "employee capital." 

Anyone for employee primacy theory in corporate law?


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