Yahoo sweetens employees’ severance package

By Yi-Wyn Yen

As Microsoft prepares for a hostile takeover of Yahoo, the Internet company moved Tuesday to make being assimilated by the software giant a bit more expensive.

Just hours after it was revealed that Microsoft had hired a proxy firm to help oust Yahoo’s board of directors, Yahoo (YHOO) notified the Securities and Exchange Commission that it was offering its full-time employees enhanced severance packages if a change in ownership results in layoffs.

The new severance package gives employees up to two years of salary if they are terminated within two years of a takeover. The severance deal, which include medical and dental benefits and outplacement reimbursement up to $15,000 per worker, also accelerates the vesting of stock options for Yahoo employees.

Some analysts said that will do little to deter Microsoft from moving forward with its $44.6 billion bid for Yahoo. “I just don’t think these costs will be significant,” says Oppenheimer analyst Sandeep Aggarwal, who has previously worked at Microsoft as a financial analyst.

Microsoft employs about 79,000 full-time employees and has an attrition rate of roughly 10-12 percent a year. “If you figure that Microsoft needs to replace about 10,000 employees a year, it can deploy about 85 percent of Yahoo’s staff,” he says. “So assuming Microsoft will acquire Yahoo, Microsoft may not even have to get rid of a lot of employees that it acquires.”

Yahoo says it is changing its severance benefits as an incentive to retain talent. But Yahoo CEO Jerry Yang is having a difficult time convincing his 14,300 workers that all is well. Among the executives that have left Yahoo in recent weeks was Bradley Horowitz, who ran startup incubators within the company. He’s joining Google (GOOG).