Why the COOs of Yahoo and Family Dollar Stores Have Been Fired for Poor Performance But Will Get Millions in Severance - Further Adventures in "With" and "Without Cause" Terminations under Executive Employment Agreements

Last week, Yahoo’s Marissa Mayer fired COO Henrique de Castro, reportedly because she was not satisfied with his job performance. By some estimates, de Castro will receive severance exceeding $60 million after only 15 months on the job. Also last week, Family Dollar Stores let go COO Mike Bloom because the company was not happy with his performance, and apparently was not moved by Bloom’s Undercover Boss gambit. Bloom is set to receive $4.8 million in severance after slightly more than two years on the job.

What gives? How is it that these former executives are receiving large severance payments after they were asked to leave for poor performance on the job? The definition of "cause" in their severance agreements is what gives – a topic we explored recently here at Suits by Suits in connection with the dispute over former iGate CEO Phaneesh Murthy’s termination. In the iGate case, the company contends that it terminated Murthy for cause and thus owes him no severance. Murthy’s employment agreement provides that he does not get severance in the event of a "with cause" termination, and that "cause" includes violating company policy. The company contends that Murthy’s failure to report his romantic relationship with an employee to the Board was "cause" for his termination because it violated company policy.

In the Yahoo and Family Dollar Store cases, assuming that de Castro and Bloom were let got for poor performance, unless poor performance is "cause" under their employment agreements, they will reap the severance benefits provided for in their agreements for "without cause" terminations.

Bloom’s employment agreement is typical, and defines "cause" as: "(a) gross neglect of duty, (b) prolonged absence from duty without consent of the Company, (c) intentionally engaging in any activity that is in conflict with or adverse to the business, reputation or other interests of the Company, or (d) willful misconduct, misfeasance or malfeasance of duty which is reasonably determined to be detrimental to the company." In other words, not showing up or intentionally hurting the company. Yahoo and Family Dollar Stores appear to have made the judgment that, while de Castro and Bloom fell short as COOs, they showed up and tried. For that they will be paid millions of dollars.

• Executive Compensation
• Severance Agreements
• Termination With or Without Cause