Yahoo Beefs Up Employee Severance Plan As Microsoft Takeover Looms

In an effort to retain employees worried they'll lose their jobs as a result of a merger with Microsoft, Yahoo has introduced an enhanced severance plan designed to ease its workers' unemployment fears.

Under the plan, Yahoo employees who are axed within two years of "a change in control" of the company will receive between four months and two years of regular pay. The package also includes reimbursement for the cost of outplacement services for up to two years, extended medical benefits, and accelerated vesting of stock options.

Yahoo disclosed the plan in an SEC filing dated Tuesday. The company said its board approved the arrangement on Feb. 12.

Microsoft earlier this month made an unsolicited offer to buy Yahoo for $31 per share. The proposed deal's total value currently stands at about $41 billion. Yahoo's board of directors publicly rejected the offer, insisting it "substantially undervalues" the company.

Yahoo execs, however, are clearly worried that uncertainty surrounding the company's future will have some of its top talent looking elsewhere for work. The new severance plan "is designed to help retain the employees" and to "help maintain a stable work environment," Yahoo said in its regulatory filing.

Prospects for a drawn-out battle for control of Yahoo increased when Microsoft, in its own regulatory filing Tuesday, said that its executives should now be viewed as "participants in the solicitation of proxies" with respect to the Yahoo deal.

Microsoft, apparently, may attempt to convince enough Yahoo shareholders to vote for a new, merger-friendly board at Yahoo's next annual meeting -- most likely in May. Various estimates put the cost of such a campaign at between $20 million and $30 million.