Microsoft's US$100-million-dollar retention plan

Microsoft may have to pay a sizable amount to retain Yahoo talent, bringing the overall cost of acquiring Yahoo! into the Microsoft fold to a several billion dollars.

With more than 14,000 Yahoo! employees worldwide, Microsoft will likely need to design good financial incentive packages to prevent Yahoo! talent from job hopping after the takeover. 

Last year, Microsoft acquired Tellme Networks, a maker of voice-recognition software, for $800 million (S$1 billion). However, the company put in another US$100 million (S$135 million) to retain Tellme Network's 300 employees, according to the New York Times.

So analysts say if Microsoft acquires Yahoo!, employee retention programmes would likely cost perhaps a couple billion dollars more even though they will be more tailored than for Tellme.

“It would be a significant additional expense that would come due over several years,” said David B. Yoffie, a Harvard business school professor. “And Microsoft knew that when they made the bid for Yahoo!.”

In Silicon Valley, people are the vital assets in companies that generate ideas for software and Web services. Therefore good financial packages intended to hold onto employees after a takeover are fairly standard, say venture capitalists and industry analysts. The packages can include cash payments, stock options and grants.

Furthermore, Microsoft’s employee retention programmes must have been effective because 95% of the workers who were with Tellme when it became a subsidiary of Microsoft stayed.