She's Helping Yahoo Act Normal

The New Currency of Work

A month after Sartain arrived in Sunnyvale, Yahoo's stock sank to its all-time low of $8 per share, spurred in large part by the September 11 terrorist attacks and the final meltdown of the dotcoms. In the weeks prior to September 11, a few delusional souls were still acting like it was 1999: Sartain recalls having lunch with a talented employee who complained that he was the same age as Jerry Yang, and he hadn't made his first million. But the 97% plunge in Yahoo's market capitalization shook people out of their self-denial. With their stock options nearly worthless, reality set in: Yahoo's world had gone from bad to worse.

In the heyday of the dotcom boom, growth companies like Yahoo used stock options as one-size-fits-all compensation. But the crash in Internet stocks has brought with it some fresh thinking about compensation, as companies seek alternatives to stock options. For the first time ever, Yahoo has rolled out a pay-for-performance bonus plan for business leaders, which has triggered a cascade of complaints from those who went unrewarded. "It's been painful," sighs Sartain. "I don't think we're going to do it the same way next year."

Even as it experiments with new incentive plans, Yahoo still remains committed to options and to the notion that workers should own a stake in the business. But the primacy of stock options no longer holds. "One thing I learned at Southwest is that you manage the good times as if they were bad times, because the bad times are going to come," says Sartain. "The same thing applies to your career. We want people to think of options as a long-term investment in the company. If you stay with us and build a career here, we believe that these options are going to be very valuable to you. But you can forget about becoming a millionaire overnight. That dream is finished."

From Revolution to Evolution

As 2001 drew to a close, the economic fallout from September 11 triggered another round of layoffs at Yahoo. This time, as the new head of HR, Sartain was the point person for managers who had to deliver pink slips. In all, about 800 people were let go that year. For a company that values working relationships above all else, the layoffs were more than painful. "Layoffs are a defeat for a company," says Sartain. "There was a grieving process, and then a lot of fear crept in, because we couldn't say what people really wanted us to say: that we'd never have any more layoffs. We weren't going to make a promise that we couldn't keep. Once again, people just had to learn to live with uncertainty."

In November, Semel finally unveiled a turnaround strategy that continues to evolve. He divided Yahoo's 44 business units into five groups (including the addition of HotJobs, the employment site, and Inktomi, the search-technology provider). And he pushed Yahoo to focus like a laser on growth and earnings. As a result, the company is working furiously to deliver premium services -- such as online personals and souped-up email -- for paying customers (2.2 million thus far). It has launched a high-speed Internet-access service, which it cobranded with the Baby Bell SBC Communications Inc. Yahoo and SBC now plan to take its broadband Internet-access service nationwide. And in an effort to develop new sources of online advertising, Yahoo began generating advertising sales linked to search results.

At first, the new emphasis on profitability was met with skepticism -- if not outright hostility -- within Yahoo. "There was a fair amount of resistance toward the strategy of monetizing our businesses," says Sartain. "There was a fear that if all of our efforts were put into profit making, we'd starve R&D and lose our innovation."

But last year showed just what ROI can do for R&D: Yahoo put together three consecutive in-the-black quarters, enabling it to fund new technology initiatives. This year, Yahoo pro-jects that revenue will reach $1.2 billion and may even exceed its peak during the dotcom boom. At least for the moment, Yahoo is back on a winning track. But not the fast track. Semel and his executive team are betting that perseverance, not speed, will ultimately win the race for more market share.

Is the goal now to build a Yahoo 2.0? Sartain dismisses such talk. "That's old language -- it's not what we're about anymore," she explains. "We're trying to build a company that will last over time. And that's going to require evolutionary growth, not revolutionary growth." Left unsaid: Strategies for such growth will come slowly, cautiously, and deliberately.

Bill Breen (bbreen@fastcompany.com) is a Fast Company senior editor.