Jeffrey E. F. Friedl
c/o Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

May 30, 2003

Mr. Eric Hippeau
C/o Softbank Inc.
28 East 28th Street
New York, NY 10016

Dear Mr. Hippeau,

I am the shareholder who asked the question about employee morale at the shareholder meeting (see attached transcript). As I mentioned when we spoke after the meeting, I have also been a Yahoo! employee for over six years.

My question at the meeting was to ascertain if you understood how Executive compensation affects the morale of the rest of the employees, but your answer seemed to be as if I had asked about employee satisfaction with their own compensation. While there is certainly evidence of widespread dissatisfaction on that point, I believe that there is a much greater issue that you, in your capacity as a member of the Board, should be made aware of, and that's the plummeting morale of the workforce.

There are many aspects that contribute to (or detract from) morale, not the least of which is our faith in the company leadership, and their ability to inspire us to commit ourselves to a common goal. That inspiration and faith has been declining over the past several years to the point that it is harmfully low. All it takes to realize this is a walk around campus chatting with employees about their feelings (something that I would encourage all Board members to do).

As one point of evidence of employee morale, I've included a "Cultural Health Index" report recently prepared by the HR department. It is based upon an employee survey conducted last fall/winter. The numbers related to the perception of Executive leadership (found on the page marked with the Post-It) are shockingly low. The low marks are all the more staggering when you realize that the survey was offered to all employees, but completed by only about one fourth of them. (As survey research methodologists will readily point out, the most apathetic and jaded employees will likely not make the effort to respond, so there is a compelling argument that the low marks reflect the opinion of only the least apathetic employees, and that the numbers would be much worse if all employees had responded.)

Also, please note that the survey behind the report was done several months ago, and does not include the effects that the revelation of FY2002 Executive compensation has on employee morale. Ignoring for the moment the question of whether the granting of such compensation constitutes a violation of fiduciary duty on the part of the Board of Directors, it is important to understand the perception of such Executive compensation by the employees at large. Despite the inaccurate claims of "improving salary levels" made by Terry Semel in response to my question (he referred to a program initiated before his arrival, completed not in 2002, but in 2001), it remains a fact that the FY2002 raise pool for non-executive employees was limited to 4%. While the average employee may not know the 4% number directly, every non-executive employee is all too aware that FY2002 was a "tight" year. People grumbled, but generally understood the difficult times the company faced. However, that understanding quickly evaporates when people find out about Terry's 350% raise, Sue's 310% raise, interest-free loans, $100k-plus "moving-expense" accounts, and other lavish largesse recently made public. Those that I've talked to about it are, frankly, universally angered and disgusted by it. This quote from one such employee reflects the feelings of many: "Why should I continue busting my ass when they [the Executives] are just lining their own pockets?"

Yahoo! is not a company with many fixed assets (e.g. planes, inventory, real estate). If employees were to disappear, so too would the great bulk of the company's value. With such a company, one of the most important tasks of the leadership is to inspire the troops.... not inspire disgust. I write this letter to make you aware of the low-morale situation that currently and unquestionably does exist (and which as only been exacerbated by recent revelations of Executive compensation). The lack of morale is clearly of great material significance to the company, and as such, I believe it falls squarely within your responsibilities to all shareholders to address this situation head on, vigorously, and without ambiguity. As a shareholder, and as a long-term employee who continues to love this company and who continues to devote himself to it, I encourage and implore you to do so.

Very truly yours,



Jeffrey E. F. Friedl


Cc:Terry Semel, CEO, Director
Jerry Yang, Founder, Director
Roy Bostock, Director
Ronald Burkle, Director
Arthur Kern, Director
Robert Kotick, Director
Edward Kozel, Director
Gary Wilson, Director
David Filo, Founder
Libby Sartain, SVP Human Resources