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Transcript of the question at the Yahoo! Shareholders' meeting by Jeffrey Friedl, May 16, 2003.

JF - Jeffrey Friedl
TS - Terry Semel
EH - Eric Hippeau

JF:Howdy, my name is Jeffrey Friedl. I'm here as a long-term shareholder.

I have a question for the board, actually, specifically the compensation committee.

It's clear from reading the notice that the compensation for the top few people jumped, uh, considerably in 2002. My question to you is: are you familiar with the effect lavishing such a large amount on a small number of people has on all the rest of the employees — on their morale — and how are you familiar with that?

And secondly, how does that play a part in your decisions going forward. Or, if it doesn't, why doesn't it?

TS:Eric, would you like to....

EH: Hi. I'm Eric Hippeau. I'm the chairman of the compensation committee.

The compensation committee meets on a very regular basis, and has relatively lengthy meetings where it takes a lot of factors into consideration — some external, and a lot of internal factors as well.

And, to answer your question directly, we do take into consideration performance, we do take into consideration what's happening in the industry at large, and we take into consideration the entire employee set of the company. We review a lot of information. We review a lot of performance evaluations and data, and we base our decisions on all these factors put together.

JF: So you're saying that thinking about what the effect of those decisions has on the people that actually do the work in the company is not part of your decision?

EH: I'm saying that it is very much part of our decision, and that our feeling, if you like, is that for the great majority of the people who work at Yahoo! are satisfied from a compensation point of view ... (of course, everyone could always make a little bit more), but they're satisfied with the performance of the company, they're satisfied with the performance of their stock options, by and large, of course, and by and large are also satisfied.... You can look at a variety of other data if you like, in terms of the number of employees who churn, who leave, who are dissatisfied. The HR department at Yahoo! does exit interviews, and all that information is made available, not only to the executives, but to the compensation committee as well.

JF: Can I ask... (interrupted by Terry Semel)

TS: Can we make this the last question, and give others a turn.

JF: Yes, thank you.

Could I ask... you said that you believe that the vast majority of employees are happy with such and such and such. How do you come to that understanding?

EH: Mostly by exception. I think that if a large group of employees were dissatisfied, they would not only go to their managers, they would go to the... it's a very open company, and people are very free to speak their mind and they're... they're encouraged to speak to their managers, and the managers are encouraged to speak to the top executives, and the board of directors would no doubt know about it.

JF: Thank you.

TS: Okay, and if I could just add ... (and thank you for asking the questions) ... the review that's done in the company obviously includes every ... fundamentally every single employee and every single category within the company, and one of the goals that we were able to achieve as a company last year was to look outside of our company and to compare ourselves to our competitors on all levels of the company, and try to decide how competitive our pay packages were to some of our important competitors, and at the same time... and which we accomplished... to start the process which we did last year, and again hopefully this year, to improve some of the salary levels within our company, throughout, affecting many people in the company, when we look competitively outside, to see how competitors were treating similar categories and to look at the different pieces of their compensation package, which included cash, and for the first time last year, to many employees, the beginnings of our first, um, um, um, what I'll call "bonus program", predicated on success... first time... and we looked closely obviously at stock options as well, so our company, last year, for the first time (for a few years prior to that) had the challenge of having to become more competitive as we would go forward to what other companies like Yahoo! are doing, so I think that as a company overall, I think we showed great improvement last year.