In September of 2014, eBay announced plans to spin off PayPal. This decision followed shareholder calls for a spin off, which were very publicly opposed (at least initially) by eBay’s CEO, John Donahoe. Three months later, eBay also announced that its executive team, including Donahoe, would be stepping down. Departing executives were offered large retention payments to remain at eBay until the spin off transaction was completed. These payments replaced severance payments required under the executives’ employment contracts and were subject to the condition that the executives not remain employed by either company following their separation.
Regulatory filings related to these payments disclose that John Donahoe, eBay’s departing CEO, would be entitled to a generous severance package, including a severance payment amounting to twice his salary and bonus. Vesting of his share and option awards was accelerated. In December, Forbes valued the separation package as amounting to $23 million. Its actual value will depend on how many share units vested at the time of the split, based on whether certain performance criteria were met.
PayPal was officially spun off from eBay in July of this year. Following the split, Donahoe became PayPal’s non-executive chairman. No longer an official employee of either eBay or PayPal, Donahoe was entitled to his “retention” package from eBay even though he had been retained as a director by PayPal. Not bad for seven months of work.
Following the separation, PayPal’s share price experienced a huge increase in value, with its market capitalization surpassing that of eBay. Simultaneously, eBay’s credit rating was downgraded – PayPal had accounted for half of eBay’s revenue.
Donahoe left his long post as the CEO of a marketplace now struggling to compete with online retailers such as Amazon. He did so with a hefty retention bonus, a pocketful of shares and a bright future with eBay’s former darling, PayPal. As PayPal’s star is rising, eBay’s seems to be fading. It was awfully nice of eBay’s shareholders to retain Donahoe, even if only for PayPal’s benefit. That’s what pals are for, after all.