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eBay execs get millions to stay, after announcing that they’re leaving

Ebay Inc. CEO John Donahoe InterviewEbay Inc. CEO John Donahoe Interview
John Donahoe, president and chief executive officer of eBay Inc.Photograph by Victor J. Blue — Bloomberg via Getty Images

When news hit that several eBay (EBAY) executives who planned to resign after the PayPal spinoff would be treated to millions of dollars in bonus pay, no one seemed to know what the compensation was for. Was it severance, a last ditch effort to keep them on board, or was it a “Carl Icahn was right after all” commiseration bonus?

The real story is in what the official statements don’t mention.

The “payments” apply to five senior executives who, eBay stated, were “moving on after the split, not being terminated.” The departing execs include CEO John Donahoe, CFO Bob Swan, Senior Vice President and General Counsel Michael Jacobson, Senior Vice President of Global Human Resources Beth Axelrod, and Senior Vice President of Corporate Communications Alan Marks. While eBay has estimated that Donahoe could receive around $23 million and Swan around $12 million, it has not offered a total potential cost of the “resignations.”

“The value of what they could receive depends on several factors,” said company spokesperson Amanda Miller. “The performance of the company over the time and the value of the stock price at the time of the separation.”

Fortune asked eBay if it considered the payments retention or severance. “This is a program to support retention of our executives to complete the process [of splitting eBay and PayPal into two separate companies] in a timely manner,” Miller said.

These executives have severance payment promises built into their employment agreements, according to eBay’s proxy filings. So, if these are retention payments, will the executives also receive termination or severance pay when their employment ends? eBay’s response: “If the termination happens in connection with the separation [of the two companies], these arrangements [the “retention’ payments] would supersede what is in the proxy.”

Maybe these are “Carl Icahn was right” bonuses, after all. To determine their true nature, you have to go back to the beginning of the eBay-PayPal split story.

In response to a resolution from Carl Icahn calling for the PayPal spinoff, to be considered at the company’s annual meeting, eBay CEO John Donahoe wrote in a blog post in January 2014:

… based on what we see today, we continue to believe that the company, our customers and our shareholders are best served by keeping PayPal and eBay together. In short, we believe this is the best way to maximize shareholder value. Our board is unified in its view on this.

Icahn stepped up his campaign, criticizing the board and the lack of independence of some of its directors.

Over the course of the year, eBay drastically changed its tune. On September 30, eBay announced that, “following a strategic review of the company’s growth strategies and structure,” its board had approved a plan to spin off PayPal in 2015 after all. Shortly afterwards, on October 20, Marc Andreessen—one of Icahn’s targets—stepped down from eBay’s board. Then, in December, eBay announced that its entire senior management team was stepping down, thus precipitating the payments.

This is certainly not the first time a company has offered retention payments to management to keep them in place for a variety of reasons – CEO succession, mergers, takeovers, de-mergers, bankruptcy – even when, or especially when, there is little chance of them staying on for long. It’s also certainly not the first time retention payments have been offered without any real performance conditions attached to them. While it is true that the value of the payments will depend on the company’s stock price at the time of the split, there was an opportunity here to effectively tie these executives’ pay to the value delivered to shareholders. That opportunity was cast aside.

All eBay has done here, in the face of this strategic reversal, is to try to lock in the senior management team so that the company does not fall apart at the seams. At least not before it is supposed to.