Terry Semel stepped down as chief executive of Yahoo on Monday following months of criticism over the internet group’s failure to match the financial performance of its Silicon Valley rival Google.

Mr Semel, 64, said he was taking “a step back” to become non-executive chairman. Yahoo co-founder Jerry Yang is to succeed him. Sue Decker, head of advertising and publishing and former chief financial officer, has been promoted to president.

Mr Semel had borne the brunt of criticism for poor performance and alleged low morale at the company, as well as for his own lavish pay.

“I will not get a separation package because quite frankly I resigned,” he told the Financial Times in an interview. “I know everyone will think I was pushed.”

Mr Yang follows Michael Dell, who reassumed the role of chief executive at personal computer maker Dell in January, as a founder taking back control of a company seen as struggling and having lost its way.

With his co-founder David Filo, Mr Yang has the title of “chief Yahoo”. Mr Filo also has responsibility for technical operations since the recent departure of the chief technology officer.

Monday’s announcement is the latest case of management upheaval at the company. Yahoo has lost eight of its 26 top executives in the past year and has failed to fill some senior roles.

In a letter to board members, Mr Semel said Yahoo was “addressing challenges created by dramatic changes in the needs of audiences and advertisers.

“None of us is at all satisfied with the company’s recent financial performance.”

Yahoo’s share price fell 35 per cent in 2006 and shareholders showed their dissatisfaction at its annual meeting last week. Yahoo refused to disclose the extent of the protest vote, but only 66 per cent of investors voted in favour of one or more directors.

Mr Semel had received a 99 per cent endorsement a year earlier but had been criticised for earnings that fell well short of growth at its nearest rival, Google. Yahoo’s first-quarter profits fell 11 per cent, while Google’s rose 69 per cent.

Shareholder activist groups also lambasted Yahoo for the level of Mr Semel’s pay – his package of $71.7m in 2006 was the highest among S&P 500 chief executives surveyed by The Associated Press.

Ironically, Mr Semel’s departure could coincide with the lift in earnings he had predicted. The first fruits of a new advertising platform, code-named Panama, are expected to help revenues in the current quarter.

“We are seeing financial performance above our expectations,” Mr Yang told an analyst conference call. He said this was a sign that key strategic initiatives introduced by Mr Semel were succeeding.

Mr Semel told analysts that talks about a succession at the company had been going on for some time.

“I was thinking shorter [timeframe] and I started to express that. I saw myself more as a coach than a player going forward.”

Yahoo shares rose 4.3 per cent to $29.34 in after-hours trading on Monday but slipped 1 per cent to $27.84 in early regular exchanges on Tuesday.

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