"Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level," Bostock said.
Yang, who started Yahoo with Stanford University classmate David Filo in 1994, will revert to "Chief Yahoo," a titular role he filled before replacing former movie studio boss Terry Semel as CEO in June 2007. He will also remain on Yahoo's board of directors.
"I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation," Yang said in a statement.
Although Yang had publicly expressed his desire to remain at the helm, Yahoo's board faced intensifying pressure to cast him aside as the company's shares plunged to its lowest levels since early 2003. The stock fell 19 cents Monday to close at $10.63 - a fraction of Microsoft's last bid of $33 per share in early May.
Microsoft CEO Steve Ballmer huffily withdrew the offer after Yang sought $37 per share. The negotiating breakdown triggered a shareholder revolt led by billionaire investor Carl Icahn, who called for Yang's ouster in July before reaching a truce that put him and two allies on Yahoo's 11-member board.
Yang, 40, had been pursuing a strategy that he thought would prove Yahoo was worth more than Microsoft was willing to pay, but the rapidly deteriorating economy made a comeback seem increasingly unlikely. As it is, Yahoo's earnings have been eroding for three years, disillusioning investors amid a management exodus that indicated even Yang's own troops were losing faith in him.