Thompson will be replaced on an interim basis by Yahoo's global media head Ross Levinsohn, according to a statement released by Yahoo. Following him out is Chairman Roy Bostock, to be replaced by Fred Amoroso.
Thompson came under fire after an activist hedge fund found he embellished the academic credentials on his resume, leading to a probe by the company's board of directors.
The now-former CEO was previously president of eBay's PayPal division. The resume scandal surrounded a computer-science degree Thompson never earned but was listed in his company biography and Yahoo's regulatory filings.
Thompson's embellishment was revealed by Dan Loeb, activist hedge fund manager of New York-based Third Point. The 50-year-old began swiping up Yahoo shares when former CEO Carol Bartz was fired, mounting a proxy battle to elect himself, former NBC Universal boss Jeff Zucker, hedge fund executive Harry Wilson and Activate CEO Michael J. Wolf to the board. Third Point has as many as 6 percent of Yahoo's shares.
The warring factions announced a deal that will end the proxy battle, as Loeb, Wilson and Wolf will join the Yahoo board.
The Board is pleased to announce these changes and the settlement with Third Point, and is confident that they will serve the best interests of our shareholders and further accelerate the substantial advances the Company has made operationally and organizationally since last August, Amoroso said in a statement.
A Yahoo spokesperson initially called Thompson's alleged embellishment an inadvertent error.
Scott Thompson received a bachelor of science degree in business administration with a major in accounting from Stonehill College, the spokesperson told Reuters at the time. There was an inadvertent error that stated Mr. Thompson also holds a degree in computer science.
Yahoo has struggled behind leading search engine Google and its 50 percent market share and has recently fallen into third place behind Microsoft's Bing. Loeb's intervention has sent Yahoo shares down 3 percent, and the company's stock is down 19 percent in the past year.