Dissecting Marissa Mayer's $900,000-a-week Yahoo! Paycheck

Yahoo!'s share price more than tripled during Mayer's tenure

When a withered Yahoo! is absorbed by Verizon Communications in the next week or so, it will be the end of an era for one of the pioneering names of the internet age.

It will also conclude the remarkable five-year run of Yahoo!’s Chief Executive, Marissa Mayer, who was paid nearly a quarter of a billion dollars — a generous sum even by Silicon Valley’s lofty standards — while presiding over the company’s continued decline.

Mayer, now 42, was hailed as a saviour when she left Google for Yahoo! in 2012. But during her tenure, Yahoo! was hit by two of the biggest privacy breaches in history. Advertisers, Yahoo!’s bread and butter, fled the service. Users shifted ever more attention to Google, Facebook and other rivals. Yahoo!’s staff shrank by almost 50 per cent.

The company ended up so weakened that its board had little choice but to sell.

“Everyone acknowledges that it was a difficult situation to come into,” said Brian Wieser, an analyst at Pivotal Research who has studied Yahoo for years. “But the company was not run well under her tenure.”

So why did Mayer receive more than $900,000 a week? The answer, like so many things about Yahoo!, is surprisingly complicated. It is rooted partly in the never-lose structure of modern executive compensation packages, but also in two farsighted investments made long ago by one of Yahoo!’s founders, Jerry Yang.

By Wall Street’s most basic yardstick — Yahoo!’s stock price — Mayer earned every penny she got. Yahoo!’s share price more than tripled during her tenure. After the $4.5-billion sale to Verizon, shareholders will still own an investment company with $57 billion of stock in two Asian internet companies, Alibaba Group and Yahoo! Japan.

Mayer’s pay was mostly in stock and stock options, and she reaped the rewards alongside the other stockholders.

“The only sign you can point to when evaluating a company over a long period of time is how shareholders have done in the exchange,” said David Wise, who heads North American sales at Korn Ferry Hay Group, a firm that advises companies on executive pay packages. “Over the last five years, Yahoo! shareholders couldn’t have done a lot better than this.”

More than most chief executives, Mayer was working for those shareholders.

She was essentially hired by one hedge-fund manager, Daniel S Loeb, who got her predecessor fired and won three seats on Yahoo!’s board in 2012. Loeb was particularly interested in finding a way to unlock the value of Yahoo!’s stake in Alibaba, which was already shaping up to be one of China’s leading internet companies. He pushed the board to recruit a star like Mayer to get people excited about a company that had been stumbling for years.

When Mayer’s early efforts to turn around Yahoo!’s business and spin off the Alibaba shares failed to bear fruit, another hedge fund manager, Jeffrey C Smith of Starboard Value, led a campaign to push for her ouster. Smith eventually garnered four board seats so he could keep the pressure on.

Yahoo! declined to comment for this article, citing this coming Thursday’s shareholder vote to approve the Verizon deal. Mayer and the board chairman, Maynard Webb, who approved her pay packages, also declined interview requests. So did Smith.

Mayer has come under more scrutiny than most Silicon Valley chief executives, in part because of the Superwoman image she cultivated in an industry dominated by men: the Stanford-trained computer scientist and tireless manager who still wrote code for fun while raising three young children and looking stylish in Oscar de la Renta.

“She was an attractive, high-visibility CEO trying to bring some excitement and glamour to Yahoo!,” said Martha Josephson, a senior partner at the recruiting firm Egon Zehnder, who helped Mayer find several of her top executives. “As hard as the job was, she didn’t get a break. If she were an ugly man, she’d be a hero.”

On July 16, 2012, the day she was hired, Yahoo!’s share price was $15.65. On Friday, it closed at $50.60. The stock’s performance has topped other venerable tech companies like Microsoft, Oracle and Cisco Systems, and matched the gains of Alphabet, the parent company of Google, Yahoo!’s most direct competitor.

As Yahoo! shareholders profited, so did Mayer. By the time the deal closes, she will have made about $239 million, based on Friday’s share price, according to calculations by Equilar, a provider of executive compensation data.

Such stock-heavy compensation structures are the norm in corporate America, where boards of directors seek to align an executive’s financial incentives with gains for shareholders.

To lure Mayer from Google and compensate her for options she forfeited there, Yahoo!’s board offered her a lucrative employment agreement. She initially received restricted stock worth $35 million and stock options worth $21 million, based on 2012 stock prices for Yahoo!, along with a cash salary and bonus. Although she gave up a portion of those stock grants after failing to meet performance targets, the rise in Yahoo!’s share price more than offset the losses. She received further stock grants in later years, adding to her overall compensation.

Yet most of Mayer’s paycheck ultimately came from the gains in Yahoo!’s Alibaba and Yahoo! Japan investments, over which she had little control. Thanks to an investment made in 2005, Yahoo! had a 24 per cent stake in Alibaba, which today is China’s leading e-commerce company.

When Alibaba first sold shares to the public in 2014, Yahoo! sold 140 million shares in the offering. It hung on to 384 million shares, which are now worth about $48 billion.

Yahoo! also owns about 36 per cent of Yahoo! Japan, now worth about $9 billion, that it received as part of a deal struck in 1996, shortly after Yahoo! was founded.

The surging value of those investments — not any brilliant business moves by Mayer — is why Yahoo!’s shares went up. “It’s like someone coming into an oil company, and all of a sudden oil prices go up and the stock goes up,” said Charles M Elson, the director of the Weinberg Center for Corporate Governance at the University of Delaware. “Was the return based on what she did?”

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