The pay package of new Yahoo! (NASDAQ: YHOO) CEO Marissa Mayer has been pegged at between $59 million and $100 million, depending on what assumptions about bonuses and stock options get used. Anything within the range is cheap, if Mayer has even modest success.
The easiest part of her contract to calculate is the base salary of $1 million. Bonuses will be based largely on performance. So will the value of stock options — indirectly. The most controversial segment of her compensation is Restricted Stock Units. These are grants of actual shares that will have a value no matter what — unless Yahoo!’s stock drops to zero.
Yahoo!’s stock price has hovered near $15 to $16. That stands well short of the level of more than $30 that the stock hit after Microsoft’s (NASDAQ: MSFT) 2008 offer to buy the portal company. If the stock returns to that level, Yahoo!’s market cap will rise by $20 billion from its present level.
A prediction that Yahoo!’s stock could double relatively soon would be based on the simple assumptions that the firm could sell its ownership in Yahoo! Japan and Aliaba. Many analysts believe this would “open” $10 billion in value. It would be, on a larger scale, similar to what AOL (NYSE: AOL) did when it sold 800 patents to Microsoft for just more than $1 billion, and then promised to return that money to shareholders.
The value of Yahoo!’s shares also might be boosted by expense cuts, to the extent that these increase earnings.The Wall Street Journal recently speculated that Mayer could fire thousands of workers just to get its productivity in line with Google’s (NASDAQ: GOOG) and Facebook’s (NASDAQ: FB). Obviously, such an action would be a one-time measure, but that does not mean the decision might drive the stock higher temporarily.
The most difficult route to increase shareholder value is for Mayer to come up with one or more ways to rekindle Yahoo!’s growth. But that is not be the only way to move shares back to $30, and to get Mayer her $100 million. It is just the one that does the most to make the change in value permanent.
Douglas A. McIntyre