"The estimated value of executive pay packages can also be calculated in dramatically different ways. After factoring in future grants of restricted stock and stock options due Mayer under her employment agreement, Yahoo said her annual compensation will be worth about $20 million annually [sic], or about $100 million during the next five years that the company hopes to retain her as CEO."
Agree the amount seems obscene. But technically as long as they believe, at the end of that period, that Yahoo has done say $150M better, for example, then on the net Yahoo was better off. I doubt that Ms. Meyer (and indeed, probably most CEO's) are really worth what they get paid, but I do think it's possible that here coming on board may have a big enough impact, both directly and indirectly, to move the needle for them by $100M+ net relative to alternate courses of action. And that's all that's needed for the math to justify it. One question will be, of course, whether if by her coming over it also leads to other Google caliber folks switching ships as well. I've heard people say she's a great choice, and people say bad, but I can't add anything either way. It's likely that she was one factor in Google's success. It's also likely that some people give her too much credit and she got a little lucky. Both can be true.
Do you think it's even possible to say that those gains, if they occur, are a direct result of the CEO's actions? Is it even /possible/ for Marissa to provide /that much/ value to the company? I feel as though the collective actions of everyone other than the CEO have a much greater impact on the company's success in a given year.
In your car, when you push the gas pedal and turn the wheel, you are not moving the car. You are directing the car how and where to move. Lately, Yahoo has been ramming into the back end of a slow moving bus.
If she gets Yahoo back onto the expressway, she will be responsible for the success, although all the employees working together will be implementing the success.
I'm always surprised at this sort of feeling. The collective actions of everyone else at the company, if the company is not run pathologically, exist solely to pursue the goals of the CEO. The CEO sets the goals: describes what it is that this group of people does, what value they offer to the world at large.
You may not like that that's the way it works, but I think it's impossible for the CEO to fail to have a huge impact unless the company's run terribly. I also think it should be trivial to see that, given that the CEO has such a huge impact on the direction the output of this large number of employees takes, that the CEO's actions have an enormous impact on the value the company provides, and consequently the profit the company derives.
If the CEO of Yahoo decided that their best move was to pursue 1990s era AltaVista style search, combined with the idea of 'being a homepage' (which afaict is their current strategy, plus destroying good products), I think it'd be hard for you to NOT recognize that they would be destroying value in the company at a much higher rate than $150M/year. The CEO, personally, would have that impact. If the employees were more efficient at their jobs, or less efficient, it would have little impact (rounding error) in the overall impact of this policy pursuit.
CEOs are the company, for many purposes. Why shouldn't they be paid accordingly?
'Net relative to other course of action' is the tricky bit. I find it hard to believe that investing in 15 people at $15 million, or 150 at a million, or however you want to break it out, would not be a better alternative.
The issue of CEO pay boils down to how skewed you view the distribution of talent among a population and how much a single person makes a difference in an organization.
Personally I think success is more of a function of collective or distributed intelligence, and perhaps if a single person is so pivotal compared to nearly everyone else in an organization that is more of a reflection of poor organizational structure that is not distributing responsibility and power sensibly. At the very least that sort of corporate structure could hardly be viewed as a robust system.
Thats not criticize this particular case, but highly skewed compensation in general.
Yahoo's yearly revenue is around $4 billion. Net income around $1 billion. It's not unreasonable to expect she could raise revenue and/or improve the profit margin by a few percent points.
Anything above a 5% jump in Yahoo!'s stock price during Mayer's tenure would equate to $1billion increase in Yahoo!'s market cap.
One way to answer your question, would be to say: It seems the shareholders of Yahoo! are willing to pay a fair commission to someone in exchange for an increase in the value of their stock (with optimism that Mayer's leadership will result directly in this happening).
Anything above a 5% jump in Yahoo!'s stock price during Mayer's tenure would equate to $1billion increase in Yahoo!'s market cap.
But that's not actually value generated. It's value captured from the grand casino of the stock markets. Yahoo! itself is not holding 1 billion more dollars at the end; Yahoo! shareholders are collectively, all tens of thousands of them, holding 1 billion in potential gains should they all sell their stock in some way that won't crash the stock price from the sudden sell-off.
$1m / year is actually a very common base salary, for tax reasons -- anything above that amount the company can't deduct as a compensation expense. The majority of CEO compensation is via bonuses and long-term equity incentives (grant, options, etc.).
Exactly, there is up to 4MM, +12MM + 30MM in comps in that offer. as well as up to 25K legal, 50K security, stocks and loans and other grants in there too.
Letter: "Your starting annual base salary will be $83,333.33"..
Me: O_o That's it?
Letter: " per month"..
Me: O_O Ohhh!!
And it only gets better from there with the incentives and awards packages. Yes, there's a lot of work to be done. Being the CEO isn't just putting your feet up and yacking out orders. You gotta work your butt off. Not only for you, but the people who are counting on you to move the company in great direction.
I hope Marissa does well. Yahoo! hasn't been relevant for years now and I hate to see them just go away. We need more competition out there and I'm sure there are a lot of brilliant minds that can pull things together.
As for me, I need to work even harder/better if I ever wanna see that kinda scratch.