Yahoo will pay new CEO Carol Bartz at least $19 million in cash and stock during her first year on the job and top it off with an incentive package likely to yield a huge windfall if she can turn around the long-struggling Internet company.
The details of Bartz's compensation emerged Thursday in a regulatory filing made two days after Yahoo hired the tough-minded technology veteran to replace co-founder Jerry Yang as its chief executive.
Bartz's hard-driving management style is expected be a dramatic departure from Yang's laid-back approach. Her paycheck definitely be will much different.
For starters, Bartz will receive a salary of $1 million, double the $500,000 she had been getting as executive chairman of her previous employer, software maker Autodesk Inc.
Yang, already a billionaire from his holdings in Yahoo, had settled for a salary of just $1. Before Yang took over, Yahoo's previous CEO, Terry Semel, received a $250,001 salary in his last full year on the job before stepping down amid shareholder outrage over the company's decision to award him stock options valued at $71 million.
Bartz, 60, could supplement her salary with a cash bonus up to $4 million, depending on Yahoo's financial performance. She also is guaranteed a 2009 payment of $2.5 million in cash and $7.5 million in Yahoo stock to make up for benefits and stock awards she relinquished at Autodesk to take the new job.
Yahoo will award her with another stock grant initially valued at $8 million as part of annual incentives given to all the Sunnyvale-based company's brass. Yang usually declined these grants.
Bartz stands to make the most from 5 million stock options that Yahoo plans to give her at the end of the month. Yahoo is waiting to grant and price the options on Jan. 30 — the same day as all other employees hired this month, said company spokesman Brad Williams.
Like most stock options, the awards will have an exercise price equal to the shares' underlying market value at the time of the grant.
The option recipient makes a profit by reaping the difference between the options' exercise price and the stock's market value at the time the awards are cashed in. That means Bartz will have to come up with a strategy to drive up Yahoo's drooping stock price — the main reason she was hired.
Yahoo shares fell 80 cents Thursday to close at $11.61 — nearly 60% below their value when Yang became CEO in June 2007.
None of Bartz's stock options will vest unless she can increase Yahoo's stock price by at least 50% above the exercise price of her options.
If the exercise price turns out to be in the same range of Thursday's closing price, then Yahoo shares would have to rise to about $17.50 before the first 1.67 million of Bartz's options vest. For all 5 million of Bartz's options to vest, Yahoo's stock price will have to triple from her exercise price.
If that happens, Bartz would be able to make tens of millions of dollars by cashing in her options. Bartz can't exercise the options until 2013 at the earliest, unless Yahoo is sold outright to another company.
Many analysts believe Yahoo could boost its stock price substantially by selling its Internet search operations to Microsoft Corp., which has expressed interest in buying them to mount a more serious challenge to Google Inc.'s dominance of the online search market.
But Bartz reportedly told Yahoo employees in a Wednesday meeting that she isn't sure it would be a good idea to part with its search engine.