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The Cost of Leadership? Details on Bartz’ New Yahoo Pay Package

yahoo exec compensation metueYahoo’s hiring of Carol Bartz on the 13th officially filled the company’s leadership vacancy.  An SEC filing Thursday filled in the gaps on some of the details in the deal she struck.  The 8K filing includes the offer and complete terms.  What’s it cost to recruit a high profile CEO? Hint, it’s not cheap (though many elements are tied closely to performance). All said and done, bonuses and buyouts included and vesting periods set aside, there are seven zeros in the total number.  In bullet-point form:

• Base Salary is set at $1million. 

• Annual bonus compensation has a target rate of 200% of the base salary, or, $2m.   At its discretion, Yahoo’s compensation committee can bump this up to as high as 400%, or $4m.

•Stock compensation characterized as “inducement compensation” is set up in the form of options to buy 5 million shares of Yahoo.  The strike price will be the closing price on the day of the grant, expected to be January 30th.   This grant will have a max term of 7 years and the shares from it must be held until at least 2013 unless Yahoo is sold.  If there is a “change of control”  (CIC) the shares can be sold but the exercise price will ratchet based on a set table:  one third of the shares will be exercisable at 150% of the original exercise price.  One six at 175%, one sixth at 200%, one twelfth at 225%, one twelfth at 250% and the final one sixth at 300%. 

The structure is designed, in part, to assure there’s no “flip bonus” if she quickly engineers a sale of the company at anything other than a substantial markup to present trading value.

•In addition to the “inducement options”, she’ll receive annual equity grants when they are made to Yahoo’s senior executives.  A grant worth $8m is expected to be provided in February.

•To compensate for equity grants forfeited from her prior role, she’ll receive a one-time grant as a “make up” grant on her grant date. This grant, equal to $10m on the day of issuance, will be 25% in cash and 75% in restricted stock that will vest over the course of 2009.  Under certain conditions triggered by the legal basis of “good reason” or “termination with cause” Yahoo would be eligible to recover (aka “clawback”) a portion of this “make-up” grant.

•The employment agreement governing the relationship will run until Dec. 31st, 2012.   It can be terminated by either side.  If it’s terminated without cause or for the alternate legal justification of “good reason,” any unvested/unpaid portion of the make-up grant (cash and equity) will be paid out.  The “inducement options” will be vested pro-rata.  Lastly, sixty days after employment ends, a lump sum of base salary and target bonus (estimated at a combined $3m) will be paid.   This cash component is set if the departure isn’t related to a “Change of Control.”  If there is a “Change of Control” (eg Yahoo is sold to another company) and Ms. Bartz leaves as a result, or in a two year period after, instead of salary and bonus she’ll receive double her base-salary and target bonus ($6m).

For more detail, the offer letter, with all of legal detail, is available online in the SEC’s EDGAR archive, here.

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