The price of failure: Yahoo's Marissa Mayer could leave with $137m

What’s the price of failure? For Yahoo’s boss, Marissa Mayer, it could be about $137m. Bids are now in for the ailing tech company – and no matter who gets it, Mayer is set to be one of the biggest winners.

Mayer has taken home $78m since she was installed as CEO in 2012, according to stock analytics firm MSCI; if she’s dismissed from the company after a buyout she’s set for another $59m, based on the terms of the company’s most recent proxy statement.

Mayer’s performance pay and vested options peaked in 2014 at $48m (double the previous year’s salary). Yahoo has yet to finalise this year’s pay package so the final figure is yet to be determined, but few are expecting her to take home just her base salary, in excess of $2m.

Yahoo’s earnings are scheduled for Tuesday after the close of the New York Stock Exchange. Mayer and the board are under siege, but they have recently retrenched: in March the company added two new board members without consulting Starboard Value, the activist investor that has openly criticized Mayer’s management. Starboard is now calling for the company’s entire board to be replaced.

Despite the company’s fundamental problems – it has lost the ad wars to Google and Facebook and bet billions on new businesses that have failed to take off – Yahoo’s share price is still in better shape than it was when she started. The rally in the stock price is entirely due to its holding in Alibaba, China’s largest e-commerce company.

Shares are close to their mid-2014 levels, in fact, and that almost certainly means Mayer is owed further cash whether she keeps or loses her job or the company is sold.

Mayer has benefited from a low “strike price” for her stock options: $18.87, the cost of the company’s shares on 29 November, 2012. According to Yahoo’s most recent proxy, the last time those shares were sold, 27 February 2014, they were worth more than twice that.

“It looks like there were six separate tranches reported at this time, based on a combination of the year of the award versus the year of vesting versus the portion of the original offering involved,” said MSCI’s Ric Marshall of the 2014 proxy filing. “For example, one tranche would be for the 2014 vesting of the 2013 ‘make whole’ award, and so on. But all are based on the same exercise price of $18.87 per share.”

Mayer’s original contract provides for an annual equity award, a “make whole” award to compensate her for the share options she lost when she left Google, her previous employer, and a one-time retention award. All three are spread out over different parts of her five-year term of employment, and all are based on the company’s share price on November 29, 2012: $18.87. The awards are $12m, $14m and $30m respectively, based on her offer letter.

Marshall is MSCI’s executive director of environmental, social and governance research at the firm and he says much of the eventual compensation depends upon the decisions of the board: “What you can’t say is how the committee will evaluate the performance and what percentage of the original target they will deem as having been met,” he said. The board’s assessment of her performance is expected later this month. Given that there are bids open for Yahoo’s core assets, however, experts say that filing may be delayed.

While nothing is cut and dried yet, the smallest amount Mayer could make at the company is about $80m if she receives absolutely no more of her long-term incentives – $78m plus her base salary of $2m.

“Until the new proxy is out it isn’t really possible to say how much Mayer will ultimately end up making, or to what extent she will be entitled to any additional severance amounts,” said Marshall.

Investors see the board as unduly supportive of Mayer.

There is reason for shareholders to worry: Starboard thinks that the net value of the “Yahoo stub”, that is to say, Yahoo without its stake in Alibaba, is worthless. With the amount of money a purchasing company would have to pay Mayer to leave in the event of a change in ownership – $59.3m in numbers adjusted for share price from the company’s most recent proxy filing – Yahoo’s value by Starboard’s reckoning would be negative.

“The firm buying her knows all about this,” said Alan Johnson of compensation consulting firm Johnson Associates. “They’re not going to pay for it. That’s coming out of the hide of Yahoo’s shareholders – everybody’s got that in their spreadsheets. They look at this as another sunk cost, like a bad lease.”

In a word, Starboard is afraid shareholders may end up having to pay someone to haul Yahoo away.

Marshall told the Guardian he’s seen that happen in the past. “It has been proven more expensive to sell a company because of the change in control than it is to just bankrupt it.” He hopes it won’t be the case at Yahoo, he said.