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Why Marissa Mayer, Yahoo’s $59-million CEO, is worth it

In this Friday, Jan. 25, 2013, file photo, Marissa Mayer, CEO of Yahoo, listens during the 43rd Annual Meeting of the World Economic Forum, in Davos, Switzerland. Yahoo Inc. reports quarterly financial results after the market closes.

Laurent Gillieron/AP

Marissa Mayer stands to be $59-million richer in just a few short years under the compensation package Yahoo Inc. put together last summer when offering her the CEO position.

That shouldn't come as a big surprise. After several years of stagnation, CEOs are back to scoring big pay increases. In 2012, they rose an average of 8 per cent among S&P 500 companies, to a median of $9.7-million (U.S.). The dollars handed over to CEOs at top Canadian firms are similar.

Meanwhile, the average American household makes roughly $50,000, a figure that has barely budged over the years.

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Outrageous? Not at all.

Like Ms. Mayer, who is only owed an annual salary of $1-million, a lot of CEO compensation comes from bonuses and the granting of rights to stock based on meeting targets.

They can add up to huge numbers that may seem ridiculous to the rest of us. But the quality of a CEO can be the biggest determinant of a company's fate and a stock's performance.

In a lot of cases, the kingpins may be worth it.

Consider that since taking the top job at the Internet giant, the stock has risen more than 50 per cent in less than a year – for which she has been largely credited. This has created over $10-billion in additional wealth for shareholders. Those shareholders include mutual funds and pensions that are widely held by people of all economic stripes.

Ms. Mayer, who was lured to the job at the struggling Internet pioneer from undisputed industry champion Google Inc., has produced a remarkable turnaround in investor sentiment for Yahoo – a company I worked for up until about three years ago.

Before her arrival, much of Wall Street and Silicon Valley had given up hope. Yahoo's share of the display and search markets were on the wane despite its enviable user base of more than half a billion people and rapid growth in the use of the Internet. It also didn't seem to know what to do with its big stake in the hugely successful Chinese e-commerce site Alibaba Group Holding Ltd.

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Now Yahoo has a clearer strategy of focusing on mobile and user personalization while attracting top engineering talent and speeding up project execution. It sold off a stake in Alibaba to unlock cash for Yahoo shareholders.

It'll take some time to see if her leadership really pays off in the increased engagement metrics and accelerated advertising revenues Yahoo so desperately needs. Its first-quarter results on Tuesday continued the trend of little revenue growth – but Ms. Mayer has stated publicly that a rejuvenated Yahoo will be years in the making.

What we do know is that Ms. Mayer's star power has put Yahoo back into mainstream consciousness. She created headlines by giving birth to a child just months after starting as the CEO of a Fortune 500 company, while barely sacrificing a moment of work. She inspired a national debate after her crackdown on telecommuting at Yahoo, going against an entrenched workplace trend.

All this opened up paths to free publicity that most companies can only envy. Consider, for instance, Ms. Mayer's two-segment appearance on the highly watched U.S. morning show Today in February. Producers undoubtedly invited her there to discuss the struggles of gender-equality and work-life struggles for women, but she got loads of free air time to promote the company's home page revamp. That type of exposure normally wouldn't come cheap; a single 30-second ad on Today costs at least $50,000.

CEO salaries are getting bid up because there aren't that many top-tier candidates with proven records for working wonders. Competition is fierce, particularly when there are scores of private equity funds – who aren't subject to same activist investor criticism – going after some of the same star executives. Executives like Ms. Mayer need big compensation packages to convince them to jump ship.

Some CEOs, of course, turn out to be ineffective leaders, and in hindsight weren't deserving of the money that was funnelled their way. But if an underperforming stock you own suddenly doles out millions for a leader, it may be reason to celebrate.

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READERS: What do you think of CEO pay? Is their compensation way too high, or justified for their impact on a company? Do you think Ms. Mayer will be able to turn around Yahoo's fortunes?

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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