By Greg Ruel - Senior Research Associate
When Marissa Mayer signed the offer letter to new CFO Kenneth Goldman, she penned it "Start practicing your yodel!" Mr. Goldman is likely to oblige, with an aggregate payday in the offer letter that dwarfs recent compensation at Fortinet Inc. (FTNT), a midcap security software company. Before benefits, the target value of his compensation over the next four years at Yahoo! (YHOO) is $17.76 million, compared to $3.4 million in total summary compensation at Fortinet over the prior four years. In his offer letter, the benefits are generalized as "comparable to other executives at your level." Yahoo! rarely issues perks, however. Instead, the company grants equity and enough of it so that its dilution rate has averaged 22 percent over the past five years, a key reason why they grade out average in ESG.
Mr. Goldman is set to receive a starting base salary of $600,000; almost twice what he received his last year at Fortinet - which incidentally is located in Sunnyvale, CA, same as Yahoo! In addition, Mr. Goldman will receive a target bonus at $540,000, restricted stock units (RSUs) ($6 million), an additional "make-whole" RSU ($1.2 million), and performance options ($6 million). To a large extent, the true value of the package will reflect movement in the company stock price. The strike price of the equity is about $16, not much lower than the high end of the company's $13.11-$16.79 trading range. While the RSUs are time-vesting, the performance options are subject to performance-vesting requirements yet to be established. Options are expected to be granted on November 26.
Yahoo! did not make the severance of departing CFO Tim Morse known. However, his termination is clearly a management shakeup and not a termination with cause. As such, he should receive nearly $6 million, including about $3.8 million in vested stock, $2.1 million in cash, and continued benefits.
So will Mr. Goldman be paid for performance? He will in a sense. If Yahoo!'s stock price drops below the November grant date price for the next several years, then his equity would be underwater. In that case, he'd probably make at least $5 million in cash and bonuses and the equity would be worthless. Also, we'll have to wait to see how challenging the stock option performance metrics appear to be when those are disclosed. Plus, he should get salary increases and higher bonuses than estimated. However, the true reward here is the upside of such enormous equity grants. Equity awards of this magnitude could net windfall profits for even the slightest uptick in the Yahoo! stock price.