Yahoo's CEO to make $10M in 20 days?

Carol Bartz will get a big bonus -- if she can keep the company's share price high enough for the next 20 trading days.

By InvestorPlace Feb 3, 2010 7:05PM

InvestorPlaceBy Jim Woods, InvestorPlace

 

We've heard a lot about big bonuses recently. Banking execs, brokerage bigwigs and AIG all have taken heat for receiving some serious largess from their respective companies.


The public and  government officials have been outraged at these bonuses, especially because many of these institutions had to be saved last year by taxpayers. But is there a better way to pay out big bucks?

 

According to one Wall Street analyst, Yahoo (YHOO) CEO Carol Bartz could be ready to receive a $10 million bonus of sorts -- but only if she can keep the share price high enough for the next 20 trading days.

 

In a note to clients dated Feb. 1, Piper Jaffray analyst Gene Munster outlined what he calls Bartz's "key compensation hurdle." He explains that if YHOO shares can trade at an average price of $17.60 for the next 20 trading days, Bartz's 1.67 million option grants will vest at an exercise price of $11.73. That translates into about $10 million. To that I say, great work, if you can get it.

 

Munster is bullish on YHOO shares, and he says, "Beyond the near-term incentive for Bartz if shares move higher and she clears the first options hurdle, we believe the additional compensation targets in terms of share price provide incentive for management to continue thinking about maximizing Yahoo for the long term." He reiterated his "overweight" rating on the stock and maintained his 12-month price target for the shares at $20.

 

I suspect that Bartz will have a tough time being able to collect her bonus, however, as the shares closed Wednesday at just $15.46. Still, the Munster note gives us a telling look at how CEOs should be compensated. By providing incentives via options grants if the shares climb, Bartz has a very strong incentive to make the tough decisions that allow shareholders to prosper.

 

Interestingly, this form of performance-based compensation at Yahoo isn't restricted to its CEO. Yahoo CFO Tim Morse also was granted 150,000 shares in restricted stock to vest fully in 2012 and 400,000 options that vest gradually through 2013, Munster explained. And while Morse does not have specific performance provisions written into his grants, Munster said Morse's options carry a strike price close to the current price of the stock. "Morse's grants give him an incentive to maximize the value of his options through improvements to share price," wrote Munster.

 

If Bartz, Morse and Yahoo management can keep shares humming, then I say they deserve every penny they make via this incentivized compensation structure. In fact, I think more companies should model their compensation structure after YHOO's. After all, when the share price of a stock is up, it's investors who are the real winners.

 

Are companies run by female CEOs better investments? Find out here.

 

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