Yahoo CEO Mayer's $55 million severance package: Is that fair?

With declining revenues, Yahoo may soon see a leadership shakeup. CEO Marissa Mayer may be out of work, but with a reported $55 million 'golden parachute.'

Eric Risberg/AP Photo/File
In this February Yahoo CEO Marissa Mayer delivers the keynote address at the Yahoo Mobile Developer Conference in San Francisco. Yahoo reported on Tuesday that after subtracting ad commissions, Yahoo's revenue fell 18 percent from the same time a year earlier, to $859 million. It's the largest decline in Yahoo's quarterly net revenue since the company hired Mayer as its CEO nearly four years

Yahoo’s CEO has the most to lose if rumors of an impending sale come true, but she also has a lot to gain.

The company’s controversial chief executive, Marissa Mayer, could be out of a job if Yahoo is sold, but at a reported $55 million, her severance package is nothing to sneeze at.

Yahoo’s share value has tanked recently, with stock prices dropping 33 percent over the past year. Ms. Mayer hasn’t stopped fighting yet, but the company has seen recent leadership changes that could presage a sale.

On Wednesday, Yahoo came to an agreement with shareholder group Starboard, which saw four Starboard affiliated directors added to Yahoo’s board, and two of Yahoo’s old directors axed.

If Mayer gets a $55 million in severance deal, it would be far more than her take-home pay over the past year.

In 2015, Mayer took a substantial pay cut, earning $36 million in reported pay and $14 million in actual pay, compared to $42 million in reported pay the previous year. Yahoo’s executives also reportedly refused to accept bonuses last year, due to the company’s lagging financial performance.

In 2015, Yahoo brought in almost $5 billion in revenue. The company posted adjusted first-quarter 2016 earnings per share of 8 cents, compared to 15 cents per share in the year-earlier period.  Gross revenues were $1.08 billion, down from $1.23 billion in the first quarter of 2015.

In response to slowing revenue, Yahoo laid off approximately 15 percent of its staff last year, prompting accusations of “illegal mass layoffs.” One former Yahoo editor even accused Yahoo of gender discrimination in its hiring practices.

Although Mayer and her leadership team has faced allegations of sexism in the past, similar accusations are unlikely to arise (or stick) regarding her potential severance package.

In just 2014, Yahoo said goodbye to Chief Operating Officer Henrique de Castro, who left the company with a severance package of $60 million. Even though Mr. de Castro was a relatively new employee, Yahoo was even then top of the field in severance packages.

"As a pure severance package due to performance-related termination,” Gary Hewitt, head of research at GMI ratings, told CNN Money, “de Castro's exit package is definitely at the top end of the severance we have seen."

If anything, equal pay/equal employment watchdogs might be concerned about the gender imbalance likely to result from Yahoo’s leadership shake up. Under Mayer’s leadership, many of the company’s high ranking personnel have been women. But that could change in the near future.

One of the directors that Yahoo sent packing on Wednesday was a woman, and none of the four new directors appointed this week were female. With recent layoffs and leadership changes, just 27 percent of the company’s board members will be female, a big step back from its previous leadership composition.

Some say, however, that Mayer’s potentially large severance package could be unfair for another reason.

“I don’t think this management team has done anything to merit a huge payout,” Yahoo shareholder Eric Jackson of SpringOwl Asset Management told the New York Times.

Jackson delivered a 99-page long justification for Mayer’s potential dismissal to Yahoo board members in December.

Should Mayer lose her position and earn her big severance payout, she will not be alone. United Airlines’ former CEO Jeff Smisek recently earned $36.8 million in severance pay and benefits even after his dismissal during a federal corruption probe.

In 2005, Gillete's James Kilts received a package of $164.5 million, the largest severance package ever awarded

Although critics scoff at massive payouts, experts say that big severance packages may allow CEOs to make wise decisions for their companies. 

“Taking a risk might be right for shareholders, but the CEO might not do it if it could cost him his job,” Wharton professor Luke Taylor said several years ago. “Somehow, with this cushion, a CEO is willing take risks.” 

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