What Is The Basis of CEO Pay?

WSJ reports on Yahoo’s CEO compensation:

::

Terry Semel, the chief executive of Yahoo Inc., received a 2006 bonus of $25.7 million in stock, representing 80% of the maximum he was eligible to receive even as the firm’s share price fell by more than a third during the year.

Yahoo struggled in the year as it failed to keep up with rival Google Inc. in the race for advertising dollars and lost its No. 1 ranking as the most popular Internet site to News Corp.’s MySpace. The year culminated in a restructuring that saw the departures of Chief Operating Officer Dan Rosensweig and Lloyd Braun, who headed the media group.

Since the end of 2006, Yahoo has seen its shares bounce back amid optimism over Project Panama, a radically different system for buying advertising alongside its Internet search engine results that is designed to help it catch up to rival Google.

::

It raises the question, what is the basis of a CEO comp plan? Getting 80% of the bonus paid means Semel has performed at least 80% good enough. From a stock performance point of view, he clearly hasn’t. But one could argue, that he has done a number of “right things” that positions Yahoo well for the next level of growth, Panama and the recently announced My Yahoo upgrade, to name a few.

We don’t now yet, how either of these new programs would perform, but it is fair to say, that both have optimism wrapped around them.

Is Semel’s achievement for 2006, then, to recreate this optimism? Was that his primary MBO? If yes, then the 80% bonus actually makes sense.