There are two parts to getting good employees: finding them and getting them to work for you. Many startup employees, by themselves, will not work for Yahoo for $200K/year. Many startup employees will work for Yahoo for $150K/year if all their favorite coworkers are working for Yahoo and they get to work on a product they're familiar with. The only way to bring them over is to bring them over as a block.

Many people in the startup world don't understand this, but the vast majority of people in the labor force are not primarily motivated by money. You need to pay them enough to feel like they're not being taken advantage of, but beyond that, they go for work environment, interesting coworkers, challenging projects, and other intangibles. To have any chance at all of hiring them, you need to provide those and not just money.

(Google understands this very well - they explicitly state with their offer that most people who work for Google do not do so for financial gain. They do it because they want to be a part of something great, and have really intelligent coworkers, and be given a flexible and creative work environment. Yahoo has a big challenge matching this, given their current lackluster stable of products, and Marissa's trying to jump-start the virtuous cycle and bring in folks that people would want to work with.)