Under the new policy, both mothers and fathers can take up to eight weeks of paid child leave, with benefits, each time they have a new child. New mothers are also entitled to an additional eight weeks of paid leave after pregnancy.
But it doesn't only make sense from a public relations standpoint, observers said. The new policy could fit into a broader corporate strategy to attract and retain more talent and ultimately improve Yahoo's financial performance.
(Read More: Yahoo Earnings Beat, but Revenue Disappoints)
"It's a smart move," said Rachel Sklar, a New York-based blogger and founder of The Li.st, an organization dedicated to elevate the status of women in New Media and technology. "It suggests a long-term strategy. This is a great precedent."
Companies who provide "everything" to their employees, such as free lunch and daycare sites at Google, do better financially in the long run because there is nothing to "distract" their workers from working, Sklar said.
"The temptation will be to see this through a gender lens—that of course she did it because she's a new-mom CEO," Sklar said. "And this certainly would suggest she has a heightened awareness as a working mom, but this will encourage new parents to be engaged with the company and have a financial piece of mind. When companies nickel-and-dime their employees, it just adds to their burden."
From the moment she became Yahoo's new chief executive last year, Mayer, 37, has been seen as a symbol of corporate gender politics. She took the job when she was five months pregnant and worked through a two-week maternity leave that ended in October.
Her decision to return to work so quickly attracted both praise and criticism—praise for showing that a new mother could continue to steer a Fortune 500 company, and criticism for failing to set a realistic expectations for America's working moms.
Mayor drew praise for adding perks such as new iPhones and free food, cutting company bureaucracy and redesigning work spaces. Many of those amenities were standard at her prior employer, Google.
In February, Mayer sparked another debate when she decided to end Yahoo's lenient telecommuting policy. Employees with existing work-from-home arrangements were told they had to start coming into the office or look for another job.
(Read More from NBCBayArea.com)
The move reflected Mayer's an all-hands-on-deck approach to turning around Yahoo and make it more competitive. But she was again accused of making it harder on working parents.
But her decision to double family leave for new parents from 8 weeks to 16 weeks puts Yahoo in the same company as her Silicon Valley rivals, Google (which reportedly provides five months of paid leave to new mothers, and seven weeks to fathers) and Facebook (which told the New York Times that it gives new mothers and fathers four months of paid leave).
In California, workers are eligible for six weeks of partial pay through the state's disability benefits program.
(Read More: Governments May Push Workers to Health Exchange)
Mayer's move also comes amid a broader debate in America about the country's commitment to family leave. The United States, which hasn't updated its Family and Medical Leave Act in 20 years, ranks among the worst of all developed countries. Sweden, Denmark, Russian mothers get at least a year off paid and Canadian mothers get 50 weeks off paid.
The U.S. law requires large companies to provide 12 weeks of unpaid leave to employers who need to care for a newborn child or an ill relative. And that relatively stingy benefit covers only workers who have been at a company for at least a year. That leaves millions without access to the benefit. Many more cut their absences short because they can't afford unpaid leave.