New moms at Yahoo! can take as many as 16 weeks paid leave under the new policy. Dads are eligible for eight weeks of paid leave.
New parents will also receive $500 to help with baby-related costs.
Mayer was pregnant when she took over the company last summer. She gave birth in September and came back to work just two weeks later.
The parental leave extensions come just two months after Mayer banned telecommuting at Yahoo, setting off a debate about the merits of working from home.
Mayer emerged as the Internet company's second highest paid executive during her first five-and-half months on the job.
Regulatory documents filed Tuesday revealed that Mayer received a pay package valued at $36.6 million last year. Most of the compensation consisted of stock awards that Mayer got in July when she left a job at Google to become Yahoo's CEO.
Most of the components of Mayer's pay had been previously disclosed.
It wasn't previously known that Mayer ranked second on Yahoo Inc.'s pay scale last year
Henrique de Castro, another former Google Inc. executive who became Yahoo's chief operating officer in November, got a package valued at $39.2 million.
The Associated Press' calculation counts salary, bonuses, perks and stock and options awarded to the executive during the year