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Microsoft board shrinks Nadella's 2016 stock award

Gregg Keizer | Oct. 1, 2015
CEO gets US$7.9M in shares as part of year's pay package, or 60 percent of target set when he was hired.

It's also possible that Microsoft's board has reduced or will reduce Nadella's cash bonus for fiscal 2016. In last year's proxy statement, the board said it, "targets delivery of at least 70% of total direct annual compensation opportunity for the Named Executives in the form of stock awards to align executives with our shareholders."

If Nadella's 2016 cash bonus also declined to 60% of last year's $3.2 million, or to $2.16 million, his total compensation would be $11.28 million. The $7.92 million in stock grants would be exactly 70% of that.

The SEC filing this month did not spell out why Nadella's stock award was reduced to 60% of the target.

Because all of the top people whose 2015 and 2016 equity awards Microsoft has reported to the SEC saw their numbers fall, Buford said it was probably more because the executive team as a whole missed company-wide goals than it was about pointing fingers at any individual.

"One has to conclude that performance was less than what they expected," said Buford, referring to Microsoft's past year.

While Microsoft's stock was down 6% on the last day of August 2015 compared to 2014, the company's board pays more attention to peer pay packages than to metrics like stock price, said Buford. "They pay a lot of attention to peers," he noted.

Perhaps more important than a stock price swing was the Redmond, Wash. company's dismal June quarter, when it posted a $3.2 billion net loss due to the massive $7.6 billion write-off of the Nokia acquisition. Although it was Nadella's predecessor, ex-CEO Steve Ballmer, who pushed through the Nokia deal, Nadella was tasked to execute on the firm's mobile device strategy.

There is precedent. In 2012, Microsoft's board gave Ballmer 91% of his target cash award and Steven Sinofsky -- at the time the head of Windows -- 90% of his target, while others at the top tier received 100% or more of their bonus targets.

In the proxy statement that year, Microsoft cited a number of factors in Ballmer's lower award, including a 3% decline in Windows revenue. Meanwhile, Sinofsky also took heat from the board for the 3% downturn in his division's revenues, and was also called out over its failure "to provide a browser choice screen on certain Windows PCs in Europe as required by its 2009 commitment with the European Commission." That blunder cost Microsoft a $732 million fine levied by European Union antitrust officials, who were angry that the company breached a prior agreement.

"In any case, it was a poor performance of whatever [the board is] measuring," Buford concluded of Nadella's below-target equity award.


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