It's Time for Steve Ballmer to Take a Pay Cut

If you ask me, Microsoft (Nasdaq: MSFT  ) CEO Steve Ballmer is doing just fine. Microsoft investors, on the other hand, have little to thank him for after more than a decade on his watch. The following chart starts with his tenure on Jan. 13, 2000.

MSFT Total Return Price Chart

MSFT Total Return Price data by YCharts

In fairness, he took office near the height of the tech bubble, so some of the drop is simply related to that bubble's historic pop.

However, over the past three years, his compensation has continued to inch higher.

Year

2009

2010

2011

Base Salary        $665,833 $670,000 $682,500
Bonus $600,000 $670,000 $682,500
Total $1,276,627 $1,351,121 $1,376,915

Source: 2011 proxy statement. Note that the total amount includes other compensation such as 401(k) matching and broad-based benefits.

He didn't receive any stock awards in these years, which is actually per his own request. Ballmer gets paid all in cash at this point, and the board even thinks he's underpaid. He already has plenty of equity, though, so don't lose any sleep on behalf of Ballmer's finances.

His most recent SEC Form 4 was filed back in November 2010, showing that he's the proud owner of 333.3 million shares. When you consider Microsoft's $0.80-per-share annual dividend, that means Ballmer rakes in $266.6 million annually in dividends alone thanks to his hefty stake in the software giant. That also translates into just over $730,000 per day. So yeah, he's doing just fine.

400,000 votes should count for something
According to Forbes, one institutional investor disagrees with the notion that Ballmer deserves more. Granite Investment Advisors portfolio manager Tim Lesko decidedly thinks that Ballmer is overpaid. His firm owns about 400,000 Microsoft shares, and Lesko is calling for Ballmer to take the symbolic voluntary cut to a $1 annual salary.

The $6.2 billion impairment from last week related to its botched purchase of aQuantive is what's triggering Lesko's call to action, but he says this would be more about accountability and would serve as an important gesture to investors. "As an investor, it would feel like something," Lesko said. "Steve Ballmer has had many missteps over the past 10 years. ...Would I be sad to see him held accountable for $6.2 billion in losses? No."

Clearly, this isn't about the money for either party. With $73 billion in trailing-12-month sales, $59.5 billion in cash on the books, and a $250 billion market cap, Microsoft surely sees the impairment as more insult than injury. With two days' worth of dividends exceeding his total annual compensation, Ballmer can afford it.

The portfolio manager says the aQuantive blunder is the latest in a line of major strategic mistakes, including the Zune music player and the total underestimation of Apple's (Nasdaq: AAPL  ) effect on the smartphone industry when the iPhone launched. Ballmer actually laughed it off, saying it wouldn't gain traction in the enterprise without a hardware keyboard and adding: "Right now we're selling millions and millions and millions of phones a year. Apple is selling zero phones a year. In six months they'll have the most expensive phone by far, ever, in the marketplace. Let's see how the competition goes."

The pressure is now on for Microsoft to prove that its ginormous $8.5 billion acquisition of Skype and hefty $1.2 billion purchase of Yammer will work out. Lesko notes that most shareholders would generally expect some blood from the CEO of a company that just lost $6.2 billion of their money.

"No more years! No more years!"
Lesko's not alone. Last year, Greenlight Capital's David Einhorn famously called for Ballmer's resignation, saying, "His continued presence is the biggest overhang on Microsoft's stock."

Einhorn also cites misguided acquisitions as evidence of Ballmer's ineptitude. Bing has failed to make a meaningful dent in Google's monstrous market-share lead, instead simply cannibalizing its partner, Bing-powered Yahoo! Meanwhile, Apple swooped in and singlehandedly destroyed Windows Mobile (the predecessor to Windows Phone) and netbook sales with the iPhone and iPad, respectively.

Join the club
Steve Jobs famously worked for only $1 per year, and other notable CEO mentions in the club include Facebook's (Nasdaq: FB  ) Mark Zuckerberg, Hewlett-Packard's Meg Whitman, and Oracle's (Nasdaq: ORCL  ) Larry Ellison, among others. Zuckerberg's pay cut starts next year, while Whitman's buck has been there since she started last September, and Ellison is simply already so filthy rich that he doesn't know what to do with all that money -- other than to literally buy a Hawaiian island.

Research In Motion (Nasdaq: RIMM  ) ex-co-CEOs Jim Balsillie and Mike Lazaridis also took one for the team last December when they agreed to work for $1 annually, after reporting a gloomy earnings release with weak outlook on BlackBerry shipments. That move proved to be purely symbolic, as they would step down the very next month and give Thorsten Heins a shot. That single-digit CEO salary that shareholders were looking forward to paying didn't last long, as Heins' salary is a million bucks.

Time for a pink slip
Einhorn and Lesko are both right. Ballmer needs to either step down or take a pay cut. How can you get handed a company that runs a near-monopoly in one of the most important consumer markets that spans the entire planet, and still underperform for more than a decade?

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Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Facebook, Oracle, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Microsoft and creating bull call spread positions in Microsoft and Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
 


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2012, at 10:58 PM, Limot wrote:

    Not bad for such a poor performance. He does not deserve a pay cut ...but a severance.

  • Report this Comment On July 11, 2012, at 11:56 PM, SuntanIronMan wrote:

    It's time... now? When the stock looks like it might (just might) actually break out of this range it's been trading in for the past 12 or so years? Now is the time to cut his pay or fire him? Seems if you were going to do it, that time should have been years ago.

    Of all the times to call for it, seems like now he might (might) be in a position to actually earn that paycheck of his. If Windows 8 and the Surface turns out to be a dud, then I'm with you. But lets not get ahead of ourselves. Lets first see what the company is able to do with their next series of product launches.

  • Report this Comment On July 12, 2012, at 1:09 AM, phoebe44 wrote:

    If you want to see the company head in the right direction and the stock along with it - get rid of Ballmer - I've been begging for that since I bought my first position with MSFT. Oh, and Netflix CEO, Reed Hastings also sits on the Microsoft Board - how about that?? He's another one that needs to go - actually, the entire board needs to go - either they have been on the board since the company started or their "day job" is such they could never, ever even begin to care about Mr. Softy. Stockholders - we need to clean this mess up - and soon! It's our own fault --

  • Report this Comment On July 12, 2012, at 5:07 AM, H3D wrote:

    I think it would be a good deal for Microsoft shareholders to double what they pay him, provided he stays at home on long term garden leave.

  • Report this Comment On July 12, 2012, at 9:38 AM, CluckChicken wrote:

    I am not saying the Ballmer has done an outstanding job but I do wonder how much of what people call the Ballmer years have truely been his. Gates didn't end his day-to-day duties at MS till 2008, Ballmer may have been CEO since 2000 but was he really leading the company or did Gates still have the lion's share of providing the direction?

    Revenue has gone from 51B in 2007 to 70B in 2011 and Net Income from 14B to 23B. Those suggest that MSFT stock has more of an image problem with Ballmar then a results problem. The image issue seems to be a far deeper issue then just Ballmar.

    I do think the phone has been handled extremly poorly. I think MS also needs to dump their ad agency as they have some of the worst ads.

  • Report this Comment On July 12, 2012, at 11:38 AM, asdfk123 wrote:

    I’m a long term shareholder and agree with CluckChicken. For such a large company, Microsoft’s top line and net income coupled with a favorable dividend have been reasonable enough for me.

    They’ve had some missed opportunities (e.g. phone) and suffered poor execution (e.g. search) in some areas. In others (e.g. cloud) they’re ahead of the curve.

    I’m with WhichStocksWork, watch what happens with Windows 8, the Surface and the new phone before requesting a change. Microsoft is continuing to build an ecosystem, which I’m sure has a lot to do with their Skype and Yammer purchases. Think about the integration opportunities. Microsoft might be able to bridge the gap between enterprises and personal, which is something they’ve struggled to do with mobile.

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