Pay Cuts at Microsoft

It's proxy season for a lot of companies, and that means we get to sneak a peek at their executive compensation packages. Today, we're looking at software mastodon Microsoft (Nasdaq: MSFT  ) .

Starting at the top, CEO Steve Ballmer said "thanks, but no thanks" to stock-based compensation and went home with a paltry $1.28 million in salary and bonuses this year. That's slightly below last year's $1.35 million package, but Steve qualified for 90% of his potential bonuses. This stellar performance evaluation rests on key points like tight expense management and progress in areas like the online search market and the development of Windows 7.

Of course, Ballmer is no pauper. He owns more than $10 billion in Microsoft stock, so this million-and-change is just a drop in his very large bucket. That's almost always the case when you see altruistic announcements that Apple (Nasdaq: AAPL  ) CEO Steve Jobs or Google's (Nasdaq: GOOG  ) triumvirate of Sergei, Larry, and Eric got a $1 paycheck. It's great publicity, and these guys don't really need the money anyway.

Further down the payroll, the board didn't award 90% of the target bonuses to everybody. Have a look:

Executive

% of Target Bonus

Total Direct Compensation

Change From 2008

COO Kevin Turner

68%

$5.4 million

(37%)

CFO Chris Liddell

70%

$3.5 million

(26%)

Robert Bach, entertainment and devices

80%

$6.2 million

(25%)

Stephen Elop, Microsoft businesses

60%

$4.8 million

20%

You may think it strange to see the guy with the weakest performance rating score the only pay increase. But Mr. Elop joined Microsoft in January 2008, after departing the COO post at networking specialist Juniper Networks (Nasdaq: JNPR  ) . All told, Elop actually received a 45% pay cut on his non-salary incentives on an annualized basis. Oh, but then he saw another $5.4 million in relocation assistance and tax gross-ups. Don't cry for Stephen Elop.

All told, Microsoft's board didn't exactly cut executive pay to the bone despite an uninspired year. Then again, what's a few million between friends when Microsoft has about $30 billion of cash equivalents in the bank? Unlike the underperformers of AIG (NYSE: AIG  ) and Abercrombie & Fitch (NYSE: ANF  ) , Microsoft's leaders are guiding their company to profits and may actually deserve their generous pay packages.

What do you think? While Microsoft’s pay practices strike me as in line with performance, other may feel differently. Discuss in the comments below.

Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. Microsoft is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On October 01, 2009, at 10:57 PM, gslusher wrote:

    "Don't cry for Stephen Elop."

    Oh, don't worry. I won't. The only MSFT employees I cry for are the large number MSFT laid off.

    These salaries and bonuses are obscene. General Petraeus, who is responsible for the war in Iraq, makes about $225K. I'd say that his job is "riskier" and more important than any of these folks.

    Of course, the guys risking their lives every day in Iraq are making much, much less. (An E-4 makes about $40K, including $2700 for being shot at.)

  • Report this Comment On October 02, 2009, at 1:11 AM, turk184 wrote:

    I believe Microsoft hasn't paid a penny towards corporate income tax since they started up back in what 1978. Said another way...you can't accumulate $30 billion in the bank....after paying out some $30 + billion in special dividends a few years ago, if you paid corporate income tax first. What is it in the system that allows that to happen?? Surely the government needs to demand a minimum corporate income tax on all companies for the good of the country. If I'm wrong then show me and why doesn't the press talk about that... 2/3 of the population of North America make under $50,000 per year. How can that person even imagine being paid anything near $1 million per year let alone 3 or 4 or $5+ million. All our sports stars make $millions which is the cause of higher food bills,clothing bills, gas bills, car bills that the people who can't afford it have to endure because of those million dollar salaries... I'm telling you ...we've got our priorities wrong and we won't be able to fix North America's problems until we first recognize that there are 1000's of people who can do the jobs these yearly corporate millionaires do, as good as or better and would do it for $300,000 or less and be glad they have the job. Remember when Chrysler was in trouble and sold out to off shore interests. The president of that German company was making less than $400,000 per year and he was replacing the president of Chrysler who was making well over $1million per year. A clear example of not needing to pay $millions to get talent. If you can't see the problem then how can anyone fix it? Detroit has 67 bodies in the morgue because ordinary people can't even afford to pay the approx $700 to have the bodies cremated. God...is North America in trouble! You don't boycott the world and ask people to "buy America" and get the rest of the world mad at you. That doesn't fix the problems. That adds to the problem. You ask people to stop buying from corporations that pay their managers more than say 10 times the average wage of their employees. The owners can still get rich from the dividends their companies pay out but not from salaries 40 or 50 or 200 times the ordinary salary. That's a start!! Now the companies must declare higher profits and pay higher corporate taxes which solves some of our problems. The ordinary people can force this on the companies that they buy from. The power of the people will make companies change. We have to start thinking outside the box for answers because that's where they all are....

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