DEF 14A of Microsoft Corp
Filed Oct 19, 2020 · FY20200001193125-20-272025
Our Director Nominees
Our Director Nominees See Part 1 – Governance and our Board of Directors for more information. The following table provides summary information about each of the 12 director nominees. Each director is elected annually by a majority of votes cast.
Our Director Nominees
| Name Occupation | Age | Director Since | Independent | Other Public Boards | Committee Memberships | | | | | | | | | | AC | CC | GN | RPP | | Reid G. Hoffman Partner, Greylock Partners | 53 | 2017 | Yes | 1 | | | | | | Hugh F. Johnston Vice Chairman, Executive Vice President, and CFO, PepsiCo, Inc. | 59 | 2017 | Yes | 0 | | | | | | Teri L. List-Stoll Former Executive Vice President and CFO, The Gap, Inc. | 57 | 2014 | Yes | 1 | | | | | | Satya Nadella CEO and Director, Microsoft Corporation | 53 | 2014 | No | 1 | | | | | | Sandra E. Peterson Operating Partner, Clayton, Dubilier & Rice, LLC | 61 | 2015 | Yes | 1 | | | | | | Penny S. Pritzker Founder and Chairman, PSP Partners, LLC | 61 | 2017 | Yes | 0 | | | | | | Charles W. Scharf President, CEO, and Director, Wells Fargo & Company | 55 | 2014 | Yes | 1 | | | | | | Arne M. Sorenson President, CEO, and Director, Marriott International, Inc. | 62 | 2017 | Yes | 1 | | | | | | John W. Stanton Founder and Chairman, Trilogy Partnerships | 65 | 2014 | Yes | 2 | | | | | | John W. Thompson Independent Chair, Microsoft Corporation; Former CEO, Virtual Instruments Corporation | 71 | 2012 | Yes | 1 | | | | | | Emma N. Walmsley CEO and Director, GlaxoSmithKline plc | 51 | 2019 | Yes | 1 | | | | | | Padmasree Warrior Founder, President, and CEO, Fable Group, Inc. | 59 | 2015 | Yes | 1 | | | | |
Our Director Nominees
| AC: Audit Committee CC: Compensation Committee GN: Governance and Nominating Committee RPP: Regulatory and Public Policy Committee | (Chair) | (Member) | Financial Expert |
Our Director Nominees
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Our Director Nominees
Our Director Nominees Following are biographies for the 12 directors nominated by the Board for election during the 2020 Annual Meeting.
Our Director Nominees
| | Reid G. Hoffman | | | Age: 53 | Director Since: 2017 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: Greylock Partners (2009-present) (venture capital firm) • Partner (2009-present) Reinvent Capital (2019-present) • Partner (2019-present) LinkedIn Corporation (2003-2016) • Co-founder and Chairman (2003-2016) • Executive Chairman (2009) • Chief Executive Officer (2003-2007 and 2008-2009) • President, Products (2007-2008) PayPal Inc. (2000-2002) • Executive Vice President (2000-2002) | Microsoft Committees: • None Other Public Company Directorships: • Reinvent Technology Partners Former Public Company Directorships Held in the Past Five Years: • LinkedIn Corporation |
Our Director Nominees
| | Hugh F. Johnston | | | Age: 59 | Director Since: 2017 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: PepsiCo, Inc. (1987-1999 and 2002-present) (food and beverage company) • Vice Chairman (2015-present) • Executive Vice President and Chief Financial Officer (2010-present) • Executive Vice President, Global Operations (2009-2010) • President, Pepsi-Cola North America (2007-2009) • Various positions of increasing authority (1987-1999 and 2002-2007) Merck & Company, Inc. (1999-2002) • Vice President, Retail Marketing, Merck-Medco Managed Care LLC (1999-2002) | Microsoft Committees: • Audit (Chair) Other Public Company Directorships: • None Former Public Company Directorships held in the Past Five Years: • Twitter Inc. |
Our Director Nominees
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Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Director Nominees
| | Teri L. List-Stoll | | | Age: 57 | Director Since: 2014 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: The Gap, Inc. (2016-2020) (clothing and accessories retailer) • Executive Vice President and Chief Financial Officer (2016-2020) DICK’S Sporting Goods, Inc. (2015-2016) • Executive Vice President and Chief Financial Officer (2015-2016) Kraft Foods Group, Inc. (2013-2015) • Senior Advisor (2015) • Executive Vice President and Chief Financial Officer (2013-2015) • Senior Vice President (2013) Procter & Gamble Co. (1994-2013) • Senior Vice President and Treasurer (2009-2013) • Various positions of increasing authority (1994-2009) | Microsoft Committees: • Audit • Governance and Nominating Other Public Company Directorships: • Danaher Corporation Former Public Company Directorships Held in the Past Five Years: • None Other Positions: • Former Trustee, Financial Accounting Foundation • Former Practice Fellow, Financial Accounting Standards Board |
Our Director Nominees
| | Satya Nadella | | | Age: 53 | Director Since: 2014 | Birthplace: India |
Our Director Nominees
| Experience: Microsoft Corporation (1992-present) • Chief Executive Officer and Director (2014-present) • Executive Vice President, Cloud and Enterprise (2013-2014) • President, Server and Tools (2011-2013) • Senior Vice President, Online Services Division (2009-2011) • Senior Vice President, Search, Portal, and Advertising (2008-2009) • Various positions of increasing authority (1992-2008) | Microsoft Committees: • None Other Public Company Directorships: • Starbucks Corporation Former Public Company Directorships Held in the Past Five Years: • None |
Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Director Nominees
| | Sandra E. Peterson | | | Age: 61 | Director Since: 2015 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: Clayton, Dubilier & Rice, LLC (2019-present) (investment firm) • Operating Partner (2019-present) Johnson & Johnson (2012-2018) • Group Worldwide Chair and member of the Executive Committee (2012-2018) Bayer CropScience AG (2010-2012) • Chairman of the Board of Management (2010-2012) • Member of Board of Management (2010) Bayer HealthCare LLC (2005-2010) • Executive Vice President and President, Medical Care (2009-2010) • President, Diabetes Care Division (2005-2009) Medco Health Solutions, Inc. (1999-2004) • Group President of Government (2003-2004) • Senior Vice President, Health Businesses (2001-2003) • Senior Vice President, Marketing and Strategy (1999-2001) | Microsoft Committees: • Compensation (Chair) • Governance and Nominating Other Public Company Directorships: • Covetrus, Inc. Former Public Company Directorships Held in the Past Five Years: • Dun & Bradstreet Corporation |
Our Director Nominees
| | Penny S. Pritzker | | | Age: 61 | Director Since: 2017 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: United States Secretary of Commerce (2013-2017) PSP Partners, LLC (present) (private investment firm) • Founder and Chairman (present) Pritzker Realty Group (present) • Co-founder and Chairman (present) Inspired Capital Partners (present) • Co-founder and Chairman (present) Artemis Real Estate Partners (2009-2013) • Co-founder and Chairman (2009-2013) The Parking Spot (1998-2011) • Co-founder and Chairman (1998-2011) Vi Senior Living (1987-2011) • Founder and Chairman (1987-2011) | Microsoft Committees: • Regulatory and Public Policy (Chair) Other Public Company Directorships: • None Former Public Company Directorships Held in the Past Five Years: • None Other Positions: • Co-founder, Pritzker Traubert Foundation |
Our Director Nominees
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Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Director Nominees
| | Charles W. Scharf | | | Age: 55 | Director Since: 2014 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: Wells Fargo & Company (2019-present) (banking and financial services company) • Chief Executive Officer and President (2019-present) The Bank of New York Mellon Corporation (2017-2019) • Chairman and Chief Executive Officer (2018-2019) • Chief Executive Officer and Director (2017) Visa Inc. (2012-2016) • Chief Executive Officer and Director (2012-2016) JPMorgan Chase & Co. (2004-2012) • Managing Director, One Equity Partners, private investment arm (2011-2012) • Chief Executive Officer of Retail Financial Services (2004-2011) Bank One Corporation (2000-2004) • Chief Executive Officer of the Retail Division (2002-2004) • Chief Financial Officer (2000-2002) Citigroup, Inc. (1999-2000) • Chief Financial Officer of the Global Corporate and Investment Bank Division (1999-2000) | Microsoft Committees: • Compensation • Governance and Nominating Other Public Company Directorships: • Wells Fargo & Company Former Public Company Directorships Held in the Past Five Years: • The Bank of New York Mellon Corporation • Visa Inc. |
Our Director Nominees
| | Arne M. Sorenson | | | Age: 62 | Director Since: 2017 | Birthplace: Japan | Independent |
Our Director Nominees
| Experience: Marriott International, Inc. (1996-present) (global lodging company) • President and Chief Executive Officer (2012-present) • President and Chief Operating Officer (2009-2012) • Executive Vice President, Chief Financial Officer, and President, Continental European Lodging (2003-2009) • Executive Vice President and Chief Financial Officer (1998-2003) • Senior Vice President, Business Development (1996-1998) | Microsoft Committees: • Audit Other Public Company Directorships: • Marriott International, Inc. Former Public Company Directorships Held in the Past Five Years: • None |
Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Director Nominees
| | John W. Stanton | | | Age: 65 | Director Since: 2014 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: Trilogy Partnerships (2005-present) (investment company) • Founder and Chairman (2005-present) Clearwire Corp. (2008-2013) • Chairman of the Board (2011-2013) • Interim Chief Executive Officer (2011) • Board member (2008-2011) Western Wireless Corporation (1992-2005) • Founder, Chief Executive Officer, and Chairman (1992-2005) VoiceStream Wireless Corporation (1995-2003) • Chief Executive Officer and Chairman (1995-2003) | Microsoft Committees: • Audit • Regulatory and Public Policy Other Public Company Directorships: • Costco Wholesale Corporation • Trilogy International Partners, Inc. Former Public Company Directorships Held in the Past Five Years: • Columbia Sportswear Company Other Positions: • Chairman, First Avenue Entertainment LLLP, owner of Seattle Mariners (2016-present) |
Our Director Nominees
| | John W. Thompson | | | Age: 71 | Director Since: 2012 | Birthplace: United States | Independent |
Our Director Nominees
| Experience: Microsoft Corporation (2014-present) • Independent Board Chair Virtual Instruments Corporation (2010-2016) • Chief Executive Officer and Director (2010-2016) Symantec Corp. (1999-2011) • Chairman of the Board (1999-2011) • Chairman and Chief Executive Officer (1999-2009) IBM Corporation (1971-1999) • General Manager, IBM Americas (1996-1999) • Various positions of increasing authority (1971-1996) | Microsoft Committees: • Governance and Nominating (Chair) • Regulatory and Public Policy Other Public Company Directorships: • Illumina, Inc. Former Public Company Directorships Held in the Past Five Years: • None Other Positions: • Partner, Lightspeed Venture Partners |
Our Director Nominees
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Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Director Nominees
| | Emma N. Walmsley | | | Age: 51 | Director Since: 2019 | Birthplace: United Kingdom | Independent |
Our Director Nominees
| Experience: GlaxoSmithKline plc (2010-present) (healthcare company) • Chief Executive Officer (2017-present) • Chief Executive Officer, Consumer Healthcare (2015-2016) • President, Consumer Healthcare (2012-2015) • President, Consumer Healthcare Europe (2010-2012) L’Oreal, S.A. (1994-2010) • General Manager, Consumer Products, China (2007-2010) • Global Brand Head, Maybelline, USA (2002-2007) • UK General Manager, Garnier/Maybelline (1999-2002) • Various positions of increasing authority (1994-1999) | Microsoft Committees: • Compensation • Regulatory and Public Policy Other Public Company Directorships: • GlaxoSmithKline plc Former Public Company Directorships Held in the Past Five Years: • Diageo plc |
Our Director Nominees
| | Padmasree Warrior | | | Age: 59 | Director Since: 2015 | Birthplace: India | Independent |
Our Director Nominees
| Experience: Fable Group, Inc. (2019-present) (curated fiction and non-fiction for mobile devices) • Founder, President, and Chief Executive Officer (2019-present) NIO Inc. (2015-2018) • Chief Development Officer (2015-2018) • Board member (2015-2018) NIO USA, Inc. (2015-2018) • Chief Executive Officer and Director (2015-2018) Cisco Systems, Inc. (2008-2015) • Strategic Advisor (2015) • Chief Technology and Strategy Officer (2012-2015) • Chief Technology Officer, Senior Vice President, Engineering and General Manager Global Enterprise segment (2010-2012) • Chief Technology Officer (2008-2010) Motorola, Inc. (1999-2007) • Executive Vice President and Chief Technology Officer (1999-2007) | Microsoft Committees: • Compensation Other Public Company Directorships: • Spotify Technology S.A. Former Public Company Directorships Held in the Past Five Years: • Box, Inc. • The Gap, Inc. |
Our Director Nominees
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Director Compensation
Director Compensation The Compensation Committee periodically reviews the regular annual retainer paid to non-employee directors and makes recommendations for adjustments, as appropriate, to the Board. We have not increased director pay since fiscal year 2015. As our CEO, Mr. Nadella does not receive additional pay for serving as a director. Mr. Gates has waived his cash and stock awards.
Director Compensation
| Fiscal Year 2020 Compensation Structure for Directors | | | Regular Retainers (all directors except Messrs. Gates, Nadella, and Thompson) | | | Annual Base Retainer (TOTAL) | $325,000 | | Cash | $125,000 | | Stock Award | $200,000 | | Annual Committee Chair Retainer | $15,000 | | Annual Audit Committee Chair Retainer | $45,000 | | Annual Audit Committee Non-Chair Member Retainer | $15,000 | | Independent Board Chair Retainer (Mr. Thompson) | | | Annual Independent Chair Retainer (TOTAL – in lieu of other retainers) | $485,000 | | Cash | $125,000 | | Stock Award | $360,000 |
Director Compensation
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Director Compensation
The Company reimburses reasonable expenses incurred for Board-related activities. Directors may participate in our corporate matching gift program for charitable donations. Director retainers are paid quarterly in arrears. Quarterly periods are measured beginning with the annual meeting. At the end of each quarterly period, we pay 25% of the total annual retainer to each director. The number of shares awarded each quarterly period is determined by dividing the dollar value of the stock award by the market price of our common stock as of the last business day of the period. Retainers are pro-rated for directors who join or leave the Board or have a change in Board role during a quarterly period. Directors may elect to defer and convert to deferred stock awards all or part of their annual cash retainer, and to defer receipt of all or part of their annual stock awards retainer under the Deferred Compensation Plan for Non-Employee Directors. Amounts deferred are maintained in bookkeeping accounts that are deemed invested in Microsoft common stock, and dividends paid on deemed investments are also deemed to be invested in our common stock. We calculate the number of shares credited by dividing the amount deferred by the closing market price of our common stock on the originally scheduled payment date. Accounts in the plan are distributed in shares of Microsoft common stock, with payments either in installments beginning on separation from Board service or in a lump sum paid no later than the fifth anniversary after separation from Board service.
Director Compensation
Director Compensation This table describes the cash and stock award portions of the annual retainer paid to each non-employee director who served in fiscal year 2020. Mr. Nadella received no compensation as a director. He is excluded from the table because we fully describe his compensation in Part 2 – Named Executive Officer Compensation.
Director Compensation
| Name | Fees Earned or Paid in Cash¹ ($) | Stock Awards² ($) | All Other Compensation(3) ($) | Total ($) | | William H. Gates III(4) | 0 | 0 | 0 | 0 | | Reid G. Hoffman(5) | 125,000 | 200,000 | 0 | 325,000 | | Hugh F. Johnston | 155,232 | 200,000 | 0 | 355,232 | | Teri L. List-Stoll(6) | 140,000 | 200,000 | 15,000 | 355,000 | | Charles H. Noski(7) | 84,652 | 100,000 | 0 | 184,652 | | Helmut Panke(8) | 77,384 | 100,000 | 0 | 177,384 | | Sandra E. Peterson(9) | 132,616 | 200,000 | 0 | 332,616 | | Penny S. Pritzker(10) | 132,616 | 200,000 | 15,000 | 347,616 | | Charles W. Scharf | 125,000 | 200,000 | 0 | 325,000 | | Arne M. Sorenson | 140,000 | 200,000 | 15,000 | 355,000 | | John W. Stanton | 139,884 | 200,000 | 15,000 | 354,884 | | John W. Thompson(11) | 125,000 | 360,000 | 0 | 485,000 | | Emma N. Walmsley(12) | 62,500 | 100,000 | 0 | 162,500 | | Padmasree Warrior(13) | 125,000 | 200,000 | 0 | 325,000 |
Director Compensation
| The value of fractional shares under stock awards that are paid in cash are reported in the Stock Awards column.(1) |
Director Compensation
| The aggregate award value in the “Stock Awards” column for each director represents four quarterly awards, each with a grant date fair value under FASB ASC Topic 718 of $50,000, with exceptions as follows: Mr. Thompson received four quarterly awards, each with a grant date fair value under FASB ASC Topic 718 of $90,000; Mr. Noski & Dr. Panke both ended their Board service in December 2019, so did not receive a stock award in the 3rd or 4th quarter; and Ms. Walmsley joined the Board in December 2019, so did not receive a stock award in the 1st or 2nd quarter.(2) |
Director Compensation
| Amounts in this column represent matching charitable contributions under our corporate giving program in fiscal year 2020, which matches director gifts up to $15,000 per calendar year.(3) |
Director Compensation
| Mr. Gates waived his cash and stock compensation. Mr. Gates ended his board service effective March 13, 2020.(4) |
Director Compensation
| Mr. Hoffman elected to defer his cash and stock compensation. The compensation deferred converted into 2,064 shares of our common stock.(5) |
Director Compensation
| Ms. List-Stoll elected to defer her cash and stock compensation. The compensation deferred converted into 2,159 shares of our common stock.(6) |
Director Compensation
| Mr. Noski elected to defer his stock compensation. The compensation deferred converted into 702 shares of our common stock. Mr. Noski ended his Board service effective December 4, 2019.(7) |
Director Compensation
| Dr. Panke ended his Board service effective December 4, 2019.(8) |
Director Compensation
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Director Compensation
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Director Compensation
| Ms. Peterson elected to defer her cash and stock compensation. The compensation deferred converted into 2,106 shares of our common stock.(9) |
Director Compensation
| Ms. Pritzker elected to defer her cash and stock compensation. The compensation deferred converted into 2,106 shares of our common stock.(10) |
Director Compensation
| Mr. Thompson elected to defer his stock compensation. The compensation deferred converted into 2,285 shares of our common stock.(11) |
Director Compensation
| Ms. Walmsley was elected to the board effective December 4, 2019.(12) |
Director Compensation
| Ms. Warrior elected to defer a portion of her cash compensation. The compensation deferred converted into 395 shares of our common stock.(13) |
Shareholder Engagement
| Our executive compensation program is grounded in a compensation philosophy aimed at achieving strong alignment between our long-term strategic goals and our shareholders’ interests. Feedback received from our shareholders through ongoing engagement discussions informs our Compensation Committee’s deliberations as it reviews the incentive structures in place on an ongoing basis. Our Board and our Compensation Committee deeply value the continued interest of and feedback from our shareholders on our executive compensation program and are committed to maintaining an active dialogue with them to ensure their perspectives are thoughtfully taken into account. | Shareholder Engagement | | | Engaged with shareholders owning 48% of shares in FY20 | | | “Virtual Shareholder Listening Tour” in the first quarter of FY21 with new Compensation Committee Chair and Board Chair |
Enhancements to Compensation Program
| Feedback Themes | Actions Taken | | • Increase the performance-based component of the annual cash incentive – to further strengthen our CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy • Shift the mix of our CEO’s equity award to be majority performance-based • Include a downside adjustment on the PSA payout, so that the TSR multiplier provides both upside and downside exposure for executives • Investors would benefit from additional disclosure regarding the Compensation Committee’s process to determine incentive compensation results | • Increased the weighting of the financial performance portion of the CEO’s annual cash incentive from 50% to 70% for fiscal year 2021, split evenly between Incentive Plan Revenue (35%) and Incentive Plan Operating Income (35%) • Increased the performance-based portion of our CEO’s equity awards from 50% to 70% for fiscal 2021 • Revised the relative TSR modifier for fiscal year 2021 PSAs to include a downside adjustment on PSA payout if relative TSR falls below the 40th percentile of the S&P 500 • Increased the disclosure of the goal-setting process and results under PSAs |
Enhancements to Compensation Program
| Pay Element | FY20 Elements / Metrics / Weightings | | FY21 Elements / Metrics / Weightings | | | Annual Cash Incentives | Financial • Incentive Plan Revenue (25%) • Incentive Plan Operating Income (25%) | 50% | Financial (new) • Incentive Plan Revenue (35%) • Incentive Plan Operating Income (35%) | 70% | | | Operational • Product & Strategy (16.67%) • Customers & Stakeholders (16.67%) • Culture & Organizational Leadership (16.66%) | 50% | Operational (new) • Product & Strategy (10%) • Customers & Stakeholders (10%) • Culture & Organizational Leadership (10%) | 30% | | Long-Term Equity | Performance Stock Award Three, one-year performance periods with following metrics: • Commercial Cloud Revenue (35%) • Commercial Cloud Subscribers (34%) • Teams Monthly Active Usage (10%) • Xbox Game Pass Subscribers (7%) • Surface Revenue (7%) • LinkedIn Sessions (7%) | 50% | Performance Stock Award (new) Three, one-year performance periods with following metrics: • Commercial Cloud Revenue (33%) • Commercial Cloud Subscribers (32%) • Teams Monthly Active Usage (20%) • Xbox Game Pass Subscribers (5%) • Surface Revenue (5%) • LinkedIn Sessions (5%) | 70% | | | Relative TSR multiplier (1-1.5x) is triggered only if Microsoft’s TSR is positive and above the 60(th) percentile of the S&P 500 | | Relative TSR modifier has been revised to include a downside adjustment if relative TSR falls below the 40(th) percentile of the S&P 500 | | | | Stock Award • Four-year ratable vesting | 50% | Stock Award (no change) • Four-year ratable vesting | 30% |
Executive Compensation Philosophy
| • | Focuses on the long-term through equity awards with multi-year vesting or performance requirements |
Competitive Pay
Competitive Pay We compete for senior executive talent with global information technology companies, large market capitalization U.S. companies, and smaller, high-growth technology businesses, depending on the role. The technology labor market is hyper-competitive with demand growing faster than the supply of technical talent, resulting in significant increases in compensation at the companies with whom we compete for this talent. The same conditions exist in the market for executive-level talent that can provide innovative leadership while managing at a global scale across several complex businesses. We expect these trends to continue and will adjust our approach to executive compensation to respond to evolving market conditions.
Our Compensation Peer Group
Our Compensation Peer Group To ensure that our Board and Compensation Committee have current information to set appropriate compensation levels, we conduct an executive compensation market analysis each year that draws from third-party compensation surveys and publicly available data for a group of peer companies. We supplement this analysis with additional market information specific to each executive officer’s role and responsibilities, including information gleaned from our experience recruiting for executive positions at Microsoft. While this market analysis and supplemental data inform the decisions of the independent Board members and our Compensation Committee on the range of compensation opportunities, we do not tie executive officer compensation to specific market percentiles. Because other companies actively recruit our executive officers to fill CEO and other senior leadership positions, we supplement market information with data on external opportunities potentially available to our executive officers. We also consider the relationship of annual target compensation among internal peers. In addition, our Committee is provided with an overview of compensation for our non-executive Microsoft employees and how this compensation relates to Mr. Nadella’s compensation.
Our Compensation Peer Group
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Our Compensation Peer Group
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Our Compensation Peer Group
In setting our fiscal year 2020 executive compensation design and compensation levels, we considered pay practices at the largest technology and general industry companies that were selected after review of three primary screening criteria: market capitalization, revenue, and earnings before interest, taxes, depreciation, and amortization (“EBITDA”). Our Compensation Committee selected this peer group because it believed these companies are led by executives with similarly complex roles and responsibilities. The Committee also screened these companies to ensure they had a significant presence outside the U.S. and excluded companies in the financial services sector because of the different regulatory environment in which they operate. For fiscal year 2020, this compensation peer group comprised these companies:
Our Compensation Peer Group
| Peer Group Used for Fiscal Year 2020 Pay Analysis ($ millions) |
Our Compensation Peer Group
| Peer Company | Market Capitalization | Revenue | EBITDA | | Technology | | | | | Alphabet | $966,497 | $166,030 | $46,035 | | Amazon | $1,376,033 | $321,782 | $39,575 | | Apple | $1,581,165 | $273,857 | $78,671 | | Cisco Systems | $196,928 | $49,301 | $15,912 | | Facebook | $647,453 | $75,157 | $34,084 | | IBM | $107,231 | $75,499 | $15,577 | | Intel | $253,320 | $78,955 | $38,119 | | Oracle | $169,606 | $39,068 | $16,330 | | Qualcomm | $102,605 | $19,999 | $4,890 | | General Industry | | | | | AT&T | $215,389 | $175,138 | $54,417 | | Boeing | $103,441 | $66,606 | -$1,033 | | Chevron | $166,591 | $114,984 | $20,357 | | Coca-Cola | $191,896 | $34,326 | $11,249 | | Comcast | $177,911 | $105,549 | $32,971 | | ExxonMobil | $189,086 | $213,857 | $23,639 | | Johnson & Johnson | $370,503 | $80,503 | $27,210 | | Merck | $195,189 | $47,194 | $19,046 | | PepsiCo | $183,511 | $67,654 | $12,360 | | Pfizer | $181,643 | $49,197 | $20,055 | | Procter & Gamble | $296,013 | $70,950 | $19,185 | | Verizon | $228,128 | $129,726 | $47,511 | | Walmart | $339,211 | $542,026 | $33,816 | | Walt Disney | $201,417 | $69,762 | $11,879 | | Microsoft | $1,543,306 | $143,015 | $65,259 | | | 99%ile | 74%ile | 97%ile |
Our Compensation Peer Group
The following graph shows Microsoft’s position within the peer group on the three screening criteria (in billions).
Our Compensation Peer Group
| | Min | 25(th) Percentile | 50(th)Percentile | 75(th)Percentile | MSFT | Max | | EBITDA | -$1 | $16 | $20 | $36 | $65 | $79 | | Revenue | $20 | $58 | $75 | $148 | $143 | $542 | | Market Cap | $103 | $180 | $197 | $318 | $1,543 | $1,581 |
Our Compensation Peer Group
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Peer Group Used for Fiscal Year 2021 Pay Analysis
Peer Group Used for Fiscal Year 2021 Pay Analysis For fiscal year 2021, the Compensation Committee reviewed the evolution of our business against our historical peer group, and as a result approved the use of two peer groups with two components to better reflect the differentiated business, talent and, in some cases, pay models, across sectors:
Peer Group Used for Fiscal Year 2021 Pay Analysis
| 1) | Primary Peer Group of bellwether technology companies, which reflect Microsoft’s more direct competitors for executive talent |
Peer Group Used for Fiscal Year 2021 Pay Analysis
| 2) | Secondary Peer Group of “large cap” general industry companies, which reflect the complexities of operating large, global, innovative businesses and Microsoft’s broader competition for executive talent |
Peer Group Used for Fiscal Year 2021 Pay Analysis
The companies in the fiscal 2021 peer group are:
Primary Peer Group – Technology
Primary Peer Group – Technology
Primary Peer Group – Technology
| Adobe Alphabet | Amazon Apple | Cisco Systems Facebook | IBM Intel | Oracle Qualcomm | Salesforce | | Secondary Peer Group – General Industry | | | | | | | Accenture AT&T | Comcast Honeywell | Johnson & Johnson Merck | Pfizer Procter & Gamble | Tesla Walt Disney | Verizon |
Performance-Based Pay and Goal Setting
| • | 50% of our Named Executives’ annual cash incentive was tied to achieving pre-established financial targets |
Performance-Based Pay and Goal Setting
| • | 50% of our Named Executives’ annual target equity opportunity was delivered in the form of a performance-based stock award with payouts based on achievement against pre-established strategic objectives |
Performance-Based Pay and Goal Setting
| • | Management and the Compensation Committee discussed in detail the metrics that determine performance stock awards to ensure they are leading indicators that will drive long-term performance and value creation |
Performance-Based Pay and Goal Setting
| • | Performance stock awards included a relative TSR multiplier to reward significant positive outperformance, thereby strengthening the alignment of the interests of our executive officers with the long-term interests of our shareholders |
Performance-Based Pay and Goal Setting
As described above, in response to investor feedback, for fiscal year 2021 we are increasing the proportion of our CEO pay that is weighted toward objective, financial performance goals, with 70% of the annual cash incentive tied to pre-established financial metrics and 70% of the equity award in the form of PSAs. In addition, for all of our executive officers, in fiscal year 2021 we have added a downward adjustment to the relative TSR modifier so that payouts will be reduced for TSR performance below the 40th percentile of the S&P 500. The Compensation Committee sets cash incentive and PSA metric targets at the levels established, after review and engagement by the Board, for internal budgeting purposes. These targets are intended to be challenging but achievable. The Committee then determines thresholds, maximums, and interim payout levels after considering historical data, upside/downside scenarios, analytics, and year-over-year growth comparisons, to ensure rigorous alignment of payouts to performance. Where we have strong historical data, as with the Revenue and Operating Income measures used to determine 50% of the annual cash incentive (70% for the CEO in fiscal year 2021), we set thresholds at an estimated 90% probability of payout, and maximums at an estimated 20% probability of payout. Where we do not have strong historical data that will allow for probability estimates, as is the case with our more recently developed PSA metrics, we set thresholds that we believe are reasonably achievable and maximums that we believe can be reached only with exceptional performance. The Committee actively reviews the appropriateness of payout thresholds and maximums for each metric. The Committee focuses on ensuring that our challenging goals, when achieved, will result in shareholder value creation and, historically, our performance on these challenging goals has led to substantial returns to our shareholders.
Section 4 – Fiscal Year 2020 Compensation Program Design
Section 4 – Fiscal Year 2020 Compensation Program Design Consistent with our philosophy, the compensation program for our Named Executives in fiscal year 2020 consisted of an annual base salary plus annual cash and equity incentives awarded under our Executive Incentive Plan (“Incentive Plan”). Annual cash incentives were performance-based, with 50% determined formulaically based on achievement against pre-established financial targets and 50% determined based on operational performance in three weighted performance categories. As noted above in the section titled Enhancements to Compensation Program, for fiscal year 2021, in response to investor feedback 70% of our CEO’s annual cash incentive will be determined based on formulaic achievement against pre-established financial targets and 30% will be determined based on operational performance in three weighted performance categories. The Compensation Committee believes this will strengthen the CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy. Equity incentives under the Incentive Plan were allocated 50% to target performance stock awards (“PSAs”) and 50% to stock awards with four-year vesting (“SAs”). The Compensation Committee and the independent Board members believed the 50/50 balance between PSAs and SAs appropriately supported our long-term business goals and long-term retention incentives for our Named Executives. As noted above, in response to investor feedback, for fiscal year 2021 our CEO will receive 70% of his stock awards as PSAs. The Compensation Committee believes this will strengthen the alignment of pay and performance for our CEO.
Annual Cash Incentives
Annual Cash Incentives Cash incentives are determined in two performance categories, as follows.
Annual Cash Incentives
| “Incentive Plan Revenue” and “Incentive Plan Operating Income” are non-GAAP financial measures defined on pages 43-44.* |
Equity Compensation
Equity Compensation Under the Incentive Plan, each year our Named Executives receive both PSAs and SAs.
Performance Stock Awards
Performance Stock Awards PSAs are designed to encourage our executives to achieve strong goals in key performance metrics selected to drive long-term performance and value creation. Due to the dynamic nature of our business and the specificity in the performance metrics that are chosen under our PSA program, we believe that measuring performance annually over our three-year performance period and modifying awards based on our three-year relative TSR results provides the most accurate assessment of our Company’s long-term trajectory and performance achievements.
Performance Stock Awards
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
Fiscal Year 2020 Performance Stock Award Metrics and Weights Fiscal year 2020 PSA metrics are strategic measures that drive long-term performance and value creation. Targets for the PSA metrics are set at the target levels established under Microsoft’s fiscal year business plan and are intended to be difficult but attainable, and additional information about our goal-setting process is on page 38. The metrics and weights used for fiscal year 2020 are in the table below.
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| Fiscal Year 2020 PSA Metrics |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| Performance Metrics | Description | Weights | | Commercial Cloud Revenue* | Net revenue for commercial cloud-based solutions, including Office 365 Commercial, Azure, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties | 35% | | Commercial Cloud Subscribers | Paid seats for current or new per-user SaaS cloud services primarily in commercial customer segment | 34% | | Teams Monthly Active Usage | Unique monthly active users of Teams in Enterprise, Corporate, Small and Medium Business, and Education | 10% | | Xbox Game Pass Subscribers | Current number of paid Game Pass Subscriptions (Console, PC, Ultimate) | 7% | | Surface Revenue* | Net revenue for Surface branded family of devices and accessories (excluding revenue from Surface Hub 1) | 7% | | LinkedIn Sessions | Measure of member visits as a leading indicator of the overall quality of the LinkedIn member experience and opportunity for members to realize their economic opportunity | 7% | | * “Commercial Cloud Revenue” and “Surface Revenue”, when used as PSA metrics in this Compensation Discussion and Analysis, are non-GAAP financial measures defined on page 48. | | |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
The fiscal year 2020 PSA metrics were used to establish performance goals for (1) year 3 of the 2018 PSAs, (2) year 2 of the 2019 PSAs, and (3) year 1 of the 2020 PSAs, as shown below.
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| PSA Metrics |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| | | Our fiscal year 2020 PSA metric results can be found on pages 48-49 below. |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| 42 | |
Fiscal Year 2020 Performance Stock Award Metrics and Weights
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Fiscal Year 2020 Cash Incentive Awards
Fiscal Year 2020 Cash Incentive Awards We did not increase our target percentages for cash incentive awards in fiscal year 2020, which are measured as a percentage of base salary for fiscal year 2020, which were: Satya Nadella – 300%; Amy Hood – 250%; Jean-Philippe Courtois – 225%; Margaret Johnson – 200%; and Bradford Smith – 250%. Our Compensation Committee and, for Mr. Nadella, the independent members of our Board, determined the fiscal year 2020 cash incentive awards. These were based on two performance categories: financial results and operational performance results. Final results under each portion of the cash incentive, and the resulting awards, were as follows:
Fiscal Year 2020 Cash Incentive Awards
| | Nadella | Hood | Courtois | Johnson(1) | Smith | | Financial results (50%) | 146.46% | 146.46% | 146.46% | 146.46% | 146.46% | | Operational results (50%) | 146.66% | 160.00% | 150.00% | 100.00% | 160.00% | | Total FY20 cash incentive (% of target) | 146.56% | 153.23% | 148.23% | 123.23% | 153.23% | | Total FY20 cash incentive ($) | $10,992,000 | $3,734,981 | $2,591,432 | $1,762,189 | $3,294,445 |
Fiscal Year 2020 Cash Incentive Awards
| Ms. Johnson resigned her position as an executive officer of the Company effective July 1, 2020.(1) |
Financial Results
| Financial Results (50% weight) ($ in billions) | FY19 Actual | FY20 Threshold | FY20 Target | FY20 Maximum | FY20 Actual | | FY20 Incentive Plan Revenue | $135.25 | $141.70 | $149.01 | $155.58 | $150.14 | | FY20 Incentive Plan Operating Income | $44.29 | $45.05 | $48.71 | $54.56 | $53.14 |
Fiscal Year 2018 PSAs (Completed Performance Period)
| Fiscal Year 2018 PSA Core Metric Payout Percentages |
Fiscal Year 2018 PSAs (Completed Performance Period)
| Metric (FY18 and FY19) | Weight | FY18 Payout (%) | FY19 Payout (%) | Metric (FY20) | Weight | FY20 Payout (%) | | Commercial Cloud Revenue | 34% | 200.00% | 99.16% | Commercial Cloud Revenue | 35% | 98.15% | | Commercial Cloud Subscribers | 33% | 200.00% | 114.79% | Commercial Cloud Subscribers | 34% | 107.35% | | Windows 10 Monthly Active Devices | 11% | 200.00% | 129.46% | Teams Monthly Active Usage | 10% | 200.00% | | Consumer Post- Sales Monetization Gross Margin | 11% | 200.00% | 144.33% | Xbox Game Pass Subscribers | 7% | 147.95% | | Surface Gross Margin | 5% | 200.00% | 105.41% | Surface Revenue | 7% | 90.10% | | LinkedIn Sessions | 6% | 200.00% | 110.82% | LinkedIn Sessions | 7% | 129.64% | | Weighted Performance for FY: | | 200.00% | 113.63% | | | 116.59% | | Core Metric Performance (average of FY18, FY19, and FY20 performance): | | | | | | 143.41% |
Relative TSR Multiplier
Relative TSR Multiplier The core metric results for the fiscal year 2018 PSAs were then subject to adjustment based on the relative TSR performance multiplier, which compares our TSR for the three-fiscal year performance period to the TSR of the S&P 500. Our absolute TSR for
Relative TSR Multiplier
| 48 | |
Relative TSR Multiplier
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Relative TSR Multiplier
the performance period was 209.69% ($144.54), which satisfied the PSA payout requirement that TSR be positive. Our TSR relative to the S&P 500 was in the 99.57th percentile of the S&P 500, well in excess of the 80th percentile performance that was a condition to receiving the maximum 150% multiplier. Based on this result, the total payment percentage for the fiscal 2018 PSAs was increased by 50%, resulting in the payout to our Named Executives of 215.12% of the target fiscal 2018 PSA shares.
Vesting of Mr. Nadella’s Long-Term Performance Stock Award
Vesting of Mr. Nadella’s Long-Term Performance Stock Award Upon Mr. Nadella’s appointment to CEO, he was granted a one-time long-term performance-based stock award (“LTPSA”). LTPSA payouts are tied to Microsoft’s total shareholder return relative to the S&P 500 (“relative TSR”) over three overlapping five-year performance periods. The first of these periods commenced with Mr. Nadella’s appointment as CEO and ended February 3, 2019. The second of these periods ended February 3, 2020. Under the LTPSA, target awards are paid if Microsoft’s relative TSR is at the 60% level, and at the maximum 150% of target level if Microsoft’s relative TSR is at or above the 80% level. For each of the three five-year performance periods, the number of shares earned at threshold is 150,000, at target 600,000, and at maximum 900,000. During the second five-year performance period, Microsoft’s market capitalization increased $985 billion (from $341 billion to $1,326 billion), and Microsoft’s relative TSR was in the 99th percentile, resulting in Mr. Nadella earning and vesting in the maximum 900,000 shares.
Post-Employment Compensation
Post-Employment Compensation Our Named Executives do not have employment contracts. No Named Executive is entitled to any payments or benefits following a change in control of Microsoft. Our Named Executives may be eligible for additional vesting of their outstanding SAs following termination of employment on the same terms as our other employees. All U.S. employees who retire from Microsoft after (a) age 65 or (b) age 55 with 15 years of service are eligible for the continuation of vesting of outstanding SAs granted at hire or at the time of annual performance review, if the award was granted over one year before the date of retirement. A pro-rata portion of PSA shares will also continue vesting if the retirement occurs more than one year after the beginning of the performance period. As of June 30, 2020, only Mr. Smith was retirement eligible, and the value of his SAs and PSAs eligible for continued vesting if he retired on that date was $27,924,625 (assuming PSAs are earned at 100% of target). All employees whose employment with Microsoft terminates due to death or total and permanent disability generally fully vest in their outstanding SAs. Our PSAs, and Mr. Nadella’s LTPSA that was granted to him in connection with his appointment as CEO, vest for the target number of shares upon death or total and permanent disability. The value of our Named Executives’ SAs, PSAs, and LTPSAs that would have vested assuming a June 30, 2020 termination of employment due to death or total and permanent disability was: Mr. Nadella, $227,201,413; Ms. Hood, $52,481,973; Mr. Courtois, $38,781,069; Ms. Johnson, $25,204,714; and Mr. Smith, $44,283,980. In addition, our Named Executives are eligible to participate in the Microsoft Senior Executive Severance Benefit Plan (“Severance Plan”). The Severance Plan was adopted to help ensure continuity of key leaders by providing designated executives severance payments and benefits if their employment is terminated without cause. For purposes of the Severance Plan, “cause” means (i) a conviction or plea of guilty or no contest to a felony or certain misdemeanors; (ii) engaging in gross misconduct; (iii) repeated failure to substantially perform the duties of the executive’s role; (iv) violation of any securities laws; or (v) violation of Microsoft’s policies designed to prevent violations of law. The Severance Plan payments and benefits have four components – cash, stock vesting, continued health care, and outplacement assistance – all provided by Microsoft. Cash payments consist of (i) a severance payment equal to 12 months’ base salary plus target annual cash incentive award, payable in a lump sum within 60 days after termination of employment; and (ii) a pro-rata payment of the executive officer’s target annual cash incentive award for the partial year of work, payable in a lump sum at the same time other Incentive Plan cash awards for the year are paid. Stock vesting applies to SAs and PSAs. SAs that otherwise would vest in the 12-month period after employment terminates continue to vest. After the first year of the PSA performance period is completed, a pro-rata portion of any PSA shares will also vest, and the number of shares subject to pro-ration is the lesser of the target award shares or the shares that are otherwise earned and payable after the end of the performance period. Continued contributions to premiums for COBRA health care continuation coverage and outplacement assistance will be provided on the same terms as are available to other employees whose employment is terminated without cause. There is no change-in-control provision in the Severance Plan. To receive the Severance Plan payments and benefits, the Named Executive must execute a separation agreement that includes a release of claims in favor of Microsoft, confidentiality and non-disparagement provisions, and 12-month non-compete/non-solicitation restrictions. Mr. Nadella participates in the Severance Plan on the same terms as our other executive officers, except that under his LTPSA award, if Microsoft terminates his employment without cause (as defined in the Severance Plan) during a performance period, he will vest in a pro-rata fraction of the threshold 150,000 shares of Microsoft common stock subject to the award for his actual period of employment during the performance period. This table shows the amounts that would have been payable to our Named Executives upon a termination of employment without cause on June 30, 2020.
Post-Employment Compensation
| Named Executive | Amount Payable ($) | | Satya Nadella | $107,182,736(1) | | Amy E. Hood | $38,935,180 | | Jean-Philippe Courtois | $29,642,965 | | Margaret L. Johnson | $20,003,701 | | Bradford L. Smith | $37,944,799(2) |
Post-Employment Compensation
| Includes $80,217,661 in Severance Plan benefits, in addition to $26,965,075 in stock vesting under Mr. Nadella’s LTPSA award.(1) |
Post-Employment Compensation
| Includes $10,020,175 in Severance Plan benefits, in addition to $27,924,625 in retirement-based stock vesting under Mr. Smith’s SAs and PSAs.(2) |
Deductibility of Executive Compensation
| • | The portion of fiscal year 2018 cash incentives payable based on formulaic financial results |
Deductibility of Executive Compensation
| We performed an annual assessment for the Compensation and Audit Committees of our Board of Directors to determine whether the risks arising from our fiscal year 2020 compensation policies and practices were reasonably likely to have a material adverse effect on Microsoft. Our assessment reviewed the material elements of executive and non-executive employee compensation. We concluded these policies and practices do not create risk that is reasonably likely to have a material adverse effect on Microsoft. The structure of our compensation program for our executive officers does not incentivize unnecessary or excessive risk-taking. The base salary component of compensation does not encourage risk-taking because it is a fixed amount. The Incentive Plan awards have these risk-limiting characteristics: | | | • Cash incentive awards under the Incentive Plan are limited to 200% of a target cash incentive award • Cash incentive awards are structured 50% based on pre-established goals (balance of growth and profitability goals) and 50% based on individual performance as assessed across three performance categories, diversifying the risk associated with any single aspect of performance • The majority of Incentive Plan award value is delivered in awards for shares of Microsoft common stock with multi-year vesting schedules or performance periods, which aligns the interests of our executive officers to long-term shareholder interests • We maintain robust executive stock ownership requirements ranging from 5x to 15x annual salary, which reduces incentive for excessive short-term risk taking • PSA metrics further diversify the elements of the program to minimize the incentive to produce any particular outcome | • PSAs use Company-wide measures that are not specific to any one executive officer’s sphere of responsibility and that apply equally to all participants to encourage a unified and responsible approach to achieving financial and strategic goals • Overlapping performance periods for PSAs limit the impact of short-term business performance or share price fluctuations on final outcomes • Equity awards are not made in the form of stock options, which may provide an asymmetrical incentive to take unnecessary or excessive risks to increase the market price of Microsoft common stock • Members of our Compensation Committee (or for Mr. Nadella, the independent members of our Board of Directors) approve all Incentive Plan awards to executive officers, including performance achievement levels that determine final payout outcomes |
Summary Compensation Table
Summary Compensation Table This table contains information about compensation awarded to our Named Executives for the fiscal years ended June 30, 2020, 2019, and 2018. None of our Named Executives received stock options during those years.
Summary Compensation Table
| Named Executive and Principal Position | Year | Salary ($) | Stock Awards(1) ($) | Non-equity Incentive Plan Compensation(2) ($) | All Other Compensation(3) ($) | Total ($) | | Satya Nadella Chief Executive Officer and Director | 2020 | 2,500,000 | 30,718,608 | 10,992,000 | 111,180 | 44,321,788 | | | 2019 | 2,333,333 | 29,668,651 | 10,796,868 | 111,363 | 42,910,215 | | | 2018 | 1,500,000 | 16,807,208 | 7,425,000 | 111,055 | 25,843,263 | | Amy E. Hood Executive Vice President and Chief Financial Officer | 2020 | 975,000 | 14,792,679 | 3,734,981 | 123,574 | 19,626,234 | | | 2019 | 958,333 | 15,316,653 | 3,855,040 | 97,608 | 20,227,634 | | | 2018 | 875,000 | 10,232,265 | 3,718,750 | 98,442 | 14,924,457 | | Jean-Philippe Courtois(4) Executive Vice President, President, Global Sales, Marketing and Operations | 2020 | 777,000 | 10,475,186 | 2,591,432 | 105,686 | 13,949,304 | | | 2019 | 798,000 | 11,309,474 | 2,889,049 | 88,231 | 15,084,754 | | | 2018 | 833,000 | 7,149,549 | 3,092,513 | 51,187 | 11,126,249 | | Margaret L. Johnson Executive Vice President, Business Development | 2020 | 715,000 | 6,983,520 | 1,762,189 | 114,773 | 9,575,482 | | | 2019 | 715,000 | 7,539,668 | 2,086,456 | 91,525 | 10,432,649 | | | 2018 | 715,000 | 5,702,554 | 2,252,236 | 88,225 | 8,758,015 | | Bradford L. Smith President and Chief Legal Officer | 2020 | 860,000 | 12,402,137 | 3,294,445 | 111,131 | 16,667,713 | | | 2019 | 850,000 | 13,045,437 | 3,366,148 | 111,412 | 17,372,997 | | | 2018 | 800,000 | 9,033,868 | 3,566,700 | 111,055 | 13,511,623 |
Summary Compensation Table
| Includes the grant date fair values for SAs and PSAs calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 based on the market price of the shares subject to the award on the date of grant. The value of SAs is reduced by the present value of estimated future dividends because dividends are not paid on SA shares until vesting. The value of PSAs is calculated using a Monte-Carlo simulation valuation performed as of the date of grant by an independent third party. Because the grant date for a PSA occurs when performance targets are approved, and we approved performance targets in each of fiscal years 2020, 2019, and 2018, PSA values in this column include: (i) for fiscal year 2020, 33.33% of each of the fiscal year 2020 PSAs, the fiscal year 2019 PSAs, and the fiscal year 2018 PSAs (ii) for fiscal year 2019, 33.33% of each of the fiscal year 2019 PSAs, the fiscal year 2018 PSAs, and the fiscal year 2017 PSAs; and (iii) for fiscal year 2018, 33.33% of each of the fiscal year 2018 PSAs and fiscal year 2017 PSAs, and 16.66% of the fiscal year 2016 PSAs. The grant date fair values of included PSAs, assuming at the grant date that the highest level of performance conditions will be achieved for each PSA are: (i), for fiscal year 2020, Mr. Nadella, $37,150,358; Ms. Hood, $18,704,870; Mr. Courtois, $13,664,213; Ms. Johnson, $9,109,511; and Mr. Smith, $15,866,522; (ii) for fiscal year 2019, Mr. Nadella, $35,050,220; Ms. Hood, $19,823,991; Mr. Courtois, $15,380,642; Ms. Johnson, $10,253,798; and Mr. Smith, $17,211,903; and (iii) for fiscal year 2018, Mr. Nadella, $21,723,387; Ms. Hood $12,921,957; Mr. Courtois, $7,114,107; Ms. Johnson, $7,551,291; and Mr. Smith, $11,429,189.(1) |
Summary Compensation Table
| Includes Incentive Plan cash incentives.(2) |
Summary Compensation Table
| None of our Named Executives received reimbursements for relocation expenses or tax-gross-up payments in the last three fiscal years. Details about the amounts in the “All Other Compensation” column for fiscal year 2020 are set forth in the table below.(3) |
Grants of Plan-Based Awards
Grants of Plan-Based Awards This table provides information on grants of awards under any plan to the Named Executives in the fiscal year ended June 30, 2020.
Grants of Plan-Based Awards
| | Award(1) | Grant Date | Estimated Possible Payouts under Non-Equity Incentive Plan Awards(2) | | | Estimated Future Payouts under Equity Incentive Plan Awards(3) | | | All Other Stock Awards (#) | Grant Date Fair Value of Stock Awards(4) ($) | | Named Executive | | | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Satya Nadella | 2020 Cash Incentive | | 0 | 7,500,000 | 15,000,000 | | | | | | | | 2020 PSA | 9/18/2019 | | | | 1,058 | 30,224 | 90,672 | | 4,875,433 | | | 2019 PSA | 9/18/2019 | | | | 928 | 37,093 | 111,279 | | 6,860,412 | | | 2018 PSA | 9/18/2019 | | | | 836 | 33,436 | 100,308 | | 6,839,334 | | | 2020 SA | 9/18/2019 | | | | | | | 90,672 | 12,143,429 | | Amy E. Hood | 2020 Cash Incentive | | 0 | 2,437,500 | 4,875,000 | | | | | | | | 2020 PSA | 9/3/2019 | | | | 474 | 13,540 | 40,620 | | 2,168,214 | | | 2019 PSA | 9/3/2019 | | | | 416 | 16,618 | 49,854 | | 3,022,814 | | | 2018 PSA | 9/3/2019 | | | | 519 | 20,731 | 62,193 | | 4,161,407 | | | 2020 SA | 9/18/2019 | | | | | | | 40,621 | 5,440,245 | | Jean-Philippe Courtois | 2020 Cash Incentive | | 0 | 1,748,250 | 3,496,500 | | | | | | | | 2020 PSA | 9/3/2019 | | | | 318 | 9,067 | 27,201 | | 1,451,952 | | | 2019 PSA | 9/3/2019 | | | | 279 | 11,128 | 33,384 | | 2,024,183 | | | 2018 PSA | 9/3/2019 | | | | 418 | 16,718 | 50,154 | | 3,355,971 | | | 2020 SA | 9/18/2019 | | | | | | | 27,202 | 3,643,080 | | Margaret L. Johnson | 2020 Cash Incentive | | 0 | 1,430,000 | 2,860,000 | | | | | | | | 2020 PSA | 9/3/2019 | | | | 212 | 6,045 | 18,135 | | 967,986 | | | 2019 PSA | 9/3/2019 | | | | 186 | 7,419 | 22,257 | | 1,349,455 | | | 2018 PSA | 9/3/2019 | | | | 279 | 11,146 | 33,438 | | 2,237,314 | | | 2020 SA | 9/18/2019 | | | | | | | 18,135 | 2,428,764 | | Bradford L. Smith | 2020 Cash Incentive | | 0 | 2,150,000 | 4,300,000 | | | | | | | | 2020 PSA | 9/3/2019 | | | | 390 | 11,123 | 33,369 | | 1,781,073 | | | 2019 PSA | 9/3/2019 | | | | 342 | 13,650 | 40,950 | | 2,482,996 | | | 2018 PSA | 9/3/2019 | | | | 457 | 18,279 | 54,837 | | 3,669,193 | | | 2020 SA | 9/18/2019 | | | | | | | 33,368 | 4,468,876 |
Grants of Plan-Based Awards
| All awards are granted under the Executive Incentive Plan. SAs and PSAs were granted under the 2017 Stock Plan, except that the 2018 PSAs were granted under the 2001 Stock Plan.(1) |
Grants of Plan-Based Awards
| This column represents fiscal year 2020 cash incentives as reported in the “Non-equity Incentive Plan Compensation” column of the Summary Compensation Table.(2) |
Grants of Plan-Based Awards
| These columns represent the threshold, target, and maximum shares for the PSAs with a grant date in fiscal year 2020. Because the grant date for a PSA occurs when PSA performance targets are approved, the reported number of shares is calculated as the target shares for the portion of the PSAs for which performance targets were set in fiscal year 2020 (33.33% of each of the 2020, 2019, and 2018 PSAs). The threshold is calculated as if the threshold of only the least weighted metric (50% of 7% for 2020 PSAs and 50% of 5% for each of the 2019, and 2018 PSAs) is met. The maximum is calculated assuming all maximum targets were met and the relative TSR multiplier was fully earned.(3) |
Grants of Plan-Based Awards
| Includes the grant date fair values for SAs and PSAs calculated in accordance with FASB ASC Topic 718 based on the market price of the shares subject to the award on the date of grant. The value of SAs is reduced by the present value of estimated future dividends because dividends are not paid on SA shares until vesting. Values for PSAs in this column are calculated using a Monte Carlo simulation valuation performed as of the date of grant by an independent third party.(4) |
Grants of Plan-Based Awards
| 54 | |
Grants of Plan-Based Awards
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Outstanding Equity Awards at June 30, 2020
Outstanding Equity Awards at June 30, 2020 This table provides information about unvested SAs and PSAs held by the Named Executives on June 30, 2020.
Outstanding Equity Awards at June 30, 2020
| | Stock Awards | | | | | | Named Executive | Award Date | Number of Shares or Units of Stock that Have Not Vested(1) (#) | Market Value of Shares or Units of Stock that Have Not Vested(2) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(1) (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested(2) ($) | | Satya Nadella | 2/4/2014 | | | 150,000(3) | 30,526,500 | | | 9/20/2016 | 16,316(4) | 3,320,469 | | | | | 9/19/2017 | 37,616(4) | 7,655,232 | | | | | 9/19/2017 | | | 100,308(5) | 20,413,681 | | | 9/18/2018 | 69,550(4) | 14,154,121 | | | | | 9/18/2018 | | | 74,186(5) | 15,097,593 | | | 9/18/2019 | 90,672(4) | 18,452,659 | | | | | 9/18/2019 | | | 30,224(5) | 6,150,886 | | Amy E. Hood | 9/19/2016 | 10,116(4) | 2,058,707 | | | | | 9/18/2017 | 23,322(4) | 4,746,260 | | | | | 9/18/2017 | | | 62,191(5) | 12,656,490 | | | 9/17/2018 | 31,159(4) | 6,341,168 | | | | | 9/17/2018 | | | 33,236(5) | 6,763,858 | | | 9/3/2019 | | | 13,540(5) | 2,755,525 | | | 9/18/2019 | 40,621(4) | 8,266,780 | | | | Jean-Philippe Courtois | 8/31/2015 | 1,655(6) | 336,809 | | | | | 9/19/2016 | 3,133(6) | 637,597 | | | | | 12/21/2016 | 8,158(7) | 1,660,235 | | | | | 9/18/2017 | 18,808(4) | 3,827,616 | | | | | 9/18/2017 | | | 50,154(5) | 10,206,841 | | | 9/17/2018 | 20,865(4) | 4,246,236 | | | | | 9/17/2018 | | | 22,256(5) | 4,529,319 | | | 9/3/2019 | | | 9,067(5) | 1,845,225 | | | 9/18/2019 | 27,202(8) | 5,535,879 | | | | Margaret L. Johnson | 9/19/2016 | 5,439(4) | 1,106,891 | | | | | 9/18/2017 | 12,539(4) | 2,551,812 | | | | | 9/18/2017 | | | 33,436(5) | 6,804,560 | | | 9/17/2018 | 13,910(4) | 2,830,824 | | | | | 9/17/2018 | | | 14,838(5) | 3,019,681 | | | 9/3/2019 | | | 6,045(5) | 1,230,218 | | | 9/18/2019 | 18,135(4) | 3,690,654 | | | | Bradford L. Smith | 9/19/2016 | 8,920(4) | 1,815,309 | | | | | 9/18/2017 | 20,564(4) | 4,184,980 | | | | | 9/18/2017 | | | 54,835(5) | 11,159,471 | | | 9/17/2018 | 25,595(4) | 5,208,838 | | | | | 9/17/2018 | | | 27,300(5) | 5,555,823 | | | 9/3/2019 | | | 11,123(5) | 2,263,642 | | | 9/18/2019 | 33,368(4) | 6,790,722 | | |
Outstanding Equity Awards at June 30, 2020
| PSAs with a grant date in fiscal years 2020, 2019 or 2018 are reported assuming payout at target award levels. Mr. Nadella’s LTPSA is reported at the minimum award level.(1) |
Outstanding Equity Awards at June 30, 2020
| The market value is the number of shares shown in the table multiplied by $203.51, the closing market price of Microsoft common stock on June 30, 2020.(2) |
Outstanding Equity Awards at June 30, 2020
| Vests with shares determined subject to performance on February 3, 2021.(3) |
Outstanding Equity Awards at June 30, 2020
| Vests 25% one year from the last business day of August preceding the award date and 12.5% semi-annually thereafter.(4) |
Outstanding Equity Awards at June 30, 2020
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
Outstanding Equity Awards at June 30, 2020
| Award shares that are earned vest in full following three-year performance period.(5) |
Outstanding Equity Awards at June 30, 2020
| Vests 10% on the last day of February following the award date and 10% semi-annually thereafter.(6) |
Outstanding Equity Awards at June 30, 2020
| Vests 25% on December 21, 2017, 12.5% on February 28, 2018, and 12.5% semi-annually thereafter.(7) |
Outstanding Equity Awards at June 30, 2020
| Vests 25% on September 18, 2020, 12.5% on March 18, 2021, and 12.5% semi-annually thereafter.(8) |
Option Exercises and Stock Vested
Option Exercises and Stock Vested This table provides information on an aggregate basis about stock awards that vested during the fiscal year ended June 30, 2020 for each of the Named Executives. Microsoft has not granted stock options, other than options substituted in acquisitions, since 2003. No Named Executives held any Microsoft stock options during the fiscal year.
Option Exercises and Stock Vested
| | Stock Awards | | | Named Executive | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(1) ($) | | Satya Nadella | 1,278,711 | 215,151,849 | | Amy E. Hood | 228,197 | 32,041,785 | | Jean-Philippe Courtois | 207,207 | 29,141,505 | | Margaret L. Johnson | 120,272 | 16,880,158 | | Bradford L. Smith | 198,337 | 27,847,281 |
Option Exercises and Stock Vested
| The value realized on vesting is calculated by multiplying the number of shares shown in the table by the market value of the shares on the vesting date.(1) |
Nonqualified Deferred Compensation
Nonqualified Deferred Compensation This table provides information about the Named Executives’ earnings and balances under our U.S. nonqualified Deferred Compensation Plan in fiscal year 2020. Microsoft does not contribute to the Deferred Compensation Plan. In fiscal year 2020, Mr. Nadella received a distribution of his $222,012 account balance upon his previously elected distribution date. This distributed account balance consisted of contributions made before Mr. Nadella was Chief Executive Officer and earnings thereon. At the end of fiscal year 2020, no Named Executive had an account balance under the Plan.
Nonqualified Deferred Compensation
| Named Executive | Executive Contributions in Fiscal Year 2020(1) ($) | Aggregate Earnings in Fiscal Year 2020(1) ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at June 30, 2020(1) ($) | | Satya Nadella | 0 | 14,721 | 222,012 | 0 | | Amy E. Hood | 0 | 0 | 0 | 0 | | Jean-Philippe Courtois | 0 | 0 | 0 | 0 | | Margaret L. Johnson | 0 | 0 | 0 | 0 | | Bradford L. Smith | 0 | 0 | 0 | 0 |
Nonqualified Deferred Compensation
| These amounts have not been included in the Summary Compensation Table for fiscal year 2020 or for previous years.(1) |
Nonqualified Deferred Compensation
Microsoft’s Deferred Compensation Plan is unfunded and unsecured. It allows participants to defer a specified percentage of their base salary (up to 75%) and/or eligible cash incentives (up to 100%). Participation in the Deferred Compensation Plan is limited to U.S. senior managers, including our U.S. Named Executives. Microsoft does not contribute to the Deferred Compensation Plan or guarantee any returns on participant contributions. When an employee elects to participate in the Deferred Compensation Plan, the employee must specify the percentage of base salary and/or cash incentive award to be deferred and the timing of distributions. No withdrawals are permitted prior to the previously elected distribution date, other than withdrawals for certain severe financial hardships as permitted by applicable law. Amounts deferred under the Deferred Compensation Plan are credited with hypothetical investment earnings based on participant investment elections made from among deemed investment options available under the plan.
Nonqualified Deferred Compensation
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Nonqualified Deferred Compensation
| 1 | GOVERNANCE AND OUR BOARD OF DIRECTORS | 2 | NAMED EXECUTIVE OFFICER COMPENSATION | 3 | AUDIT COMMITTEE MATTERS | 4 | PROPOSALS TO BE VOTED ON DURING THE MEETING | 5 | INFORMATION ABOUT THE MEETING |
CEO Pay Ratio
CEO Pay Ratio For fiscal year 2020, the annual total compensation for the median employee of the Company (other than our CEO) was $172,142 and the annual total compensation of our CEO was $44,321,788. Based on this information, for fiscal year 2020 the ratio of the annual total compensation of our CEO to the annual total compensation of the median employee was 257 to 1. This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Securities Exchange Act of 1934. We identified our median employee from among our employees as of June 30, 2020, the last day of our fiscal year, excluding approximately 1,100 employees who became Microsoft employees in fiscal year 2020 in the following business acquisitions: ADRM Software, Inc., Affirmed Networks, Inc., BlueTalon, Inc., CyberX Israel LTD., Double Fine Productions, Inc., Gitalytics – Devprod Tools Inc., jclarity Limited, Mover Inc., Movere, Inc., npm, Inc., Promote IQ – SpotFront, Inc., Semmle Inc., Softomotive Holding Ltd, UpCounsel, Inc. (asset acquisition), and Azure VMWare Solutions by Virtustream LLC (asset acquisition). To identify our median employee, we used a “total direct compensation” measure consisting of: (i) fiscal year 2020 annual base pay (salary or gross wages for hourly employees, excluding paid leave), which we annualized for any permanent employees who commenced work during the year, (ii) bonuses and cash incentives payable for fiscal year 2020 (excluding allowances, relocation payments, and profit-sharing), and (iii) the dollar value of SAs granted in fiscal year 2020. Compensation amounts were determined from our human resources and payroll systems of record. Payments not made in U.S. dollars were converted to U.S. dollars using 12-month average exchange rates for the year. To identify our median employee, we then calculated the total direct compensation for our global employee population and excluded employees at the median who had anomalous compensation characteristics. Our Compensation Committee was provided with information on the fiscal year 2019 CEO pay ratio before recommending Mr. Nadella’s fiscal year 2020 target annual compensation.
Election of Directors
Election of Directors Twelve directors are to be elected during the Annual Meeting to hold office until the next annual meeting and until their respective successors are elected and qualified. If, for any reason, no directors are elected at an annual meeting, a slate of directors may be elected at a special meeting of shareholders called for that purpose in the manner provided by our Bylaws. The accompanying proxy will be voted in favor of the nominees presented in Part 1 – Governance and our Board of Directors to serve as directors unless the shareholder indicates to the contrary on the proxy. All of this year’s nominees are current directors. The Board expects that each of the nominees will be available for election, but if any of them is unable to serve at the time the election occurs, the proxy will be voted for the election of another nominee designated by our Board.