Nadella's 2014 comp package tops $84M

Microsoft CEO Satya Nadella may have been on the job only eight months, but his compensation package for 2014 topped $84 million, according to regulatory filings Monday.

Microsoft CEO Satya Nadella may have been on the job only eight months, but his compensation package for 2014 topped $84 million, according to regulatory filings Monday.

And if Microsoft's shares beat the S&P 500 index, Nadella could earn far more, as much as $355 million in stock awards alone over the next seven years.

For Microsoft's fiscal 2014, which ended June 30, Nadella received nearly $919,000 in salary, $3.6 million as a cash bonus, and more than $79 million in share awards, the company said in a proxy statement filed with the U.S. Securities and Exchange Commission (SEC).

The bulk of the $79 million in stock grants was deferred, with the majority of those deferrals not slated to be in Nadella's hands until 2019. Excluding the one-time grants, Nadella's pay package was worth $11.6 million this year.

At $18 million, Nadella's target compensation package for 2015 will be more modest.

The proxy statement provided little new information -- Microsoft had spelled out Nadella's long-term incentive program in February when he took the reins -- but came at an awkward time for the CEO. Just two weeks ago, Nadella had told attendees of a women-in-technology conference to "have faith that the system will actually give you the right raises" and trust in "karma" to deliver. Those remarks stirred up a hornets' nest of criticism, and Nadella quickly recanted, saying he had been "completely wrong."

But the proxy statement also downplayed the maximum that Nadella could receive under what Microsoft called a "long-term performance-based stock award," or LTPSA.

Under the terms of the LTPSA, Nadella will receive between 150,000 and 900,000 shares each year from 2019 through 2021.

Nadella is guaranteed to receive at least 150,000 shares in each of those years, but can earn considerably more depending on how Microsoft's "total shareholder return" (TSR) compares to the Standard & Poor 500 component companies' TSRs over three overlapping five-year periods.

TSR is a combination of share price appreciation and dividends paid to shareholders.

The higher Microsoft's TSR ranks, the more shares vest for Nadella. For instance, if Microsoft's TSR during the first five-year period is in the 60th to 69th percentile, Nadella will get 600,000 shares. To receive the maximum of 900,000 shares, Microsoft must be in the 80th percentile or higher.

The $59.2 million allocated to the LTPSA in Nadella's 2014 compensation package, however, was based on the bare minimum of 150,000 shares per year. If Microsoft ranked 80th or higher each of those three years, Nadella would receive a total of 2.7 million shares. According to Microsoft's calculations, those shares would represent approximately $355.1 million.

(Microsoft based the dollar amounts not on current share prices, but on estimates provided by an outside firm, which used a "Monte Carlo" method -- essentially a simulation of thousands of possible outcomes of the share price -- to assign a value.)

Microsoft justified Nadella's pay in the proxy statement. "In approving the initial annual total compensation opportunity for Mr. Nadella, our Board was mindful of both the fierce competition for talented executives in the technology sector and the demands on and responsibilities of the leader of a global organization with the scope and stature of Microsoft," the statement read. Microsoft also noted that its two previous CEOs, co-founder Bill Gates and his follow-on, Steve Ballmer, had had billions in equity, and so had been compensated at levels "significantly lower" than chief executives at other similar-sized firms.

Nadella was also given a stock grant last year worth an estimated $13.5 million as part of a retention plan Microsoft used to keep several executives in place as its board searched for a new CEO when Baller announced his retirement. That award is to be paid out in four equal annual allotments starting in August 2015.

Other top-tier executives who received retention awards included Kevin Turner, chief operating officer, whose grant was valued at $10 million; CFO Amy Hood ($4.7 million); and Brad Smith, Microsoft's lead lawyer ($9.7 million).

Interestingly, Nadella's retention award was the highest of the five mentioned in the proxy statement, a clue, perhaps, that the company's directors had him in mind even as they talked to outsiders.

Microsoft will hold its annual shareholders meeting on Wednesday, Dec. 3, when stockholders will vote on the executive pay packages.

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Tags IT managementMicrosoftIT LeadershipSatya Nadella

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