After 2 years of 22%-plus increases, top Microsoft execs' comp fell in FY 2013

It's more in sync with the change in company's operating income than in 2011-12

Compensation awarded to the top five executives at Microsoft, including current CEO Steve Ballmer, fell in fiscal year 2013, the first time in the last four years that it's declined, according to a filing with the U.S. Securities & Exchange Commission (SEC).

In the proxy statement Microsoft filed with the SEC last month in anticipation of the shareholders meeting slated for tomorrow, the Redmond, Wash. company provided data on the total direct compensation for Ballmer and the four highest-paid executives below him for the years 2009-2013.

The total direct compensation -- salary, cash bonuses and stock awards -- in 2013 for the five was $36 million, for an average of $7.2 million each, down 3.7% from the year before.

Although Microsoft says it does not directly tie executive compensation to "any specific set of metrics," in the proxy statement the company lauded its calibration of compensation with the firm's performance. "The relationship between total direct compensation and key financial results demonstrates the alignment we have established between pay and business performance," the proxy stated.

To illustrate that, Microsoft compared compensation with its operating income. In fiscal year 2013, operating income dropped to 27 billion, or 5.4% lower than the year before.

The difference in the year-over-year movement of compensation and operating income in 2013 -- the former down 3.7%, the latter off 5.4% -- was much smaller than in the previous two years, when compensation climbed significantly faster than did operating income.

In fiscal years 2011 and 2012, Microsoft's operating income rose 12.7% and 4.9%, respectively. During those same years, however, direct compensation to Ballmer and his four highest-paid underlings jumped 23.1% and 22%.

In 2012, direct compensation costs climbed more than four times faster than did operating income.

Shareholders do not vote on executive compensation, although they must approve changes in how that compensation is calculated. One of the proposals before stockholders tomorrow will ask them to okay performance criteria used in the company's incentive plan.

That plan has been amended to raise the annual maximum amounts for each designated executive from $20 million to no more than 20 million shares for stock options or stock appreciation rights, and 5 million shares for stock awards.

Cash awards are also on the change docket, with those to be limited to the value of 5 million shares at the end of a fiscal year.

"The limits on cash awards are raised to the same level as for stock awards, to give the [Compensation] Committee greater flexibility in making cash awards in a variety of situations, including new hire awards," Microsoft said in the proxy statement.

Microsoft will host its annual shareholders meeting tomorrow in Bellevue Wash., starting at 8 a.m. PT (11 a.m. ET). The company will webcast the event.

Microsoft Executive Compensation chart
At Microsoft, top executives' compensation for 2013 was much more in sync with year-over-year movement of operating income than in 2011 and 2012, when the former outpaced the latter by as much as four times. (Data: Microsoft.)

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is

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Copyright © 2013 IDG Communications, Inc.

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