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September 25, 2008 2:06 PM

Microsoft tweaks executive compensation, amends bylaws

Posted by Benjamin J. Romano

Microsoft executives will share in a new compensation plan worth up to $238 million $94.2 million, based on the company's forecast for fiscal year 2009 revenue operating income.

The new plan, announced this afternoon in a filing with the SEC, replaces the existing annual cash bonus and equity award programs for the company's executive officers beginning with fiscal year 2009.

More details, from the filing: The Compensation Committee of Microsoft's board of directors can establish award programs linked to "performance periods" of "one or more fiscal years." Participating executive officers get a fixed share of an "incentive pool." For fiscal year 2009, which began July 1, "awards will be granted from an incentive pool with maximum funding of 0.35 percent of Microsoft's fiscal year 2009 corporate operating income."

Based on Microsoft's forecasts for fiscal year 2009 revenue, that pool would have between $235.6 million and $238.4 million, by my calculations. Based on Microsoft's forecasts for fiscal year 2009 operating income, that pool would have between $92.1 million and $94.2 million.

More details:

"Awards may be further reduced or eliminated in the discretion of the Compensation Committee (or in the discretion of the Board of directors, for awards to the Company's chief executive officer, Steven A. Ballmer). The Plan specifies a maximum amount of $20,000,000 that may be paid under the Plan to a participating executive officer for one or more performance periods that end during a fiscal year. Award amounts under the Plan may be made in either or both stock awards issued under the Microsoft Corporation 2001 Stock Plan and cash. Vesting of stock awards will be determined by the Compensation Committee. The 2001 Stock Plan generally requires that stock awards vest over at least a three-year period."

I'm checking on how many executives this applies to. A past Microsoft executive compensation plan, outlined in 2006, went to the most senior 1.3 percent of the company, or about 900 people. The award under that plan was 37 million shares of company stock over three years.

(Update, 6:20 p.m.: The new plan applies to the company's eleven most senior employees:

-- Steve Ballmer, chief executive officer, (although given his large ownership of Microsoft stock, Ballmer does not receive equity compensation).

-- Ray Ozzie, chief software architect.
-- Craig Mundie, chief research and strategy officer.
-- Chris Liddell, chief financial officer.
-- Kevin Turner, chief operating officer.
-- Brad Smith, general counsel.
-- Lisa Brummel, senior vice president, human resources.
-- Robbie Bach, president, Entertainment and Devices Division.
-- Stephen Elop, president, Microsoft Business Division.
-- Bob Muglia, senior vice president, Server and Tools business. (Note, my earlier report omitted this name.)
-- The yet-to-be named president of the Platforms and Services Division is the eleventh plan participant.

More information on the group is available here).

At the same time, Microsoft amended its corporate bylaws, primarily relating "to the requirements for advance notice and additional information that a shareholder must provide when making a director nomination or proposal at the Company's annual meeting of shareholders."

I'll update later with more on the new compensation plan and bylaws changes.

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