Microsoft dings Ballmer's bonus over Windows 8, Surface RT struggles

The penalty is equivalent to half the cost of a cup of coffee at McDonalds to the average American

Microsoft's board of directors reduced outgoing CEO Steve Ballmer's bonus for the 2013 fiscal year, citing poor performance of Windows 8 and the $900 million Surface RT write-off, according to a filing with the U.S. Securities and Exchange Commission.

Microsoft CEO Steve Ballmer (Photo: Microsoft)

The Redmond, Wash., company's proxy statement spelled out the salaries and bonuses of several of its top executives, including Ballmer, new Chief Financial Office Amy Hood and Chief Operating Officer Kevin Turner, as well as now-departed managers such as former CFO Peter Klein and Office chief Kurt DelBene.

Microsoft paid Ballmer $697,500 in salary and awarded him a $550,000 performance bonus, for a total of $1.26 million for fiscal year 2013.

The bonus was less than Ballmer could have earned.

"Our Board of Directors approved an Incentive Plan award of $550,000 which was 79% of Mr. Ballmer's target award," stated the proxy. One hundred percent of the target would have been $696,000.

The 79% was considerably lower than Ballmer's comparable number for the 2012 fiscal year, when he was granted a bonus representing 91% of his target.

Microsoft's board cited both company wins and losses under Ballmer's stewardship, but the latter included some failures that were the root of its bonus decision.

"While the launch of Windows 8 in October 2012 resulted in over 100 million licenses sold, the challenging PC market coupled with the significant product launch costs for Windows 8 and Surface resulted in an 18% decline in Windows Division operating income," the proxy noted. "Slower than anticipated sales of Surface RT devices and the decision to reduce prices to accelerate sales resulted in a $900 million inventory charge."

Some analysts have speculated that the $900 million write-off was the proverbial straw that broke the board's back, and triggered Ballmer's ouster. In an interview with the Wall Street Journal last week, however, John Thompson, the lead independent director and the head of the committee in charge of the search for a new chief executive, backed Ballmer's explanation for his sudden retirement: He did not want to remain in the job through the long course correction to a "devices-and-services" strategy.

The proxy statement's commentary on the strategy change, as well as the corporate reorganization announced in July, was Ballmer-neutral. "The company continued to make progress in its devices and services strategy," the filing read.

Last year, Ballmer's bonus was pegged at 91% of his target as the board ticked off several issues during that fiscal year, including a 3% decline in revenue for the Windows and Windows Live Division, and a fiasco where Microsoft failed to offer a browser choice screen to Windows 7 customers in the European Union.

The EU later slapped a $752 million fine on Microsoft for that oversight.

Ballmer's 2013 bonus of 79% was an even lower percentage than that of Steven Sinofsky last year. Then, the former Windows chief -- who was ousted in November 2012 -- received 90% of his target award, even though he, like Ballmer, was cited as responsible for the EU browser choice screw-up.

Other top-tier executives received 100% or more of their target bonuses for 2013.

Kevin Turner, the COO, received a cash award of $2.1 million, or 100% of his target, and Satya Nadella, who now leads the Cloud and Enterprise group, received $1.6 million, or 105% of his target. Amy Hood, the new CFO, was handed $457,443, 100% of her target incentive, and as part of her promotion, received a stock award in May of 103,413 shares that will vest over the next three years. At Thursday's closing price, those shares had a paper value of $3.5 million.

In total compensation for the 2013 fiscal year, Turner remained Microsoft's highest-paid executive at $10.4 million, down slightly from 2012's $10.7 million.

Eight of the company's top executives, including Turner and Hood, were handed additional stock grants Sept. 19, the same day Microsoft announced a retention bonus designed to keep upper management from jumping ship during the CEO search. Turner, for example, received grants currently worth $20.3 million. Hood's award was valued at Thursday's closing bell at nearly $3.9 million.

No one should cry for Ballmer's lowered bonus: According to the proxy, he controls 4% of the company, with stock holdings worth $11.3 billion at Thursday's price. Only co-founder and chairman Bill Gates holds more: 4.5%, or $12.8 billion.

The $146,000 that Ballmer did not get in his 2013 bonus is literally pocket change to the billionaire. The amount represented 0.0013% of Ballmer's Microsoft holdings, and an even smaller percentage of his total wealth. To put that into perspective, 0.0013% of $42,693, the U.S. per capita personal income in 2012, is 55 cents, or just over half the price of a coffee from McDonalds "Dollar Menu."

Ballmer and Gates are both on the directors slate for re-election next month when Microsoft hosts its shareholders meeting.

According to a report by the Reuters new service earlier this week, some of Microsoft's biggest investors have urged the board to push Gates out of the chairman's role because they are concerned he will block the board from making drastic changes and handcuff the new CEO to the devices-and-services strategy, which they question. Gates is also on the special search committee tasked by the board to recommend Ballmer's replacement.

This article, Microsoft dings Ballmer's bonus over Windows 8, Surface RT struggles, was originally published at Computerworld.com.

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 gkeizer@computerworld.com.

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This story, "Microsoft dings Ballmer's bonus over Windows 8, Surface RT struggles" was originally published by Computerworld.

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