Satya Nadella

Inside Satya Nadella’s CEO Comp Package From Microsoft

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Through a filing, Microsoft has revealed the compensation package for its new CEO. In short, Satya Nadella is buying all the beers for the next few years.

In numerical terms, Nadella will pick up a $1.2 million yearly cash salary, with installments doled out twice monthly. Nadella is also eligible for a cash bonus of up to 300 percent of his salary each year, or $3.6 million. The new chief is also set to pick up a target stock bonus of $13.2 million in fiscal 2015.

So, for fiscal 2015, Nadella should pick up a total of $18 million.

Now, it gets more complex. Recall that Microsoft wanted to pick up a new CEO for the next decade. Nadella’s compensation includes three five-year periods in which Microsoft’s stock performance will be compared to the S&P 500’s performance over the period.

The three periods begin in 2014, 2015 and 2016. They end, of course, in 2019, 2020 and 2021. Microsoft has a target of being in the 60th percentile of performance on index, for which Nadella will receive 600,000 shares for each of the periods. If Microsoft performs at the 80th percentile or above, Nadella will collect 900,000 shares. So the new executive could warrant up to 2.7 million shares total at the end of the three five-year programs in aggregate.

2.7 million shares at Microsoft’s current share price are worth $98,145,000. However, as that award will be calculated in shares that have likely appreciated (given that the 2.7 million-share threshold is only met if Microsoft spanks the larger market), Nadella stands to land north of $100 million, in addition to his salary, bonuses and regular stock disbursements.

Big dollars. JP Morgan’s Jamie Dimon saw his pay rise dramatically this year to $20 million. So, Nadella is being valued by Microsoft as commensurate in value to Dimon, if not more, taking into account the five-year-period disbursements.

Nadella is not being paid a disproportionate sum to his peers in technology, but it’s safe to say that the raise was welcome. Sign of tech losing its marbles and grounding in reality? No. Instead, Microsoft has aligned nearly all of Nadella’s income with performance of the company and the company’s stock price. If you wanted to incentivize performance along certain lines, strap cash to it.

If Nadella hits his marks and takes down the full stack, he’ll have been cheap at twice the price. And if his performance suffers, well, the board can cut his yearly bonuses and he won’t get much, if any, of the long-term incentives.

Top Image Credit:  Dan Taylor/Heisenberg Media