'Underpaid' Microsoft CEO Ballmer sees pay slip 4% to $1.32 million

Microsoft CEO received $685,000 salary and $620,000 bonus but declined equity compensation

Microsoft CEO Steve Ballmer received a $685,000 salary and a $620,000 bonus in fiscal 2012. At his own request, he didn't receive any stock or option awards.

Microsoft CEO Steve Ballmer received compensation valued at $1.32 million this year, according to documents filed this week with the U.S. Securities and Exchange Commission. His total package is down 4% compared to 2011, when he received compensation valued at $1.38 million

Ballmer's 2012 pay package consists of a $685,000 salary and a $620,000 bonus. He also received a modest $13,128 in perks.

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Ballmer's $620,000 bonus was 91% of his target award and less than half the possible maximum bonus of $1.37 million for which he was eligible. A number of factors went into determining Ballmer's bonus. On the positive side, Microsoft cited the near completed development of Windows 8 and the new Office suite, the successful launch of SQL Server 2012 and System Center 2012, the integration of Skype, progress in introducing new form factors such as Surface, strong operating expense discipline, and modest growth in Windows Phone market share.

Negative factors included a 3% decline in revenue for the Windows and Windows Live Division, lackluster progress in the Online Services Division, and failure to meet certain requirements of a 2009 agreement with the European Commission.

At his own request, Ballmer didn't receive any stock awards or option awards in 2012. For several years, he has declined to be awarded equity compensation, and his bonus opportunity is limited to 200% of his base salary. (At No. 19 on Forbes' list of the richest people in America, with an estimated net worth of $15.9 billion, Ballmer hardly needs more stock options.)

"As the principal leader of Microsoft, Mr. Ballmer focuses on building our long-term success, and, as a significant shareholder, his personal wealth is tied directly to Microsoft's value. While the Committee and the Board believe Mr. Ballmer is underpaid for his role and performance, they have accepted his request," Microsoft said in its annual proxy statement.

Ballmer's compensation is significantly lower than that of his peers, the company says. According to Microsoft's analysis, the CEOs in Ballmer's peer group, on average, have the opportunity to receive $17.9 million in compensation (including salary, cash bonuses, and equity). By comparison, Ballmer received a $685,000 salary and was eligible for a $1.37 million bonus in 2012, making his total compensation opportunity worth a little more than $2 million.

Even within Microsoft, Ballmer is the lowest paid of the five "named executive officers" listed in the company's proxy statement. The most highly compensated of the five is Kevin Turner, Microsoft's chief operating officer. He netted $10.7 million in 2012, up 15% from $9.3 million in 2011.

Steven Sinofsky, president of Windows and Windows Live Division, received a 19% pay hike from $7.2 million in 2011 to $8.6 million this year. Kurt DelBene, president of the Office Division, received an even bigger raise: DelBene's compensation is valued at $7.9 million, a gain of 27% compared to $6.2 million in 2011.

The largest pay gain, percentage wise, went to CFO Peter Klein, who received $5.1 million in total compensation, up 45% from $3.5 million in 2011.

The company, meanwhile, grew revenue by 5% but saw net income plummet 27% in its 2012 fiscal year, which ended June 30. Revenue came in at $73.7 billion, up from $69.9 billion in 2011. Net income hit $17 billion, down from $23.2 billion in the prior year.

Total pay for Ballmer is calculated using data supplied in a proxy statement filed with the SEC on Oct. 9. The following figures are taken from the summary compensation table: salary, bonus, stock awards, and all other compensation. The estimated value of any equity awards represents the grant date fair value for stock awards and stock options granted during the fiscal year.

Ann Bednarz covers IT careers, outsourcing and Internet culture for Network World. Follow Ann on Twitter at @annbednarz and check out her blog, Occupational Hazards. Her e-mail address is abednarz@nww.com.

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