Update: Transparency and SPSA

Further to my recent discussion of the SPSA payout, there's a bunch of media coverage today, including:

• Microsoft Gives Bonuses Totaling Almost $1 Billion (Update3)
• Microsoft gives 37 million shares in stock bonuses
• Millions for top Microsoft execs
• Microsoft awards stock bonuses

They confirm the 37M share total (nearly $1B) that I referenced in my piece several days ago, as well as having some additional specifics now that MSFT has released the breakdown for several key officers. It turns out that the "Top 500" which I speculated might have morphed to 600+, is actually 900 now - itself a testament to how top heavy and bureaucratic MSFT has become. And as you might have guessed, the distribution of awards was heavily skewed:

Jeff Raikes, president of Microsoft's business division, got the biggest award -- 875,334 shares of restricted stock, according to a filing with the U.S. Securities & Exchange Commission.

I guess keeping Office sales effectively flat, is viewed as being a huge accomplishment in itself, and Bus Sol's chronic execution issues didn't end up sticking to him despite his leadership and famous (not to mention hopelessly incorrect) pronouncement that it would be a $10B business unit by the end of the decade.

Initial investor reaction is mixed, with the stock flat/negative despite an up market (continuing the pattern for the week) and supporters making this argument:

The size of the bonus payments ``might bother some investors'' considering the stagnant stock price, said Alan Davis, an analyst at D.A. Davidson & Co. in Lake Oswego, Oregon, who rates the shares ``buy.'' ``But Windows and Office are the company's cash cows and so it makes sense to look at their performance.''

Detractors, meanwhile, offer this:

"This raises a question: Should we be compensating the top officers of a public company for not moving the stock price? For all the controversy over stock options, the fact is it's still their job to create value," said Fred Whittlesey, a principal at Compensation Venture Group, a Seattle consultancy.

As I had forecast in my piece, we've been offered the new excuse for why the award period that made more sense to move from 1 year to 3 (to better encourage long-term thinking), now makes even more sense to move back to 1:

The term was shortened to enable the company to make sure the performance goals don't become outdated and accurately reflect the biggest challenges facing the company, Gellos said.

Translation: Those performance goals that we just gave executives $1B for? Well, it turns out they weren't the right ones after all. Oops.

Maybe one of those missing criteria was the stock?:

The filing does not say whether the company's stock price is a performance factor.

Which makes this bit of comic relief from MSFT director James Cash, all the more amusing - or sad, if you're a MSFT investor:

James Cash, a Microsoft director who sits on the board's compensation committee, said in a statement that the awards were set using "measurable criteria" to evaluate job performance and that their size was in line with industry practices.

So, the stock may not have been a performance factor, but at least the criteria they did use were measurable? Wow, I feel so much better now that I know they didn't just make them up. I guess when you refuse to publish what those criteria were, saying they were subsequently met and that rewards were "in line" with industry practices is pretty hard to disprove. Again, so much for supposed "transparency".

And how did the stock do over the past 3 years for which the board felt $1B in management bonuses was deserved?:

During the period covered, Microsoft shares dropped 9.1 percent, compared with a 29 percent rise in the Standard & Poor's 500 Index.

In other words, ~40% relative underperformance, not to mention all the operational screwups (e.g. Vista) that I mentioned in my original piece.

Apparently, there's some concern that many of these top executives may leave now that they've received their big payout. With company and stock performance like we've seen over the past 3 years, I say "hasta la vista" and bring in the second-string - they could hardly do worse, and they'll be a whole lot cheaper.