Friday, September 01, 2006

Update: Transparency and SPSA

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

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The term was shortened to enable the company to make sure the performance goals don't become outdated and accurately reflect the biggest challenges facing the company, Gellos said.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


  • +10

    By Anonymous Anonymous, at 1:26 PM  

  • A loyal reader of your blog here...and you could not be more spot on. Every day since I've known about this system I watch the partners/execs around and see nothing, NOTHING that resembles strategic, NOTHING that resembles even a fraction of what these people earned. I look at the pittance I received in compensation and stock and am sickened. I had more customer impact, contact and positive feedback than I know most of these people had. I could go on, but MAN am I pissed about this. There is nothing that screams unionize more than this bonehead comp scheme.

    By Anonymous Anonymous, at 4:00 PM  

  • MSFT is evolving into not only a two caste system but into a two culture system.

    One culture, regardless of which caste you're in (the partners or non-partners) is that of someone who cares about the company, or the work, or their organization. If a manager is part of this culture, he or she is probably a good manager. An IC here certainly has their heart in the right place, but performance as an IC is not guaranteed. There are plenty of cheerleaders here that underperform.

    When I first joined MSFT nearly ten years ago it seemed nearly everyone was part of this culture. Everyone seemed to care about the company, their team's work, the future of the company.

    Now we have an ever increasing culture that due to some of the on-going problems with management, compensation, fairness, etc. is no longer concerned with MSFT, with the work, with the business. They are only concerned about taking home enough money to cover their lives and possibly work with their heart on a side business, a hobby, more time with family... because their heart left MSFT as some point in the last few years. They have "unplugged".

    The real question is how many partners are in the lost heart culture? If a signficant number are already there, this company is lost. If the very people in charge of instituting changes have lost the will to do so, we're all destined for the same. We will aall become "unplugged" and just go through the motions to turn out new software every 5 years or so if lucky that barely meets markets expectations.

    Therefore, I predict if nothing happens to counter the downward spiral I see MSFT in currently within the next 1.5 years, MSFT will be out of business, broken up, a non-player by 2010, 2012 at latest.

    By Anonymous Anonymous, at 3:58 PM  

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