On the downside, Nadella could be left with relatively few shares -- 450,000 over three years -- if Microsoft's performance was consistently in the S&P 500 cellar. In that scenario, the shares would be worth just $14.8 million by Microsoft's accounting.
(Microsoft based the dollar amounts not on current share prices, but on estimates provided by an outside firm, which used a "Monte Carlo" method -- essentially a simulation of thousands of possible outcomes of the share price -- to assign a value.)
Microsoft justified Nadella's pay in the proxy statement. "In approving the initial annual total compensation opportunity for Mr. Nadella, our Board was mindful of both the fierce competition for talented executives in the technology sector and the demands on and responsibilities of the leader of a global organization with the scope and stature of Microsoft," the statement read. Microsoft also noted that its two previous CEOs, co-founder Bill Gates and his follow-on, Steve Ballmer, had had billions in equity, and so had been compensated at levels "significantly lower" than chief executives at other similar-sized firms.
Nadella was also given a stock grant last year worth an estimated $13.5 million as part of a retention plan Microsoft used to keep several executives in place as its board searched for a new CEO when Ballmer announced his retirement. That award is to be paid out in four equal annual allotments starting in August 2015.
Other top-tier executives who received retention awards included Kevin Turner, chief operating officer, whose grant was valued at $10 million; CFO Amy Hood ($4.7 million); and Brad Smith, Microsoft's lead lawyer ($9.7 million).
Interestingly, Nadella's retention award was the highest of the five mentioned in the proxy statement, a clue that the company's directors had him in mind as a potential CEO even as they spent month talking to outsiders.
Microsoft will hold its annual shareholders meeting on Wednesday, Dec. 3, when stockholders will vote on the executive pay packages.
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