Microsoft founder and former CEO Bill Gates had an impeccable track record leading his company in decades of sustained growth and gains. In 2000 Microsoft appointed Steve Ballmer -- Microsoft's 30th employee, hired in 1980 -- to become CEO, replacing the retiring Mr. Gates. Since that time Microsoft share price has been on a decline, despite some successes such as Windows 7 and the Xbox 360 console.
With some shareholders calling for his head last year, Microsoft's board defended their embattled CEO. In a U.S. Securities and Exchange Commission filing yesterday (the company's annual "Proxy statement"), the board points out that Mr. Ballmer's compensation is remarkably low.
The main reason why Mr. Ballmer gets paid so little is that he declines to take Microsoft's "equity compensation plan" -- stock options. Mr. Ballmer instead takes a smaller cash payout. He says he made this choice because he's already such a heavy shareholder that ultimately his financial fortune is already tied to Microsoft's financial fate.
In the filing (thanks NeoWin!), Microsoft writes:
Ballmer's award under the Incentive Plan is payable entirely in cash, and is correspondingly smaller than those made to the other Named Executive Officers. 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.
Mr. Ballmer's base salary is currently $682,000 USD and his performance-based cash bonus is $1.365M USD. That's much less than the Microsoft-estimated industry average compensation of $1.4M USD in base salary and $4.5M USD in bonus payments.
And Mr. Ballmer has seen his compensation drop even lower when certain products fizzled.
Still Mr. Ballmer is hardly sobbing in his sleep about his poor pay. He owns 333 million shares of Microsoft stock -- an almost 4 percent stake -- behind only Bill Gates' 561 millions shares. Mr. Ballmer's current stock holdings are worth approximately $8.2B USD. And Mr. Ballmer's total net worth is estimated to be around $13.9B USD, good enough to make him the 46th richest person in the world and the 17th richest billionaire in the United States.
This year was a bit of an embarrassment for Microsoft. Windows Phone 7, the company's great mobile home has thus far crashed and burned. And in a symbolic event Apple and International Business Machines, Inc. (IBM) both passed Microsoft in market capitalization, one measure of corporate worth. It was the first time since 1996 that Microsoft had been bumped from the top spot.