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Microsoft bonuses a bit leaner, but still fat

By Brier Dudley
Seattle Times technology reporter

Chairman Bill Gates sees bonus drop a bit this year.

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They won't go hungry, but Microsoft's top executives saw their bonuses fall over the past year, according to a proxy statement filed yesterday.

Chief Executive Steve Ballmer and Chairman Bill Gates both got bonuses of $310,000 in the company's 2004 fiscal year, down from $313,447 the year before.

Microsoft also disclosed in the proxy that Seattle investor and timber scion William "Gary" Reed is retiring from its board after 17 years.

The proxy also asks shareholders to approve changes to the employee stock plan that are part of a $75 billion cash-disbursement plan announced in July.

	Chief Executive Steve Ballmer.

Investors will gather at the annual meeting Nov. 9 at Meydenbauer Center in Bellevue.

Microsoft does not disclose exactly what its executive bonuses are based upon, and a spokeswoman noted Gates and Ballmer received increases in total compensation. They got 8 percent raises last year — each had a base salary of $591,667 — and their total compensation rose about 4.5 percent.

"Overall, we had solid business and financial results in (fiscal year) '04 and our executive compensation reflects the health and momentum of the company," spokeswoman Rachel Wayne said.

Microsoft board With William "Gary" Reed's retirement, the company will have nine directors, according to a proxy report filed yesterday. Bill Gates, 48, chairman Steve Ballmer, 48, CEO James Cash, 56, ex-Harvard Business School professor Raymond Gilmartin, 63, chairman, CEO of Merck Ann McLaughlin Korologos, 62, an advisor with Benedetto, Gartland investment bankers David Marquardt, 55, a founding partner of August Capital Charles Noski, 52, CFO of Northrop Grumman Helmut Panke, 58, chairman of BMW Jon Shirley, 66, ex-Microsoft president and chief operating officer

Jim Allchin, the group vice president in charge of Windows, saw his bonus decline from $400,000 to $342,000. His salary increased 11 percent, to $558,334, and his total compensation was flat.

Group Vice President Jeff Raikes, who runs the productivity software group that produces Office, received an 8 percent raise and 16 percent increase in total compensation. His salary was $562,500 and his bonus was $400,000, up from $300,000 the year before.

Kevin Johnson, who became the company's sales chief in March 2003, received a salary of $480,336 — up 27 percent — and a bonus of $435,000, up 35 percent.

Allchin, Raikes and Johnson also received stock awards worth $326,000 to $384,000 apiece. Gates and Ballmer received none, but they already own 10 percent and 3.78 percent of the total shares, respectively.

In a letter accompanying the proxy, Ballmer thanked Reed "for his valuable contributions" during his 17 years on the board.

Among them was helping to overcome boardroom tension during Microsoft's restructuring in 2000, after Gates turned over chief executive responsibilities to Ballmer.

Reed told The Seattle Times last fall that he planned to cut back on his board duties, which also include positions with Washington Mutual, Paccar and The Seattle Times Co.

Microsoft will not replace Reed and instead will reduce its board to nine people, the company said in its annual proxy report.

To finalize the cash-disbursement plan, investors are being asked to approve an adjustment to the value of stock options and awards held by employees. The company proposes a $3 adjustment to offset the effect of a special $3-a-share dividend payable Dec. 2.

	William "Gary" Reed will retire from board.

When he announced the plan in July, Ballmer said the adjustments are being made "to ensure our employees will not be unfairly disadvantaged." In theory, because the stock reflects the value of the company, the one-time dividend payout will reduce the value of the stock by $3.

The proxy also has disclosures about potential conflicts of interest, including a note that Microsoft paid Corbis — a Gates-owned Seattle company — $1 million for digital-image licensing fees in the past year. It said Gates was not involved in the negotiations, and that the terms compared with those of other big customers.

In the spirit of disclosure, it notes Microsoft now employs a son of board member Jon Shirley and brothers-in-law of executives Robbie Bach and Eric Rudder.

Brier Dudley: bdudley@seattletimes.com

Copyright © 2004 The Seattle Times Company

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