Microsoft to pay bonuses to execs who stay, severance to those culled during reorg

Company awards $60 million to eight execs on the same day that its board okays retention payments

Microsoft handed out nearly $60 million in stock grants to eight executives on the same day it filed papers with the U.S. Securities and Exchange Commission (SEC) announcing that the board had authorized special incentives to keep senior management from jumping ship.

The awards, which ranged between 47,000 and nearly 600,000 shares, held a paper value of between $1.6 million and $19.9 million as of Friday's closing price.

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The executives who received the stock grants were Kevin Turner, COO; Brad Smith, chief counsel; Eric Rudder, who heads the company's advanced strategy and research group; Tami Reller, marketing chief; Amy Hood, the firm's CFO; Lisa Brummel, its top human resources executive; Frank Brod, chief accounting officer; and Tony Bates, who now leads business development and evangelism at the Redmond, Wash. company.

Turner scored the largest grant of almost 600,000 shares, worth $19.9 million as of Friday, while Smith and Bates received the second- and third-largest awards of 464,000 and 225,000 shares, valued at $15.5 million and $7.5 million, respectively.

All eight executives received the stock grants on Sept. 19, the day that Microsoft's SEC filing said the board of directors had approved special retention stock grants. The new award plan took effect the same day.

The special awards are intended to ensure "continuity of key leaders during the transition to a new chief executive officer" and preserve the company's "competitive position by enhancing retention of key executives with critical skills of strategic importance," Microsoft's filing read.

Microsoft's current CEO, Steve Ballmer, announced last month that he would retire before Sept. 2014, after the technology giant selects a new chief executive.

The documents detailing the awards and the retention plan were made public by the SEC on Sept. 23.

It wasn't clear from the SEC filings -- either the announcement of the retention awards or the individual grants to Johnson, Smith, Bates and the others -- whether the newest stock grants were part of the move to hold onto the executives or simply standard awards given to its top tier.

But the grants fit the retention requirements in that their vesting periods exceeded the 30-month minimum: All the awards will vest over either a three- or four-year span. And the same-day retention bonus filing and the awards themselves was a good clue that, at the very least, some of the stock grants stemmed from the new rules.

Like all such retention incentives, the Microsoft shares will vest only if the executive remains with the company.

Last Friday, Microsoft added another plan aimed at dealing with the upheaval as the company seeks a replacement for Ballmer and completes its massive reorganization.

The latest filing, submitted and published Sept. 26, outlined new severance payouts and associated requirements for top-level leaders who are laid off as the company reshuffles groups and personnel, and searches for a new CEO. It will also block the executives from taking jobs in other companies if they are let go.

The new policies are "an additional measure to help ensure continuity of key leaders by providing ... a severance benefit if they are terminated without cause," the filing stated.

Executives let go will receive severance equal to their annual base salary, as well as a prorated payment of their expected cash bonus. The stock grants set to vest in the next 12 months will also vest on a pro rata basis.

The severance benefits -- which were detailed in a separate document filed with the SEC -- come with some strings: The executive must sign an agreement promising not to disparage Microsoft and would be barred from working for competing companies for 12 months.

Some of the plan's provisions and caveats were reminiscent of the deal struck earlier this year between Microsoft and Steven Sinofsky, the former head of the Windows division who was reportedly pushed out the door in Nov. 2012 after clashing with Ballmer once too often. Both Microsoft and Sinofsky cast his exit as a mutual decision, however.

Under that agreement, which was made public in July, Sinofsky was to receive stock worth approximately $14.3 million at the time.

The retention and severance moves may be a signal that the Microsoft board anticipates additional management turbulence driven by the restructuring, a protracted search for a CEO or the possibility that said CEO would be allowed to reverse some or all of the initiatives that Ballmer has instituted, including the reorganization and the pivot to a "devices-and-services" strategy.

On one hand, the directors are trying to insure that current executives stick with the company, while on the other creating a mechanism that will prevent them from working for rivals if they are discarded.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His email address is gkeizer@ix.netcom.com.

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This story, "Microsoft to pay bonuses to execs who stay, severance to those culled during reorg" was originally published by Computerworld.

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