Microsoft CEO Satya Nadella's $80M Pay Package: Is He Worth It?

Microsoft shareholders on Wednesday approved a plan that could pay CEO Satya Nadella more than $80 million in cash and stock over the next several years. Nadella is a two-decade veteran of the Redmond, Washington-based corporation and is generally considered one of the tech industry’s brightest lights, but critics say the package, which was challenged by an influential proxy advisory group, is excessive for a chief executive who has been on the job for less than a year.

“The annual incentive program lacks a strong connection to objectively measured company performance,” said a report by Institutional Shareholder Services. Nadella’s total compensation consists of a mix of salary, bonuses and stock awards. He could earn up to $18 million for the current fiscal year alone. Glass Lewis, another major proxy advisor, recommended that shareholders support the plan.

The package may be seen as excessive by some, but it’s in line with the tech industry’s gilded standards. Google CEO Larry Page and founding partner Sergey Brin have capped their annual salaries at $1 per year, but their stock in the company is worth billions. Facebook CEO Mark Zuckerberg has also capped his salary at $1 per year, with the majority of his compensation coming in the form of equity.

Nadella’s situation may be more comparable with Yahoo CEO Marissa Mayer, who, similar to Nadella, is not a founder of the company she now leads. Mayer’s total compensation for 2012 was $36.6 million. A windfall created by Yahoo’s stake in Alibaba may have put her total compensation for 2013 at more than $200 million, “most of which was for doing nothing,” according to The New York Times’ Dealbook.

IBM CEO Ginny Rometty took in $16.2 million in total compensation in 2012, her first year in Big Blue’s corner office. Hewlett-Packard CEO Meg Whitman drew $17.6 million in total compensation in 2013.

CEO compensation in the U.S.’ 300 largest companies has ballooned 900 percent since 1978, while average workers have seen few gains in terms of real, inflation-adjusted income growth, according to Lawrence Mishel, president of the Economic Policy Institute in Washington, D.C. “CEO pay is taking up a very large share of corporate profits. It’s one of the major reasons for the extraordinary increase in incomes of the top 1 percent,” Mishel said.

Mishel said corporate boards have become increasingly lax when it comes to ensuring that CEO pay is tied to company performance and in proportion to revenue and profits. Part of the problem, he said, is that board members and CEOs run in the same circles and often sit on each others’ boards.

“CEOs have a lot of influence on their own pay; they can get their own people on the compensation committees, and it becomes like Lake Wobegon,” Mishel said, referring to Garrison Keillor’s fictional town, where everyone’s a genius -- or at least thinks they are. “We could cut executive pay by two-thirds, and they all would still show up to work and do the very same job,” Mishel said.

For its part, Microsoft is defending Nadella’s compensation. “To attract and motivate a world-class CEO that could lead Microsoft through its strategic transformation, the board designed a compensation structure comprising competitive annual compensation and a one-time long-term equity grant,” the company said in a statement. Eighty percent of the plan is performance-based.

Indeed, Nadella has already made some significant strides in his quest to transform Microsoft from an also-ran of the PC era to a leader in what he frequently calls the “cloud-first, mobile-first world.” Sales of gadgets and services such as Xbox and Xbox Live to consumers jumped 47 percent year over year in the company’s most recent quarter, while sales of cloud computing and storage services to businesses increased a whopping 128 percent.

“It’s been an extraordinary year,” Nadella said, speaking to the shareholders who approved his pay package.