Proposal 2: Advisory vote on Named Executive Officer compensation
As required by SEC rules, we are asking for your advisory vote on the following resolution (the “say-on-pay” resolution):
Resolved, that the shareholders approve, in a nonbinding vote, the compensation of the Company’s Named Executives, as disclosed in “Part 3 – Named Executive Officer compensation.”
We currently hold our say-on-pay vote every year and the next vote will be in 2016. Shareholders will have an opportunity to cast an advisory vote on the frequency of say-on-pay votes at least every six years. The next advisory vote on the frequency of the say-on-pay vote will occur no later than 2017.
Statement in support
Pay for performance
Our annual compensation program allows our Compensation Committee and Board to determine pay based on a comprehensive view of executive officer roles and responsibilities and their performance, and is designed to produce long-term business success.
Through our ongoing shareholder engagement, we received consistent feedback that investors favor incentive compensation tied to specific performance measures that drive long-term performance and value creation.
Our fiscal year 2016 Incentive Plan awards for Mr. Nadella and our other executive officers include significant elements tied to specific long-term performance objectives. Key features of our fiscal year 2016 executive compensation program include:
- On average, over 90% of annual total target compensation will be variable based on performance.
- Previously, 70% of annual total target compensation was in the form of a time-based stock award. Half of that value is now to be delivered in the form of a multi-year performance-based stock award with specific financial and strategic performance objectives, and half will be in time-based stock awards that may vary with a subjective performance assessment.
- We introduced a relative total shareholder return (“TSR”) multiplier to reward significant outperformance that creates closer alignment with the interests of our long-term shareholders.
- We reduced the maximum cash incentive award to give greater emphasis to long-term incentive opportunities.
- New multi-year performance-based stock awards, with challenging targets will be granted each year (i.e., with rolling performance targets), allowing a flexible approach that adapts to our evolving business environment.
Sound program design
We designed our compensation programs for Named Executives to attract, motivate, and retain the key executives who drive our success and industry leadership. Pay that reflects performance and alignment of that pay with the interests of long-term shareholders are key principles that underlie our compensation program design and decisions. We achieve our objectives through compensation that:
|✔ provides a competitive total pay opportunity,|
|✔ consists primarily of stock-based compensation, which encourages our Named Executives to act as owners with an equity stake in Microsoft,|
|✔ enhances retention by subjecting a significant percentage of total compensation to multi-year vesting, and|
|✔ does not encourage unnecessary and excessive risk taking.|
Although the vote is non-binding, the Board and the Compensation Committee will review the voting results and through our regular shareholder engagement seek to understand the factors that influenced the voting results. The Board and the Compensation Committee will consider constructive feedback obtained through this process in making future decisions about our executive compensation programs.
|Best practices in executive compensation|
|Our compensation programs for Named Executives do not provide inappropriate incentives or reward inappropriate risks.|
|✔ Have a stock ownership policy that reinforces alignment between shareholders and our executive officers|
|✔ Have an executive compensation recovery policy to ensure accountability|
|✔ Prohibit pledging, hedging, and trading in derivatives of Microsoft securities|
|✔ Have an independent compensation consultant advising the Compensation Committee|
|✔ Responsibly manage the use of equity compensation|
|We do not|
|✗ Award stock options|
|✗ Offer executive-only perquisites or benefits (no tax gross-ups, club memberships, car allowances or medical benefits)|
|✗ Have employment contracts|
|✗ Provide change in control protections|
|✗ Have special retirement programs|
|✗ Guarantee bonuses|
Our Board of Directors recommends a vote FOR approval, on a non-binding, advisory basis, of the compensation paid to our Named Executives in fiscal year 2015.
Compensation discussion and analysis
This Compensation Discussion and Analysis provides information about our fiscal year 2015 compensation program for our fiscal year 2015 named executive officers (the “Named Executives”).
In fiscal year 2015, we continued Microsoft’s progress in leading the transformation of how individuals and organizations use and interact with technology. We continued to develop our business model, leadership, and organizational structure to advance our strategy to build best-in-class platforms and productivity services for a mobile-first and cloud-first world that are focused on large addressable markets with high growth opportunities. To help drive this critical evolution, we adopted a new executive incentive program for fiscal year 2016 that introduces more performance-based pay aligned with key strategic opportunities, financial performance and shareholder returns.
The contents of this Compensation Discussion and Analysis are organized into six sections.
Section 1 – Fiscal year 2015 in review
Section 2 – The evolution of our pay for performance philosophy
Section 3 – Fiscal year 2015 compensation decisions
Section 4 – Executive compensation overview
Section 5 – Compensation design process for fiscal year 2015
Section 6 – Other compensation policies and information
Section 1 – Fiscal year 2015 in review
Ongoing corporate transformation
During fiscal year 2015, we continued to refine our strategic focus, which included these major initiatives:
- Focused our research and development efforts on three interconnected ambitions:
- Reinvent productivity and business processes.
- Build the intelligent cloud platform.
- Create more personal computing.
- Further streamlined our business, restructuring our operations to improve our agility, controlling overall operating expenses, and improving how we build and deliver products.
- Completed multiple commercial agreements and acquisitions to strengthen our position in search, mapping, mobile applications, gaming, and our enterprise cloud platform.
Fiscal year 2015 financial performance
In fiscal year 2015, we achieved solid growth as we made progress in our ambition to be the productivity and platform company for a mobile-first and cloud-first world. We delivered innovation and remained disciplined in managing our operating expenses.
- Revenue was $93.6 billion, an increase of 8% from the prior fiscal year.
- Operating expenses, excluding impairment, integration and restructuring costs, grew only 2%.
- Returned $23.3 billion to shareholders through dividends and stock buybacks, an increase of 48%.
Our efforts to reduce our headcount and restructure our phone business unfavorably affected our profitability for the year, as evidenced by:
- $18.2 billion in operating income, a decrease of 35%.
- $1.48 diluted earnings per share, a decrease of 44%.
Excluding the impact of impairment, integration, and restructuring costs, our full year operating income and diluted earnings per share would have been $28.2 billion and $2.63, respectively, which were comparable to the prior year.¹
(1) See Annex A for a reconciliation of non-GAAP and GAAP measures presented.
We rigorously focused our acquisition strategy to align with our ambitions and new business model, and pursued transactions that we believe allow us to remain on the cutting edge of technological innovation and offer the opportunity to create long-term shareholder value. Several examples are:
- Accompli: A provider of innovative mobile email apps for iOS and Android.
- Mojang: Developer of the incredibly popular Minecraft game.
- Wunderlist: A cloud-based task management application that allows users to manage their tasks from any device.
- Revolution Analytics: High-performance computing, big data and analytics technology.
Other significant accomplishments
Other significant accomplishments during fiscal year 2015 included:
- Commercial Cloud revenue grew 106%, reaching an annualized revenue run rate of over $8 billion.
- Delivered Office mobile on iOS and Android, surpassing 150 million downloads.
- Completed the development and testing that led to the successful release of Windows 10 on July 29, 2015, now with over 100 million active Windows 10 devices.
- Increased Azure revenue and compute usage over 100% in the fourth quarter year-over-year.
- Bing surpassed 20% U.S. search market share, and search advertising revenue grew 22%.
- Sold over 12 million Xbox consoles, and increased Xbox Live users 22%.
- Office 365 consumer subscribers grew to over 15 million, with users growing at nearly 1 million per month by the end of the fiscal year.
- Delivered total shareholder return of 8.67%.
Strong long-term performance
Our total shareholder return, cash returned to shareholders, and annual revenue for the past three years have been strong, notwithstanding the impact of our business realignment on our fiscal year 2015 profitability.
* FY14 and FY15 is non-GAAP; adjusted for impairment, integration and restructuring expenses
Section 2 – The evolution of our pay for performance philosophy
Introduction of performance-based long-term incentives
We have been transitioning our pay practices to increase the percentage of compensation tied to objective performance measures. This change began with the pay package Satya Nadella received when he was appointed as our CEO in February 2014. This package included a significant performance element in the form of a one-time long-term performance-based stock award (the “LTPSA”). Our Board designed the LTPSA to provide Mr. Nadella with a significant equity compensation opportunity if he successfully implements our business transformation and creates sustainable long-term value for shareholders that results in strong performance relative to S&P 500 companies over a long-term horizon (through 2021). Our Board does not intend to grant any other special awards to Mr. Nadella during the next several years and did not grant any special awards to him in fiscal year 2015.
Incentive compensation changes for fiscal year 2016 enhance direct alignment with company performance
Through our ongoing shareholder engagement, we received consistent feedback that investors favor incentive compensation tied to specific performance measures that drive long-term performance and value creation. In our 2014 Proxy Statement, we committed that management and the Compensation Committee would develop long-term incentives for our executive officers that used performance measures aligned to the evolution of Microsoft’s business models and long-term objectives, and that we intended to implement those arrangements as part of the senior executive compensation program in fiscal year 2016. Our fiscal year 2016 Executive Officer Incentive Plan (“Incentive Plan”) for Mr. Nadella and our executive officers includes significant elements tied to specific long-term performance objectives. The following diagram illustrates the transition from our prior executive officer compensation program to our 2016 program.
Compensation program evolution*
* Percentage shown at target award level. Graphic excludes other compensation.
** Stock Award with time-based vesting; award level based on individual performance.
Key features of our fiscal year 2016 executive compensation program include:
- On average, over 90% of annual total target compensation will be variable based on performance.
- Previously, approximately 70% of annual total target compensation was in the form of a fixed stock award, all of which was time-based. As described in more detail below, half of that value will now be delivered in the form of a multi-year performance-based stock award (“PSA”) with specific financial and strategic performance objectives, and half will be in time-based stock awards (“SA”) that will be variable based on individual performance and capability of delivering future contributions.
- Reduced maximum annual cash incentive awards to increase focus on long-term incentive opportunities.
- New three-year PSAs with challenging targets will be granted each year (i.e., with rolling performance targets), allowing a flexible approach that adapts to our evolving business environment.
- Introduced a relative total shareholder return (“TSR”) multiplier to PSAs to reward significant outperformance that creates closer alignment with the interests of our long-term shareholders.
The PSAs have these key attributes:
|Performance measurement period||Three years||Reinforce the importance of long-term value creation|
|Performance measures||Objective Company-wide financial and quantitative strategic measures with thresholds below which no shares will be earned||Shared targets that combine focus on accountability for annual business performance while striving
for major strategic objectives, supporting our business transformation
|Performance periods overlap||A new three-year performance period is set each year, with performance periods overlapping||Overlapping periods limit impact of short-term business performance or price fluctuations on final outcomes and allow us to adjust priorities in a rapidly changing environment|
|Payout opportunity||Ranges from 0% to 400% of the target number of shares, including the TSR multiplier||Establishes accountability for underperformance and incentive for out-performance|
|Performance Multiplier||Microsoft’s TSR must be positive and at or above the 60th percentile of the S&P 500 for the performance period to trigger the multiplier. The performance multiplier will increase the number of shares linearly up to an additional 1/3 of earned shares when Microsoft’s TSR is at or above the 80th percentile||Provides an opportunity to receive additional shares of Microsoft common stock only if Microsoft significantly outperforms the market|
The following diagram reflects the two types of equity awards that comprise our long-term incentive compensation program and the performance measures for the PSAs.
Performance share metrics and weight for FY16-FY18
Shareholder feedback considered in evolution of pay program
We deeply value the continued interest of and feedback from our shareholders, and are committed to maintaining our active dialogue with shareholders to ensure a diversity of perspectives are thoughtfully considered. As part of our active engagement with our shareholders, during fiscal year 2015 independent members of our Board and members of senior management spoke with investors collectively holding approximately 35% of outstanding shares about our pay program. The feedback gained from these interactions was an important input in constructing changes for the fiscal year 2016 pay program.
Section 3 – Fiscal year 2015 compensation decisions
Fiscal year 2015 executive compensation actions and decisions
Having addressed our stock ownership objectives for Mr. Nadella in connection with his appointment as our CEO, the compensation actions and decisions for the Named Executives for their fiscal year 2015 performance reflected a more typical fiscal year, with the Compensation Committee taking these actions under the 2015 pay program:
- Cash Incentive: Made cash awards for fiscal year 2015 to Mr. Nadella in an amount that represented 120% of his target annual cash award, and to the other Named Executives in amounts ranging from 100% to 130% of their target annual cash awards;
- Stock Incentive: Granted stock awards that vest in four equal annual installments, to Mr. Nadella with a grant date fair value of $12,761,263, and to the other Named Executives in amounts with grant date fair values ranging from $4,833,835 to $9,184,243;
Performance review process for our CEO
To determine incentive awards and compensation changes, the independent members of our Board annually assess our CEO’s performance. This evaluation considers:
- a summary of Microsoft’s performance for the fiscal year using a wide range of quantitative and qualitative financial, operational, and strategic assessments;
- input from Microsoft’s senior executives about Mr. Nadella’s leadership;
- Mr. Nadella’s evaluation of the Company’s and his individual performance over the past fiscal year; and
- the factors listed below under “Performance review process for other Named Executives.”
Based on the results of this assessment, the Compensation Committee will recommend Mr. Nadella’s Incentive Plan award and any base salary adjustment to the independent members of our Board. The Compensation Committee does not apply a formula to determine these amounts. Instead, the Compensation Committee exercises its business judgment in making its recommendations, considering Mr. Nadella’s performance evaluation, our performance relative to other technology companies, the performance relative to target for the other executive officers over the same period, and input from the Compensation Committee’s compensation consultant, Semler Brossy.
Fiscal year 2015 Incentive Plan award decision for Mr. Nadella
For fiscal year 2015, the Compensation Committee recommended, and the independent members of our Board of Directors approved, an Incentive Plan cash award of $4,320,000 for Mr. Nadella, which was 120% of his target award. In reaching this decision, the independent members of our Board of Directors considered Mr. Nadella’s performance against his core priorities and the financial and operational performance of Microsoft. His base salary was not changed for fiscal year 2016 consistent with our Board’s intention when he was promoted to CEO in February 2014.
In fiscal year 2015, operating income and earnings per share declined, while consistent progress was made in building future growth opportunities. Mr. Nadella provided strong, consistent vision and execution on our mobile-first and cloud-first strategy, continued to effectively guide the transformation of the Company’s culture and he effectively represented the Company with customers, partners, investors and employees. Mr. Nadella established and articulated the Company’s three broad ambitions to focus the Company’s offerings, and consolidated the operating systems and devices groups into the Windows and Devices Group. Under his leadership, Windows 10 was successfully launched and the executive compensation program became significantly more performance-based.
Performance review process for other Named Executives
The Compensation Committee reviewed each executive officer’s performance following the end of the fiscal year. Mr. Nadella and Kathleen Hogan, our Executive Vice President, Human Resources, also participated in these discussions.
The Compensation Committee placed significant weight on Mr. Nadella’s recommendations for the compensation of our executive officers and his evaluation of each executive officer’s performance for the fiscal year because of his first- hand knowledge of each individual’s contributions. In developing his recommendations, Mr. Nadella evaluated and considered performance-related information against a wide range of quantitative and qualitative financial, operational, and strategic assessments.
The Compensation Committee also reviewed company-wide and business performance against quantitative and qualitative financial, operational, and strategic measures. These measures vary from individual to individual based on an executive officer’s specific responsibilities and the function or group he or she leads, and may include (in alphabetical order):
The Compensation Committee also considers any other information it deems relevant. After completing this review process, the Compensation Committee, exercising its business judgment, determines each executive officer’s Incentive Plan cash award for the just-completed fiscal year.
Fiscal year 2015 cash compensation actions for other Named Executives
After evaluating our other Named Executives’ performance for fiscal year 2015, the Compensation Committee approved the following Incentive Plan cash awards.
Amy E. Hood
As our Executive Vice President and Chief Financial Officer, Ms. Hood led Microsoft’s worldwide finance organization, including acquisitions and divestitures, treasury activities, tax planning, accounting and reporting, internal audit, investor relations, global procurement, and facilities.
During fiscal year 2015, Ms. Hood continued to build organizational capability and operational excellence to accelerate Microsoft’s business transformation. Revenue grew 8% while a disciplined approach to expenses resulted in operating expenses increasing only 2%, excluding impairment, integration, and restructuring costs. Charges for impairment, integration, and restructuring related to the phone hardware business affected fiscal year 2015 results, resulting in a 35% decrease in operating income and a 44% decrease in earnings per share. Excluding these charges operating income increased by 1% to $28.2 billion and earnings per share were comparable to the prior year.¹ Under Ms. Hood’s leadership, Microsoft maintained a disciplined approach to resource allocation, which allowed increased investment in growth initiatives throughout the year and a gross margin improvement of 1%. Microsoft increased its stock repurchases and dividends declared by 48% to $23.3 billion.
Based on her fiscal year 2015 performance, Ms. Hood received a cash award of $1,978,000, which was 130% of her target award.
(1) See Annex A for a reconciliation of non-GAAP and GAAP measures presented in these performance summaries.
Margaret L. Johnson
As our Executive Vice President, Business Development, Ms. Johnson led Microsoft’s strategic business transactions and partnerships across various industries with key customers, strategic innovation partners, original equipment manufacturers, key accounts, third-party publishers, and industry influencers. She joined Microsoft on September 1, 2014.
Ms. Johnson’s strategic relationship management and focused approach on creating collaboration with internal business groups across the organization aligned to the Company’s efforts to drive new growth in mobility and the cloud. Under Ms. Johnson’s leadership, the Company developed an innovative new partnership with Uber, including transferring Microsoft’s imagery acquisition operations to Uber. She also led the collaboration with Cyanogen, a mobile computing company with an operating system built on Android, to integrate and distribute Microsoft consumer apps and services on Cyanogen Operating System to enable Microsoft to bring new experiences to mobile users in markets around the world.
Based on her fiscal year 2015 performance, Ms. Johnson received a cash award of $1,295,000, which was 120% of her target award.
Bradford L. Smith
On September 11, 2015, Mr. Smith was appointed President and Chief Legal Officer. Previously, as our Executive Vice President and General Counsel, Legal and Corporate Affairs, Mr. Smith led the Legal and Corporate Affairs group that is responsible for Microsoft’s legal work, intellectual property portfolio and patent licensing business, and its government affairs, public policy, and corporate citizenship and philanthropic work. He also served as Microsoft’s Corporate Secretary and Chief Compliance Officer.
During fiscal year 2015, Mr. Smith’s strong leadership contributed to meeting the budget for successfully monetizing the Company’s patent portfolio through licensing agreements. The litigation team reduced the annual cost of litigation settlements and legal fees significantly and prevailed in over 80% of decided cases. Mr. Smith led development of the Company’s strategies on government surveillance reform and has emerged as one of the technology industry’s leading spokespeople on issues of personal privacy. He also increased the impact of the Company’s corporate citizenship activities, which provided software and services to over 120,000 nonprofits, reached more than 21 million youth through YouthSpark grants,and was recognized as #1 in Corporate Responsibility Magazine’s 100 Best Corporate Citizenships list for standout performance in environmental, economic, and social values.
Based on his fiscal year 2015 performance, Mr. Smith received a cash award of $1,300,000, which was 100% of his target award.
B. Kevin Turner
As our Chief Operating Officer, Mr. Turner was responsible for the operational leadership of Microsoft’s worldwide sales, field marketing, and services organization. Mr. Turner also managed support and partner channels, Microsoft stores, and corporate support functions for Information Technology, Worldwide Licensing & Pricing, and Operations.
Under Mr. Turner’s leadership, fiscal 2015 revenue increased by 8%. Microsoft’s momentum continued in its commercial cloud, with revenue surpassing an $8 billion annualized run rate and revenue growing 106% over fiscal year 2014. Azure revenue and compute usage increased in the fourth quarter by over 100% year over year. Mr. Turner maintained focus on Office 365 with 74% growth in Commercial seats, and deployment reaching four out of five Fortune 500 enterprises. Computing and Gaming Hardware revenue increased 12%, primarily as a result of higher revenue from Surface.
Based on his fiscal year 2015 performance, Mr. Turner received a cash award of $2,200,000, which was 100% of his target award.
Fiscal year 2015 stock awards for Named Executives
As part of each Named Executive’s annual compensation, at the beginning of the fiscal year in September 2014, the Compensation Committee (or, for Mr. Nadella, the independent members of the Board) granted stock awards under the Incentive Plan to each of the Named Executives based on his or her role and responsibilities, as described further in Section 4 below:
- The Compensation Committee targets delivery of at least 70% of the target annual total direct compensation opportunity for each Named Executive in the form of stock awards to align their interests with those of our shareholders.
- Annual stock awards vest in four equal annual installments.
- The number of shares awarded is determined by dividing the award value by the closing price of Microsoft common stock on the last business day in August of the fiscal year of grant.
For fiscal year 2015, these awards were:
Section 4 – Executive compensation overview
Executive compensation program objectives
These core tenets inform the design of our executive compensation program.
- We pay competitively compared to the market to provide a total pay opportunity that will attract, motivate, and retain the executives who drive our success and industry leadership;
- Beginning in 2016, we will pay for performance by delivering a large majority of pay through performance- based incentives;
- We are responsible to our shareholders and align executive and shareholder interests by delivering a high percentage of the pay opportunity through equity, incentivizing efforts that yield results over the long term;
- We are focused on the long term by subjecting a large majority of total compensation to multi-year vesting or performance requirements; and
- We avoid encouraging unnecessary and excessive risk-taking through our vesting and stock holding requirements and clawback provisions.
|Executive compensation best practices|
|Some of our leading practices include:|
|✔ A stock ownership policy that reinforces the alignment of executive officer and shareholder interests|
|✔ An executive compensation recovery (“clawback”) policy to ensure accountability|
|✔ A policy prohibiting pledging, hedging, and trading in derivatives of Microsoft securities|
|✔ An independent compensation consultant that advises the Compensation Committee|
|✔ Responsible management of the use of equity compensation|
|✔ No stock option awards|
|✔ No executive-only perquisites or other personal benefits (no tax gross-ups, club memberships, car allowances or premium medical benefits)|
|✔ No employment agreements|
|✔ No change in control protections|
|✔ No special retirement programs|
|✔ No guaranteed bonuses|
Independent compensation consultant
The Compensation Committee retains Semler Brossy, a national executive compensation consulting firm that is independent of management, to assist and advise the Compensation Committee in its review and oversight of our executive compensation program. See Part 2 – “Board of Directors – Compensation Committee – Compensation Consultant” for more information on Semler Brossy’s role and independence as an advisor to the Compensation Committee.
During fiscal year 2015, no compensation was awarded outside the annual performance review and recruiting processes.
Target annual compensation program
The fiscal year 2015 annual pay program consisted of three components:
- Base salary;
- A cash award under the Incentive Plan payable in September 2015. Target cash awards for our Named Executives ranged from 200% to 300% of base salary earned for the fiscal year, depending on the executive. Each executive was eligible to receive from zero to 300% of the target cash award based upon corporate, business group, and individual performance; and
- A stock award under the Incentive Plan granted in September 2014 for shares of Microsoft common stock that vest in four equal annual installments.
The number of shares of Microsoft common stock subject to each Incentive Plan stock award is determined by dividing the award value by the closing price of Microsoft common stock on the last business day in August of the fiscal year in which the award was granted. These stock awards should deliver at least 70% of the target total direct annual compensation opportunity for the Named Executives.
Pay mix versus peers
Our target annual pay mix places a higher proportion of pay in equity compensation than our peer companies. The foregoing chart provides information about the fiscal year 2015 targets for our Named Executives compared to the named executive officers of our Technology and Dow 30 peer groups (as defined below), using data available in mid-2014 when we conducted our fiscal year 2015 compensation planning.
Peer group variable cash comprises discretionary bonuses, target annual non-equity incentive plan awards, and target multi-year non-equity incentive plan awards.
Section 5 – Compensation design process for fiscal year 2015
Executive compensation program design
Competitive market assessment
We compete with global information technology and large market capitalization U.S. companies and smaller, high-growth technology businesses for senior executive talent. We continually monitor the marketplace and the compensation levels and pay practices of other companies to respond to marketplace changes.
To ensure we have current information to set appropriate compensation levels, we conduct an executive compensation market analysis each year that draws from third-party compensation surveys and publicly available executive compensation data for two groups of peer companies. For 2015, these two groups were:
- information technology companies that produce software or hardware or provide online or cloud-based services, employ work forces with skill sets and professional backgrounds similar to those of our work force, and have a significant global presence (the “Technology Peer Group”); and
- large, diversified companies with significant international operations (the “Dow 30 Peer Group”).
We supplement this analysis with additional market information specific to each executive officer’s role. Because other companies actively recruit our executive officers to fill their senior leadership positions, we also supplement this market information with data on external opportunities potentially available to our executive officers.
While our market analysis informs the decisions of the independent members of our Board of Directors and the Compensation Committee on the range of compensation opportunities, we do not tie executive officer compensation to specific market percentiles. We give greater weight to the pay levels and practices of our technology peers because they represent the primary labor market in which we compete for key talent.
For fiscal year 2015, these two groups were:
Fiscal year 2015 peer groups
* Technology companies in the Technology Peer Group are omitted from the Dow 30 Peer Group to avoid duplication. For fiscal year 2015, EMC and Qualcomm replaced Blackberry and SAP in our Technology Peer Group. Changes in the Dow 30 Peer Group are reflected as they occur.
In conjunction with designing the 2016 incentive program, we reconsidered the composition of the peer groups and determined a single peer group comprised of general industry and technology companies would appropriately represent our peers while simplifying related analytical work. Semler Brossy led the peer group selection analysis on behalf of the Compensation Committee. We selected a combination of the largest technology and general industry companies in terms of market capitalization, revenue, and earnings before interest, taxes, depreciation and amortization (EBITDA) because we believe these companies are led by executives with similarly complex roles. We also screened companies to ensure they had a significant presence outside the United States, and we excluded companies in the financial services sector because of the different regulatory environment in which they operate. For fiscal year 2016 our peer group companies are:
Fiscal year 2016 peer group
In March 2015, when we selected the peer group for fiscal year 2016, Microsoft was significantly larger than the median of these companies on the key dimensions of our screening criteria.
Technology labor market
Our businesses operate in very dynamic environments. The technology labor market is hyper-competitive with demand growing faster than the supply of technical talent, resulting in significant increases in compensation at all employee levels at the companies with whom we compete for talent. The same conditions exist in the market for executive level talent that can provide innovative leadership while managing at a global scale across complex businesses. We expect these trends to continue and we expect to continue to adjust our approach to executive compensation to respond to market conditions.
Scope of executive roles
Our executive officers have demanding roles leading large global organizations, overseeing complex and interdependent strategic initiatives. The following chart represents our current position relative to our combined peer companies on three dimensions (based on publicly available information as of July 2015). Often, our roles involve greater scope and complexity than similar positions at the companies in the Technology Peer Group and the Dow 30 Peer group.
Revenue, market capitalization, and headcount – Microsoft’s position relative to 2015 peer companies
Establishing compensation opportunities
In September 2014, Mr. Nadella recommended to the Compensation Committee fiscal year 2015 Incentive Plan stock awards and target cash awards for each of the other executive officers. In making these recommendations, he considered an array of information that, depending on the executive officer, included:
- his or her role and responsibilities;
- compensation data from our peer groups and other competitive market information reflecting the scale and scope of his or her role. For this purpose, the peer groups are tailored to comprise companies that represent the function the executive officer oversees;
- the relationship of target total direct compensation among internal peers; and
- information about the market for executive talent gained through our monitoring of external market pay practices, our experience recruiting for executive positions at Microsoft, and efforts by others to recruit our executive officers.
The Compensation Committee, applying its independent judgment, then formulated a stock award and a target cash award for each executive officer based on Mr. Nadella’s recommendation, the factors Mr. Nadella considered when formulating his recommendations, and input from the Compensation Committee’s compensation consultant, Semler Brossy. There were no base salary adjustments for the Named Executives in fiscal year 2015.
For fiscal year 2015, our Named Executives’ potential cash awards under the Incentive Plan were limited to 300% of their target cash award opportunities.
Determining Incentive Plan cash awards
Each year, our Named Executives participate in a performance review process that drives the Incentive Plan cash award determinations for the prior fiscal year. The independent members of our Board of Directors conduct the performance review and determine awards for Mr. Nadella, based on the recommendation of the Compensation Committee. The Compensation Committee determines the Incentive Plan cash awards for our other Named Executives, based on the recommendations of Mr. Nadella. Semler Brossy advises the Compensation Committee on Incentive Plan design and award levels.
Compensation Committee consideration of 2014 say-on-pay vote and subsequent shareholder engagement
As previously discussed, we actively engage with our shareholders on a range of topics, including executive compensation. The Compensation Committee carefully considers both the level of voting support from our shareholders on our say-on-pay vote as well as direct feedback received from shareholders when evaluating our executive compensation plans.
At the 2014 Annual Meeting, 72.6% of the votes cast supported our advisory resolution on the compensation of our Named Executives (the “say-on-pay” vote). While the say-on-pay vote received majority support, the Compensation Committee was disappointed with the percentage of votes against the proposal. The Chairman of the Board, Chair of the Committee, and members of senior management conducted outreach to a cross-section of shareholders owning approximately 35% of our outstanding shares. During these discussions, we sought shareholder views about our historical compensation structure, as well as our plans to introduce more performance-based pay in fiscal year 2016.
Based on the input from our shareholders, the Compensation Committee determined that the planned changes to introduce more performance-based pay substantially addressed the core expressions of concern about our executive compensation programs. The Compensation Committee considered the input received from our shareholder engagement program in conjunction with formulating the changes for fiscal year 2016 described above.
Section 6 – Other compensation policies and information
Executive benefits and perquisites
Our Named Executives are eligible for the same benefits available to our other U.S.-based full-time employees, including our Section 401(k) plan, employee stock purchase plan, health care plan, life insurance plans, and other welfare benefit programs. Besides the standard benefits offered to all employees, we maintain a non-qualified deferred compensation plan for our executives and senior managers. The deferred compensation plan is unfunded, and participation is voluntary. The deferred compensation plan allows our Named Executives to defer their base salary, the cash portion of their Incentive Plan awards, and certain on-hire bonuses. We do not contribute to the non-qualified deferred compensation plan.
During fiscal year 2015, we provided no executive-only perquisites or other personal benefits to our Named Executives.
Our Named Executives do not have employment agreements, and they are not entitled to any payments or benefits following a change in control of Microsoft.
Our Named Executives may be eligible for stock vesting upon termination of their employment, on the same terms as other Microsoft employees. All employees who retire from Microsoft in the United States after (a) age 65 or (b) age 55 with 15 years of service are eligible for the continuation of vesting of outstanding stock awards granted at hire or at the time of performance review, if the award was granted over one year before retirement. As of June 30, 2015, only Mr. Smith was retirement-eligible, and the value of his retirement-based vesting on that date was $9,311,853. All employees whose employment with Microsoft terminates due to death or total and permanent disability will fully vest in their outstanding stock awards. Mr. Nadella’s LTPSA would vest for the target number of shares. The value of our Named Executives’ stock awards vesting at a June 30, 2015 termination of employment due to death or total and permanent disability was: Mr. Nadella – $126,693,237; Ms. Hood – $18,085,562; Ms. Johnson – $7,282,587; Mr. Smith – $28,059,047; and Mr. Turner – $39,512,043.
In addition, our Named Executives and all other executive officers are eligible to participate in the Microsoft Senior Executive Severance Benefit Plan (the “Severance Plan”). The Severance Plan was adopted to help ensure continuity of key leaders by providing designated executives severance benefits if their employment is terminated without cause. For purposes of the Severance Plan, “cause” means (i) a conviction or plea of guilty or no contest to a felony or certain misdemeanors; (ii) engaging in gross misconduct; (iii) repeated failure to substantially perform the duties of the executive’s role; (iv) violation of any securities laws; or (v) violation of Microsoft’s policies designed to prevent violations of law.
The Severance Plan benefits comprise (i) vesting of a pro-rata portion of outstanding stock awards (excluding supplemental stock awards) that would otherwise vest in the 12 months after termination of employment, (ii) pro-rata payment of the executive’s annual cash award, (iii) a severance payment equal to one-times annual base salary plus target annual cash award, and (iv) continuation of health care through COBRA and outplacement assistance as provided to other employees whose employment is terminated without cause. There is no change-in-control provision in the Severance Plan. To receive the Severance Plan benefits, the executive officer must execute a separation agreement that includes a release of claims, confidentiality and non-disparagement provisions, and 12-month non-compete/non-solicitation restrictions.
Mr. Nadella participates in the Severance Plan on the same terms as our other executive officers, except that: (i) if Microsoft terminates his employment without cause before February 4, 2016, the second anniversary of his appointment as CEO, he will vest in all of his outstanding stock awards (excluding any special stock awards) that would otherwise vest in the 12 months after termination of employment; and (ii) if Microsoft terminates Mr. Nadella’s employment without cause (as defined in the Severance Plan) during a performance period, he will vest in a pro-rata fraction of the threshold 150,000 shares of Microsoft common stock subject to his LTPSA award for his actual period of employment during the performance period.
Under Mr. Turner’s employment offer letter, 160,000 shares of Microsoft common stock subject to his on-hire stock award will vest upon his retirement from Microsoft at age 60 or older, or upon his termination of employment other than for cause (as defined in his employment offer letter).
The following table shows the amounts that would have been payable to our Named Executives upon a termination of employment without cause on June 30, 2015.
(1) Includes amounts payable under the Severance Plan, plus stock vesting under Mr. Nadella’s LTPSA award ($2,428,250), and under Mr. Turner’s on-hire stock award ($7,064,000).
Executive compensation recovery policy
Accountability is a fundamental value of Microsoft. To reinforce this value through our executive compensation program, our executive officers and certain other senior executives are subject to an aggressive, ‘no fault’ executive compensation recovery “clawback” policy. The Compensation Committee may recover incentive compensation whether or not the executive’s actions involve misconduct. When an executive has engaged in intentional misconduct that contributed to the payment of the incentive compensation, the Compensation Committee may take other remedial action, including seeking to recover the entire payment. Under this policy, the Compensation Committee may seek to recover payments of incentive compensation if the performance results leading to a payment are later subject to a downward adjustment or restatement of financial or nonfinancial performance. The Compensation Committee may use its judgment in determining the amount to be recovered where the incentive compensation was awarded on a discretionary basis, as with awards under the Incentive Plan. Our executive compensation recovery policy is available on our website at www.microsoft.com/investor/recoverypolicy.
Stock ownership policy
Our executive officers and certain other senior executives are subject to stock ownership requirements to maintain a minimum equity stake in Microsoft. This policy embodies the Compensation Committee’s belief that our most senior executives should maintain a significant personal financial stake in Microsoft to promote a long-term perspective in managing our business. In addition, the policy helps ensure the alignment of executive and shareholder interests, which reduces incentive for excessive short-term risk taking. Each covered executive is required to acquire and maintain ownership of shares of Microsoft common stock equal to a specified multiple of his or her base salary, which ranges from three to 10 times base salary. Mr. Nadella’s required stock ownership level is 10 times his base salary. Each covered executive must retain 50% of all net shares (post-tax) that vest until achieving his or her minimum share ownership requirement. As of the end of fiscal year 2015, each of our Named Executives complied with our stock ownership policy. Our stock ownership policy is available on our website at www.microsoft.com/investor/execstockpolicy.
Derivatives trading, hedging and pledging policy
Our executive officers are prohibited from trading in options, puts, calls, or other derivative instruments related to Microsoft equity or debt. They also are prohibited from purchasing Microsoft common stock on margin, borrowing against Microsoft stock held in a margin account, or pledging Microsoft stock as collateral for a loan.
Deductibility of executive compensation
In structuring compensation for our executive officers, the Compensation Committee considers, among other things, whether compensation will be deductible for federal income tax purposes or otherwise subject to the $1 million annual deduction limit of Section 162(m) of the Internal Revenue Code. Other factors may be of greater importance than preserving deductibility for a particular form of compensation, however, and the Compensation Committee retains the discretion to award incentive compensation that is nondeductible. Under federal income tax rules, certain qualified performance-based compensation approved by our shareholders is not subject to the annual deduction limit. Annual awards under the Incentive Plan potentially subject to the annual deduction limit of Section 162(m) are expected to qualify as performance-based compensation. All Incentive Plan compensation for our Named Executives in fiscal year 2015 was intended to be deductible.
Compensation risk assessment
We performed an annual assessment for the Compensation and Audit Committees of our Board of Directors to determine whether the risks arising from our fiscal year 2015 compensation policies and practices are reasonably likely to have a material adverse effect on Microsoft. Our assessment reviewed material elements of executive and non-executive employee compensation. We concluded these policies and practices do not create risk that is reasonably likely to have a material adverse effect on Microsoft.
The structure of our compensation program for executive officers does not incentivize unnecessary or excessive risk- taking. The base salary component of compensation does not encourage risk-taking because it is a fixed amount. The Incentive Plan awards have these risk-limiting characteristics:
- Annual awards to each executive officer are limited to the lesser of a fixed maximum specified in the Incentive Plan or a fixed percentage of an incentive pool.
- Cash awards under the Incentive Plan are limited to 300% of a target cash award. Cash awards are based on a review of a variety performance factors, thus diversifying the risk associated with any single aspect of performance, while amounts received under stock awards do not vary directly based on an individual executive officer’s performance.
- Equity awards are not made in stock options, which may provide an asymmetrical incentive to take unnecessary or excessive risks to increase the market price of Microsoft common stock.
- Awards are not tied to formulas that could focus our executive officers on specific short-term outcomes.
- Members of the Compensation Committee, or with Mr. Nadella, the independent members of our Board of Directors, approve the final Incentive Plan cash awards in their discretion, after reviewing executive and corporate performance.
Awards are subject to our Executive Compensation Recovery Policy, described in this Section 6 – “Other compensation policies and information – Executive compensation recovery policy.”
The majority of the award value is delivered in shares of Microsoft common stock with a multi-year vesting schedule, which aligns the interests of our executive officers to long-term shareholder interests.
Executive officers are subject to our executive stock ownership requirements, described in this Section 6 – “Other compensation policies and information – Stock ownership policy.”
Review of risk under the Incentive Plan
Management and our Board of Directors also assessed risk in the design and implementation of the fiscal year 2016 executive compensation program. We concluded that the 2016 changes to awards under the Incentive Plan do not create risk that is reasonably likely to have a material adverse effect on Microsoft. The changes have significant risk-mitigating characteristics, including:
- Further diversification of the elements of the executive officer pay, to minimize the incentive to produce a particular outcome.
- Rolling three-year performance periods for the performance stock awards that emphasize long-term, sustained performance.
- The use of multiple performance measures and targets, including both financial and strategic measures, to reduce incentives to manage results to a single outcome.
- Company-wide measures that are not specific to any one executive officer’s sphere of responsibility and apply equally to all participants, to encourage a unified and responsible approach to achieving financial and strategic goals.
- The Compensation Committee’s ability to adjust performance results, up or down, to account for extraordinary or unanticipated events, to ensure pay reflects performance outcomes that drive long-term business success.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis provided above. Based on its review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Maria M. Klawe
G. Mason Morfit
John W. Stanton, Chair
Fiscal year 2015 compensation tables
Summary compensation table
This table contains information about compensation awarded to our Named Executives for the fiscal years ended June 30, 2015, 2014, and 2013. None of our Named Executives received stock options during those years.
(1) This column reports Incentive Plan cash awards for the fiscal year and, for Ms. Johnson, a one-time on-hire cash bonus of $2,500,000.
(2) All amounts in this column are calculated using the grant date fair value under Accounting Standards Codification Topic 718 based on the market price as of the date of grant of common stock awarded, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting. Includes, for fiscal year 2014, the LTPSA Mr. Nadella received in connection with his promotion to CEO, with a grant date fair value of $59,184,000; he will not be eligible to receive any part of this LTPSA compensation until 2019. Includes for Ms. Johnson a one-time on-hire stock award with a grant date fair value of $5,346,791.
(3) Details about the amounts in this column are set forth in the table below.
All other compensation
None of our Named Executives received reimbursements for relocation expenses or tax-gross-up payments in the last three fiscal years.
* These amounts include (i) imputed income from life and disability insurance and (ii) athletic club membership and payments in lieu of athletic club membership. These benefits are available to substantially all our U.S.-based employees.
Grants of plan-based awards for fiscal year ended June 30, 2015
This table provides information on grants of awards under any plan to the Named Executives related to the fiscal year ended June 30, 2015.
(1) All amounts in this column are calculated using the grant date fair value under Accounting Standards Codification Topic 718 based on the market price as of the date of grant of common stock awarded, reduced by the present value of estimated future dividends because the awards are not entitled to receive dividends prior to vesting.
(2) Represents a one-time on-hire stock award.
Outstanding equity awards as of June 30, 2015
This table provides information on unvested stock awards held by the Named Executives on June 30, 2015.
(1) The following table shows the dates on which the awards in the outstanding equity awards table vest and the corresponding number of shares, subject to continued employment through the vest date.
* Eligible for continued vesting following Mr. Smith’s retirement.
** Represents vest of Mr. Nadella’s LTPSA at the minimum award level.
(2) The market value is the number of shares shown in the table multiplied by $44.15, the closing market price of Microsoft common stock on June 30, 2015.
(3) Represents the number of shares under Mr. Nadella’s LTPSA at the minimum award level.
Stock awards vested during fiscal year ended June 30, 2015
This table provides information, on an aggregate basis, about stock awards that vested during the fiscal year ended June 30, 2015 for each of the Named Executives.
Microsoft has not granted stock options, other than options assumed in acquisitions, since 2003; no Named Executives held any options during the fiscal year.
(1) The value realized on vesting is calculated by multiplying the number of shares shown in the table by the market value of the shares on the vesting date.
Non-qualified deferred compensation
This table provides information about Named Executives’ contributions, earnings, and balances under our non-qualified Deferred Compensation Plan in fiscal year 2015. Microsoft does not contribute to the Deferred Compensation Plan, and in fiscal year 2015 there were no withdrawals by or distributions to Named Executives.
(1) The amount in this column is not included in the Summary Compensation Table because plan earnings were not preferential or above-market.
(2) The amount in this column has not been included in the Summary Compensation Table for previous years.
Microsoft’s Deferred Compensation Plan is unfunded and unsecured. It allows participants to defer a specified percentage of their base salary (up to 75%), and/or eligible incentive cash payments (up to 100%). Participation in the Deferred Compensation Plan is limited to senior managers, including our Named Executives. Microsoft does not contribute to the Deferred Compensation Plan or guarantee any returns on participant contributions.
When an employee elects to participate in the Deferred Compensation Plan, the employee must specify the percentage of base salary and/or cash incentive award to be deferred, and the timing of distributions. No withdrawals are permitted prior to the previously elected distribution date, other than “hardship withdrawals” as permitted by applicable law. Amounts deferred under the Deferred Compensation Plan are credited with hypothetical investment earnings based on participant investment elections made from among investment options available under the plan.
Equity compensation plan information as of June 30, 2015
This table provides information about shares of Microsoft stock that may be issued under our equity compensation plans approved by shareholders and plans not approved by shareholders.
(1) Represents shares issuable upon vesting of outstanding stock awards granted under the 2001 Stock Plan; includes 1.8 million of Mr. Nadella’s LTPSA shares that will vest if target performance levels are achieved.
(2) The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding stock awards, which have no exercise price.
(3) Includes 158 million shares remaining available for issuance as of June 30, 2015 under the Employee Stock Purchase Plan.
(4) Under the 2001 Stock Plan, no award may be repriced, replaced, regranted through cancellation, or modified without shareholder approval (except in connection with a change in our capitalization), if the effect would be to reduce the exercise price for the share underlying such award.
Compensation Committee interlocks and insider participation
Drs. Klawe and Panke, Ms. Dublon and Messrs. Morfit and Stanton were members of the Compensation Committee during fiscal year 2015. Mr. Stanton joined on July 30, 2014, and Mr. Morfit joined on December 3, 2014. Ms. Dublon left the Committee on December 3, 2014 following her retirement from the Board. Mr. Stanton was appointed as Compensation Committee Chair upon Ms. Dublon’s retirement. All members of the Compensation Committee were independent directors, and no member was an employee or former employee of Microsoft. During fiscal year 2015, none of our executive officers served on the compensation committee (or its equivalent) or board of directors of another entity whose executive officer served on our Compensation Committee.
Stock ownership information
This table describes, as of October 2, 2015, the number of shares of our common stock beneficially owned by our directors and Named Executives, together with additional underlying shares or stock units as described in Notes 2 through 4 to the table.
In computing the number and percentage of shares beneficially owned by each person, we have included any shares of common stock that could be acquired within 60 days of October 2, 2015 by the exercise of options, the vesting of stock awards or the receipt of shares credited under the Deferred Compensation Plan for Non-Employee Directors. These shares, however, are not counted in computing the percentage ownership of any other person.
* Less than 1%
(1) Beneficial ownership represents sole voting and investment power.
(2) For directors, includes shares credited under the Deferred Compensation Plan for Non-Employee Directors that may be distributable within 60 days of October 2, 2015: Ms. List-Stoll, 2,518; Mr. Noski, 80,427; and Mr. Thompson, 1,288.
(3) For directors, includes shares credited under the Deferred Compensation Plan for Non-Employee Directors that are not payable within 60 days following termination of Board service: Mr. Thompson, 28,775.
(4) For Named Executives, includes (i) unvested stock awards that do not vest within 60 days of October 2, 2015, subject to continued employment at the time of each vest: Ms. Hood, 506,834; Mr. Nadella, 1,064,769; Ms. Johnson, 252,326; Mr. Smith, 164,293; and Mr. Turner, 894,196 (ii) 1,800,000 shares payable to Mr. Nadella under his LTPSA at target performance, and (iii) 424,145 shares that would vest if Mr. Smith retires from Microsoft.
(5) Excludes 424,816 shares held by Mr. Gates’ spouse, as to which he disclaims beneficial ownership.
(6) Includes 67,902,590 shares that are directly beneficially owned by ValueAct Capital Master Fund, L.P. and may be deemed to be indirectly beneficially owned by (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P. Also includes 7,370,501 shares directly beneficially owned by ValueAct Capital Master Fund, L.P. and may be deemed to be indirectly beneficially owned by (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P. Mr. Morfit is a member of the management board of ValueAct Holdings GP, LLC. Each reporting person listed above disclaims beneficial ownership of the reported securities except to the extent of its pecuniary interest therein.
(7) Includes 12,180 shares held by a family trust.
(8) Includes 7,243 shares held by a family trust.
(9) Includes 27,279 shares held by a family trust.
(10) Includes 219 shares held by a family trust.
(11) Includes 84,233 shares credited under the Deferred Compensation Plan for Non-Employee Directors that may be issued within 60 days of October 2, 2015.
This table lists all entities that are the beneficial owner of more than 5% of Microsoft common stock.
(1) All information about BlackRock, Inc. is based on a Schedule 13G/A filed with the SEC on February 2, 2015. BlackRock, Inc. reported that it has sole voting power with respect to 395,936,824 shares of common stock, sole dispositive power with respect to 477,076,155 shares of common stock, and shared voting and shared dispositive power of 64,013 shares of common stock.
(2) All information about The Vanguard Group, Inc. is based on a Schedule 13G filed with the SEC on February 11, 2015. The Vanguard Group, Inc. reported that it has sole voting power with respect to 14,076,975 shares of common stock, sole dispositive power with respect to 414,177,630 shares of common stock, and shared dispositive power of 13,368,340 shares of common stock.
Section 16(a) – beneficial ownership reporting compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers, and persons who own more than 10% of our common stock to file reports of their ownership and changes in ownership of our common stock with the SEC. Our employees prepare these reports for our directors and executive officers using information obtained from them and from Microsoft’s records. Due to administrative error, Margaret L. Johnson was 50 days late in filing a Form 4 to report an on-hire stock award for 121,979 shares of Microsoft common stock; Charles W. Scharf was 30 days late in filing an amended Form 3 after it was discovered he held 3,112 shares of Microsoft common stock in a retail brokerage account and 525 shares of Microsoft common stock in a family trust; and John Stanton was 23 days late in filing an amended Form 3 after it was discovered he held 7,243 shares of Microsoft common stock in a family trust and 40,239 shares of Microsoft common stock through a synthetic index fund account.