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Table of Contents
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)
 
 
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
 
   Preliminary Proxy Statement
  
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   Definitive Proxy Statement
   Definitive Additional Materials
   Soliciting Material under §240.14a-12
Microsoft Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
 
  No fee required
 
  Fee paid previously with preliminary materials
 
  Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and
0-11
 
 
 


Table of Contents

 

Notice of Annual Shareholders Meeting and

Proxy Statement 2023

 

                   
  December 7, 2023   Virtual Meeting Site:  
  8:30 a.m. Pacific Time                                         virtualshareholdermeeting.com/MSFT23           

 

 

LOGO

 

  LOGO


Table of Contents

 

LOGO

 

 

 

“As a corporation, our purpose and actions must be aligned with addressing the world’s problems, not creating new ones. At our very core, we need to deliver innovation that helps drive broad economic growth. We, as a company, will do well when the world around us does well.”

 

Satya Nadella,     

Chairman and CEO

 

Microsoft Corporation (“Company”) works to conduct business in ways that are principled, transparent, and accountable to our shareholders and other key stakeholders. We believe doing so generates long-term value. As we work to help everyone achieve more, we are committed to improving our world and reporting our progress.

Focus for Societal Impact

At Microsoft, we focus on four enduring commitments that are central to meeting our mission and that become even more important in the era of AI:

 

Expand opportunity   Earn trust   Protect fundamental rights   Advance sustainability

LOGO

 

 

LOGO

 

 

LOGO

 

 

LOGO

 

Note About Forward-Looking Statements

This Proxy Statement includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the Proxy Summary and Part 2 – Named Executive Officer Compensation. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Forms 10-K and 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

 

This Proxy Statement includes several website addresses and references to additional materials found on those websites. These websites and materials are not incorporated by reference herein.


Table of Contents

 

 

 

LOGO

Letter from our Chairman and Chief Executive Officer

October 19, 2023

Dear Shareholder,

On behalf of the Board of Directors, it is our pleasure to invite you to the 2023 Annual Shareholders Meeting of Microsoft Corporation (“Annual Meeting”), on December 7, 2023, beginning at 8:30 a.m. Pacific Time. This year’s Annual Meeting will be held in a virtual format through a live webcast. We will provide the webcast of the Annual Meeting at virtualshareholdermeeting.com/MSFT23. In addition, you will have the option to view the Annual Meeting through Microsoft Teams at microsoft.com/investor. A transcript with video and audio of the entire Annual Meeting will be available on the Microsoft Investor Relations website after the meeting. For more information on how to participate in the meeting, please see Part 5 – Information About the Meeting on page 88 in this Proxy Statement.

The Notice of 2023 Annual Shareholders and this Proxy Statement contain details of the business to be conducted during the Annual Meeting.

Whether or not you participate in the Annual Meeting, it is important that your shares be represented and voted. We urge you to promptly vote and submit your proxy (1) via the Internet, (2) by phone, or (3) if you received your proxy materials by mail, by signing, dating, and returning the enclosed proxy card or voting instruction form in the envelope provided for your convenience.

This year’s shareholders Q&A session will include an opportunity to submit questions. You may submit a question in advance of the meeting at proxyvote.com after logging in with the control number (“Control Number”) found next to the label for postal mail recipients or within the body of the email sending you the Proxy Statement. Live questions may be submitted online beginning shortly before the start of the Annual Meeting through virtualshareholdermeeting.com/MSFT23.

Thank you for your continued investment in Microsoft.

Sincerely,

 

 

LOGO

Satya Nadella

Chairman and Chief Executive Officer


Table of Contents

 

 

LOGO

 

Letter from the Board of Directors

 

October 19, 2023

 

Dear Shareholder,

As we’ve expressed in this letter over the past several years, the Board is incredibly proud of the work Microsoft and its employees have done with our customers and partners to help the world use digital technology to address business and societal challenges around the globe. We are excited by what Microsoft’s advancements in a defining technology of our time, artificial intelligence (“AI”), can and will do for people, industry, and society and the central role AI will play in the Company’s mission to help every person and organization on the planet to achieve more. We also recognize the responsibility to ensure this world-changing technology is used responsibly. Microsoft’s work on AI is guided by a core set of principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability.

Amidst global business challenges, Microsoft revenues once again broke records in fiscal year 2023. Microsoft’s leadership and the Company as a whole achieved this through relentless focus on providing technology innovations to make our customers more productive and resilient. As a result, Microsoft delivered strong results for its shareholders, including a return of over $38 billion in the form of share repurchases and dividends. We look forward to more opportunity ahead as we remain committed to the long-term interests of the Company’s shareholders and a broad range of stakeholders critical to the Company’s success, including employees, customers, the communities we operate in, and our partners and suppliers.

With this in mind, Microsoft continued to provide transparency in its progress towards important environmental and social commitments, including our climate goals, our progress towards advancing diversity and inclusion across our workforce, and the Racial Equity Initiative goals we are committed to meet by 2025. For more information on these initiatives and information across a breadth of environmental, social, and governance topics, we encourage you to read the progress reports Microsoft published over the course of the past fiscal year which are available at microsoft.com/transparency and microsoft.com/csr.

This Proxy Statement describes Microsoft’s corporate governance policies and practices that foster the Board’s effective oversight of the Company’s business strategies and practices. A key component to our effective governance is the Board’s commitment to provide oversight and perspectives reflecting a diversity of independent views.

This year’s Board nominees represent a wide range of backgrounds and expertise. We believe our diversity of experiences, perspectives, and skills contributes to the Board’s effectiveness in managing risk and providing guidance that positions Microsoft for long-term success in a dynamically changing business environment. Of the 12 Board nominees, 11 are independent, which includes Sandra Peterson as Lead Independent Director and all committee chairs and members. We are pleased to announce the nominations of Catherine MacGregor and Mark Mason for election to the Board at our December 7, 2023 Annual Meeting. Ms. MacGregor is Group CEO of Engie S.A. (“Engie”) and a member of the Engie board. She is an accomplished leader in the energy business and will bring significant insights and global experience to Microsoft. Mr. Mason is CFO of Citigroup Inc. He brings strategic and operational experience and a deep understanding of how commerce is changing globally.

In addition, two members of the Board have decided not to seek re-election and will end their Board service in December: Padmasree Warrior and John Thompson. Ms. Warrior served on the Board and on the Compensation Committee for nearly eight years and has contributed valuable insights and perspectives in those roles. During his eleven-year tenure, Mr. Thompson served as both Board Chair and Lead Independent Director, led the CEO search and succession process from Steve Ballmer to Satya Nadella, and chaired the Governance and Nominating Committee during a fruitful period of Board refreshment and diversification. We thank them for their many contributions.

The Proxy Statement also includes information about all of the management and shareholder proposals up for a vote at the Company’s Annual Meeting. We value your vote and we encourage you to use one of the options laid out in this proxy to vote your shares whether or not you plan to join us for the Annual Meeting. As we look ahead, we continue to see tremendous opportunities for the Company’s business and shareholder value creation, with the ability to deliver positive impacts at a global scale. We appreciate your investment in Microsoft and thank you for the trust you place in us and the opportunity to serve you and our Company as directors.

Sincerely,

Your Board of Directors


Table of Contents

 

 

LOGO

 

 

Notice of 2023 Annual Shareholders Meeting

 

Date     December 7, 2023
Time     8:30 a.m. Pacific Time
Virtual Meeting     This year’s meeting is a virtual shareholders meeting at virtualshareholdermeeting.com/MSFT23
Record Date     September 29, 2023. Only shareholders of record at the close of business on the record date are entitled to receive notice of, and to vote at, the Annual Meeting.
Proxy Voting     Make your vote count. Please vote your shares promptly to ensure the presence of a quorum during the Annual Meeting. Voting your shares now via the Internet, by telephone, or by signing, dating, and returning the enclosed proxy card or voting instruction form will save the expense of additional solicitation. If you wish to vote by mail, we have enclosed an addressed envelope with postage prepaid if mailed in the United States. Submitting your proxy now will not prevent you from voting your shares during the Annual Meeting, as your proxy is revocable at your option. We are requesting your vote to:
Items of

Business

   

•  Elect the 12 director nominees named in this Proxy Statement

 

•  Approve, on a nonbinding advisory basis, the compensation paid to our named executive officers (“say-on-pay vote”)

•  Vote, on a non-binding advisory basis, on the frequency of holding the say-on-pay vote

 

•  Ratify the selection of Deloitte & Touche LLP as our independent auditor for fiscal year 2024

 

•  Vote on 9 shareholder proposals, if properly presented at the Annual Meeting

 

•  Transact other business that may properly come before the Annual Meeting

Address of Corporate
Headquarters
    One Microsoft Way, Redmond, WA 98052
Meeting Details     See Part 5 – Information About the Meeting for details.

Important notice regarding the availability of proxy materials for the Annual Meeting to be held on December 7, 2023. Our 2023 Proxy Statement and Annual Report to Shareholders are available at microsoft.com/investor.

By Order of the Board of Directors

 

 

LOGO

Keith R. Dolliver

Secretary

Redmond, Washington

October 19, 2023

 

 

2023 PROXY STATEMENT i


Table of Contents

Proxy Statement Table of Contents

 

   

Proxy summary

 

    

 

1

 

 

 

1

  

 

 

 

Governance and
our Board of
Directors

 

 
 
 

        
     

 

 

Board of Directors Oversight Roles

     9  
     

 

Our Governance Structure

     11  
     

 

Director Selection and Qualifications

     18  
     

 

Board Composition and Diversity

     19  
     

 

Our Director Nominees

     20  
           

 

Director Compensation

 

    

 

27

 

 

 

2

  

 

 

 

Named Executive
Officer
Compensation

 

 
 
 

     

A Letter from the Compensation Committee

     30  
     

 

Compensation Discussion and Analysis

     31  
     

 

Section 1 – Performance Update

     31  
     

 

Section 2 – Executive Compensation Program

     35  
     

 

Section 3 – Pay Setting Governance and Process

     37  
     

 

Section 4 – Fiscal Year 2023 Compensation Program Design

     39  
     

 

Section 5 – Fiscal Year 2023 Compensation Decisions and Results

     43  
        

Section 6 – Other Compensation Policies and Information

     48  
        

Compensation Committee Report

     50  
        

Fiscal Year 2023 Compensation Tables

     51  
        

Summary Compensation Table

     51  
        

Grants of Plan-Based Awards

     52  
        

Outstanding Equity Awards at June 30, 2023

     53  
        

Option Exercises and Stock Vested

     54  
        

Nonqualified Deferred Compensation

     54  
        

CEO Pay Ratio

     55  
        

Pay Versus Performance

     56  
        

Equity Compensation Plan Information

     59  
        

Principal Shareholders

     59  
                      

Stock Ownership Information

 

    

 

60

 

 

 

3

  

 

 

 

Audit Committee
Matters

 

 
 

     

 

Audit Committee Report

     61  
     

 

Fees Billed by Deloitte & Touche

     63  
     

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor

     64  
        
        
                      

 

 

ii    LOGO   


Table of Contents

 

         

4

  

 

 

 

Proposals to be
Voted on During
the Meeting

 

 
 
 

     

 

Proposal 1: Election of 12 Directors

     65  
     

 

Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation

     66  
     

 

Proposal 3: Advisory Vote on Frequency of Advisory Vote on Executive Compensation

     68  
     

 

Proposal 4: Ratification of the Selection of Deloitte & Touche LLP as our Independent Auditor for Fiscal Year 2024

     68  
           

 

Shareholder Proposals

 

    

 

69

 

 

 

5

  

 

 

 

Information About
the Meeting

 

 
 

     

 

Date, Time, and Place of Meeting

     88  
     

 

Proxy Materials are Available on the Internet

     88  
     

 

Participating in the Annual Meeting

     88  
     

 

Soliciting Proxies

     88  
     

 

Householding

     89  
     

 

Election of Directors

     89  
     

 

Voting

     89  
        

Shareholders Entitled to Vote; Quorum

     89  
        

Vote Required; Effect of Abstentions and Broker
Non-Votes

     89  
        

Vote Confidentiality

     90  
        

Tabulation of Votes

     90  
        

Where to Find More Proxy Voting Information

     90  
        

Where to Find our Corporate Governance Documents

     90  
        

Proposals by Shareholders for 2024 Annual Meeting

     91  
                      

Other Business

 

    

 

91

 

 

 

 

 

2023 PROXY STATEMENT   iii


Table of Contents

Proxy Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all information you should consider. Please read this entire Proxy Statement carefully before voting.

Annual Shareholders Meeting

 

Date: December 7, 2023

 

Time: 8:30 a.m. Pacific Time

 

Meeting Agenda:

The meeting will cover the proposals listed under Voting Matters and Vote Recommendations below, and any other business that may properly come before the meeting.

 

 

Place: virtualshareholdermeeting.com/MSFT23

 

 

Record Date: September 29, 2023

 

Mailing Date:

This Proxy Statement was first mailed to shareholders on or about
October 24, 2023.

 

Voting:

Shareholders as of the record date are entitled to vote. Each share of common stock of Microsoft Corporation (“Company”) is entitled to one vote for each director nominee and one vote for each proposal.

 

Vote in Advance of the Meeting

 

LOGO  

Vote your shares at proxyvote.com.

Have your Notice of Internet Availability or proxy card for the 16-digit Control Number needed to vote.

LOGO   Call toll-free number 1-800-690-6903.
LOGO   Sign, date, and return the enclosed proxy card or voting instruction form.

Vote Online During the Meeting

 

LOGO   See page 88 in Part 5 – Information About the Meeting for details on voting your shares during the meeting through proxyvote.com.

Voting Matters and Vote Recommendations

See Part 4 – Proposals to be Voted on During the Meeting for more information.

    

Board

Recommends

 

    

See

 Page 

 

 

 

Management Proposals

   

 

 

 

 

 

    

 

 

 

 

 

 

Election of 12 Directors

 

 

 

 

FOR

 

 

  

 

 

 

65

 

 

 

Advisory Vote to Approve Named Executive Officer Compensation (“say-on-pay vote”)

 

 

 

 

FOR

 

 

  

 

 

 

66

 

 

 

Advisory Vote on the Frequency of Advisory Vote on Executive Compensation

 

 

 

 

FOR
EVERY YEAR

 


 

  

 

 

 

68

 

 

 

Ratification of the Selection of Deloitte & Touche LLP as our Independent Auditor for Fiscal Year 2024

 

 

FOR

 

  

 

 

 

68

 

 

 

Shareholder Proposals

   

 

 

 

 

 

    

 

 

 

 

 

 

Report on Gender-Based Compensation and Benefit Gaps

 

 

 

 

AGAINST

 

 

  

 

 

 

69

 

 

 

Report on Risk from Omitting Ideology in EEO Policy

 

 

 

 

AGAINST

 

 

  

 

 

 

71

 

 

 

Report on Government Takedown Requests

 

 

 

 

AGAINST

 

 

  

 

 

 

73

 

 

 

Report on Risks of Weapons Development

 

 

 

 

AGAINST

 

 

  

 

 

 

75

 

 

 

Report on Climate Risks to Retirement Plan Beneficiaries

 

 

 

 

AGAINST

 

 

  

 

 

 

77

 

 

 

Report on Tax Transparency

 

 

 

 

AGAINST

 

 

  

 

 

 

79

 

 

 

Report on Data Operations in Human Rights Hotspots

 

 

 

 

AGAINST

 

 

  

 

 

 

81

 

 

 

Mandate for Third-Party Political Reporting

 

 

 

 

AGAINST

 

 

  

 

 

 

83

 

 

 

Report on AI Misinformation and Disinformation

 

 

 

 

AGAINST

 

 

  

 

 

 

85

 

 

 

2023 PROXY STATEMENT

  1


Table of Contents

Our Director Nominees

See Part 1 – Governance and our Board of Directors for more information.

The following table provides summary information about each of the 12 director nominees. Each director is elected annually by a majority of votes cast. John Thompson and Padmasree Warrior are not seeking re-election and their Board service will end on the date of the Annual Meeting. John Thompson currently serves as a member of the Governance and Nominating Committee and a member of the Environmental, Social, and Public Policy Committee. Padmasree Warrior currently serves as a member of the Compensation Committee. The Board has nominated Catherine MacGregor and Mark Mason for election as directors. If elected, their terms will begin on December 7, 2023.

 

Name

Occupation

  Age  

Director

Since

  Independent  

 Other Public  

Boards 

Reid G. Hoffman

Partner, Greylock Partners

  56   2017   Yes   2 

Hugh F. Johnston

Vice Chairman, Executive Vice President, and CFO, PepsiCo, Inc.

  62   2017   Yes   1 

Teri L. List

Former Executive Vice President and CFO, The Gap, Inc.

  60   2014   Yes   3 

Catherine MacGregor

Group CEO and Director, Engie S.A.

  51   New
Nominee
  Yes   1 

Mark A. L. Mason

CFO, Citigroup Inc.

  54   New
Nominee
  Yes   0 

Satya Nadella

Chairman and CEO, Microsoft Corporation

  56   2014   No   1 

Sandra E. Peterson

Lead Independent Director, Microsoft Corporation;

Operating Partner, Clayton, Dubilier & Rice, LLC

  64   2015   Yes   0 

Penny S. Pritzker

Founder and Chairman, PSP Partners, LLC

  64   2017   Yes   0 

Carlos A. Rodriguez

Executive Chair, Automatic Data Processing, Inc.

  59   2021   Yes   1 

Charles W. Scharf

CEO, President, and Director, Wells Fargo & Company

  58   2014   Yes   1 

John W. Stanton

Founder and Chairman, Trilogy Partnerships

  68   2014   Yes   2 

Emma N. Walmsley

CEO and Director, GSK plc

  54   2019   Yes   1 

Committee Memberships

The following table provides current membership for each Board committee.

 

Name

  Audit   Compensation   Environmental, Social,
and Public Policy
 

Governance and  

Nominating  

Reid G. Hoffman

   

 

   

 

  Member    

 

Hugh F. Johnston

  Chair,

Financial Expert

   

 

   

 

   

 

Teri L. List

  Financial Expert
and Member
   

 

   

 

  Member  

Satya Nadella

   

 

   

 

   

 

   

 

Sandra E. Peterson

   

 

  Member    

 

  Chair  

Penny S. Pritzker

   

 

   

 

  Chair    

 

Carlos A. Rodriguez

  Financial Expert
and Member
  Chair    

 

   

 

Charles W. Scharf

   

 

  Member    

 

  Member  

John W. Stanton

  Member    

 

  Member    

 

John W. Thompson*

   

 

   

 

  Member   Member  

Emma N. Walmsley

   

 

  Member   Member    

 

Padmasree Warrior*

   

 

  Member    

 

   

 

 

*

Mr. Thompson and Ms. Warrior will not seek re-election at the 2023 Annual Meeting. The Board will consider committee appointments for Ms. MacGregor and Mr. Mason if they are elected to the Board.

 

2   

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Table of Contents

Executive Compensation Advisory Vote

Our Board recommends that shareholders vote to approve, on an advisory basis, the compensation paid to the Company’s named executive officers (“Named Executives”) as described in this Proxy Statement (“say-on-pay vote”), for the reasons below.

Pay for Performance

 

We have executed on our pay for performance philosophy.

 

•  Over 95% of the annual target compensation opportunity for the CEO is performance-based and over 50% for our other Named Executives

 

•  Cash incentive awards are structured 50% (70% for CEO) based on pre-established goals (balance of growth and profitability goals) and 50% (30% for CEO) based on operational performance as assessed across three performance categories, diversifying the risk associated with any single aspect of performance

 

•  The metrics for our performance stock awards are reviewed annually to ensure they reflect key business developments that drive long-term growth

  

 

•  Our performance stock awards (“PSAs”) include a relative total shareholder return (“TSR”) modifier to reward significant positive outperformance and reduce rewards for underperformance to align executives’ and shareholders’ long-term interests

 

•  At least 70% of target compensation for our Named Executives was equity-based, with average across all Named Executives over 80%, providing incentives to drive long-term business success and direct alignment with returns to shareholders

Sound Program Design

 

We design our executive compensation program to attract, motivate, and retain the key executives who drive our success and industry leadership, while considering individual and Company performance and alignment with the long-term interests of our shareholders. We achieve our objectives through compensation that:

 

•  Provides a competitive total pay opportunity

 

•  Delivers a majority of pay based on performance

 

•  Consists primarily of stock-based compensation

  

•  Enhances long-term focus through multi-year performance requirements or vesting of stock-based compensation

 

•  Does not encourage unnecessary and excessive risk taking

See Part 2 – Named Executive Officer Compensation for more information.

 

2023 PROXY STATEMENT

  3


Table of Contents

Business Overview

Our Business Performance

In fiscal year 2023, we continued to achieve strong business results, focusing on enabling the success and earning the trust of our customers. We are creating the platforms and tools, powered by artificial intelligence (“AI”), that deliver better, faster, and more effective solutions to support small and large business competitiveness, improve educational and health outcomes, grow public-sector efficiency, and empower human ingenuity. From infrastructure and data, to business applications and collaboration, we provide unique, differentiated value to customers.

Fiscal Year 2023 Business Performance

 

Revenue

 

$211.9 billion

     

Operating Income

 

$88.5 billion

     

Net Income

 

$72.4 billion

     

Diluted Earnings per Share

 

$9.68

Selected highlights from fiscal year 2023 include the following metrics. Percentages are year-over-year.

 

 

Microsoft Cloud revenue increased 22% to $111.6 billion

 

 

Office Commercial products and cloud services revenue increased 10%

 

 

Office Consumer products and cloud services revenue increased 2%

 

 

Linkedln revenue increased 10%

 

 

Dynamics products and cloud services revenue increased 16%

 

 

Server products and cloud services revenue increased 19%

 

 

Windows Commercial products and cloud services revenue increased 5%

 

 

Search and news advertising revenue excluding traffic acquisition costs increased 11%

A complete list of our fiscal year 2023 key performance metrics and their definitions is available in our Form 10-K for the fiscal year ended June 30, 2023.

Strong Long-Term Performance 

 

Total Shareholder Return*

through June 30, 2023

 

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Our total shareholder

return and total cash

returned to shareholders

over the past three years

have continued to

be strong.

  

Total Cash Returned

to Shareholders

(in billions)

 

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* Total shareholder return includes reinvestment of dividends.

 

 

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Governance and Board Best Practices

Our mission to empower every person and every organization on the planet to achieve more is ambitious, and we cannot fulfill it with a narrow or short-term focus. Our adoption of leading governance practices fosters our sustained business success over the long term. Strong corporate governance, informed by participation from our shareholders, is essential to achieving our mission. During fiscal year 2023, independent members of our Board and members of management engaged with a cross-section of shareholders owning approximately 50% of our shares and provided shareholder feedback to the Board.

Our Board believes that having a diverse mix of directors with complementary qualifications, expertise, and attributes is essential to meeting its oversight responsibility. Of our 12 Board nominees, 11 are independent. Having an independent Board is a core element of our governance philosophy.

Our Director Nominees

 

 

 

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Board Diversity

 

       

 

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8

 

               
  

 

 

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Financial

 

     
   

6

 

                   
  

 

 

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Global Business

 

     
   

11

 

         
  

 

 

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Leadership

 

     
   

12

 

       
  

 

 

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Mergers and Acquisitions

 

     
   

12

 

       
  

 

 

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Sales and Marketing

 

     
   

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Technology

 

     
   

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Independent, Effective Board Oversight

 

•  Lead Independent Director

 

•  11 of 12 director nominees are independent

 

•  All committee chairs and members are independent

 

•  Board-adopted refreshment commitment to maintain an average tenure of 10 years or less for its independent directors as a group

 

•  The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool of potential Board nominees and CEO candidates

  

•  Executive sessions provided for all quarterly Board and committee meetings

 

•  Annual Board and committee evaluations, periodically using a third-party facilitator to conduct the evaluations

 

•  Director orientation and continuing education and strategy programs for directors

 

•  All current Audit Committee members meet the Nasdaq Stock Market LLC listing standard of financial sophistication, and three members are “audit committee financial experts” under the Securities and Exchange Commission rules

  

 

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Shareholder Rights

 

 

Single class of stock with equal voting rights

 

 

All directors are elected annually

 

 

Directors are elected by majority vote in uncontested elections

 

 

Confidential voting policy

 

 

15% of outstanding shares can call a special meeting

 

 

Our Bylaws provide for “proxy access” by shareholders

 

See Part 1 – Governance and our Board of Directors and Part 5 – Information About the Meeting for more information.

 

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EXECUTIVE OFFICER   
COMPENSATION

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AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

1. Governance and our Board of Directors

 

 

 

Earning Trust

Earning the trust of our customers, partners, shareholders, and other stakeholders is the foundation of our business success and is fundamental to realizing Microsoft’s mission to empower every person and every organization on the planet to achieve more. The Board of Directors is committed to building trust through strong corporate governance, effective oversight, and strategic engagement. Together, these ensure accountability and position Microsoft for sustained success in a turbulent world.

Like many in the investor community, the Board and Microsoft’s leaders recognize the interconnections between corporate governance and effective business responses to pressing environmental and social challenges. In considering these challenges, Microsoft and its Board have proactively engaged with investors to learn from their perspectives and to share the Company’s approach, as well as considering best practices from our industry peers, partners, customers, and the broader business community. Microsoft’s Board and management team understand that the work the Company does across a spectrum of environmental and social areas makes an important contribution to the Company’s long-term financial performance and growth. We are committed to building and executing on strategies to help foster a healthy planet and advance a more inclusive global economy that fosters additional growth opportunities for everyone. Microsoft’s management benefits from the oversight and diverse perspectives offered by the Board and its committees, which cover a broad range of environmental, social, and governance (“ESG”) topics, which are described throughout this Proxy Statement.

Microsoft also gains trust from our longstanding commitments to conducting our business in ways that are principled, transparent, and accountable. The foundation of these commitments is expressed in Microsoft’s Standards of Business Conduct (“Trust Code”) at aka.ms/policiesandguidelines which apply to our employees, officers, Board of Directors, and our subsidiaries and controlled affiliates across the globe. The Trust Code requires not only legal compliance, but also broader commitments to address accessibility, diversity and inclusion, human rights, and privacy. In support of the Trust Code, we strive to build a workplace culture that embraces learning and fosters trust – a culture where every employee feels free to ask questions and raise concerns when something doesn’t seem right. We extend our high expectations to suppliers who do business with Microsoft, requiring them to uphold the human rights, labor, health and safety, environmental, and business ethics practices prescribed in our Supplier Code of Conduct at aka.ms/scoc.

 

 

Concrete Commitments and Transparent Reporting on Progress

We hold ourselves accountable by publicly reporting on our policies, practices, and performance to provide our stakeholders visibility into how we are meeting our commitments and responsibilities. We believe our position in the world demands it, and we are confident that it is critical to fostering our long-term business success. Our Reports Hub available at microsoft.com/transparency provides a consolidated, comprehensive view of our ESG reporting and data ranging from our carbon footprint to workforce demographics to political donations. We work to align our ESG reporting to commonly used global standards such as those provided by the Task Force on Climate-Related Financial Disclosures (“TCFD”). In addition, we were among the first companies to align our human rights work with the United Nations Guiding Principles on Business and Human Rights and to adopt the United Nations Guiding Principles Reporting Framework.

Recognizing the interest of shareholders in establishing greater transparency about corporate political contributions, we disclose our political contributions to support candidates and ballot measures and how certain of our trade association membership dues are used for political activities. As part of our commitment to transparency, we developed the Principles and Policies for Guiding Microsoft’s Participation in the Public Policy Process in the U.S., which focuses on ensuring compliance with applicable federal and state laws and goes beyond compliance to implement what we consider leading practices in corporate accountability, transparency, integrity, and responsibility. The policy is available at microsoft.com/public-policy-engagement.

The corporate governance policies and practices described throughout this Proxy Statement and the effective, engaged Board oversight they foster provide the foundation for all of our commitments.

 

 

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DIRECTORS

 

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NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

 

Engagement with Environmental and Social Topics

Below are five important initiatives that we know are of interest to many of our shareholders and other stakeholders based on feedback we have received. A wide range of information about other environmental and social topics is available at microsoft.com/csr.

Environmental Sustainability

Our strategy for a sustainable future focuses on addressing carbon emissions, ecosystems, water, and waste. In January 2020, we announced a bold commitment and detailed plan to be carbon negative by 2030, and to remove from the environment by 2050 all the carbon we have emitted since Microsoft’s founding in 1975. This included a commitment to invest $1 billion over four years in new technologies and innovative climate solutions. We built on this pledge by adding commitments to be water positive by 2030, zero waste by 2030, and to protect ecosystems by developing a Planetary Computer. Furthermore, we enhanced transparency by subjecting the data in our annual sustainability report to third-party review and accountability by including progress on sustainability goals as a factor in determining executive pay. We report our progress towards our 2030 goals annually at aka.ms/MSFTsustainabilityreport and the latest information is available at microsoft.com/environment. Microsoft’s Environmental, Social, and Public Policy Committee provides oversight and guidance on Microsoft’s environmental sustainability strategy and commitments.

Responsible Artificial Intelligence (“AI”)

Microsoft’s approach to Responsible AI is guided by the belief that when you create technologies that can change the world, you must also ensure that the technology is used responsibly. We are committed to creating responsible AI by design. Our work is guided by a core set of principles: fairness, reliability and safety, privacy and security, inclusiveness, transparency, and accountability. We are putting those principles into practice across the Company to develop and deploy AI that will have a positive impact on society. We take a cross-Company approach through cutting-edge research, best-of-breed engineering systems, and excellence in policy and governance. More information and resources are available at microsoft.com/ai/our-approach. Microsoft’s Environmental, Social, and Public Policy Committee provides oversight and guidance to management on responsible AI policies and programs.

Human Capital

Microsoft aims to recruit, develop, and retain world-changing talent from a diversity of backgrounds. To foster their and our success, we seek to create an environment where people can thrive and do their best work. We strive to maximize the potential of our human capital resources by creating a respectful, rewarding, and inclusive work environment that enables our global employees to create products and services that further our mission.

Information regarding our diversity and racial equity initiatives is available at microsoft.com/diversity and microsoft.com/racial-equity-initiative, and we detail our approach to human capital management across topics ranging from culture to pay equity to learning and development and more in the “Human Capital Resources” section of our Form 10-K for the fiscal year ended June 30, 2023. Microsoft’s Board and its Compensation Committee provide oversight and guidance to management on workplace and culture.

Privacy and Cybersecurity

Microsoft is committed to integrating privacy and security into product, service, and technology design. As we articulate in our Privacy Principles, we value, protect, and defend privacy and empower people and organizations to control their data and have meaningful choices in how it is used. More information is available at microsoft.com/privacy. Microsoft’s Environmental, Social, and Public Policy Committee provides oversight and guidance on Microsoft’s privacy policies and programs.

Cybersecurity is a central challenge in the digital age and Microsoft is in the midst of a five-year public commitment to invest $20 billion to accelerate efforts to integrate cybersecurity protection by design and deliver advanced enterprise security solutions. Every service and product line at Microsoft has a dedicated security team as well as cross-company researchers, analysts, and other experts supporting our security products and services. We have established specialized groups such as the Microsoft Threat Intelligence Center focused on threat tracking, the Microsoft Digital Crimes Unit, which partners with law enforcement agencies around the world to fight cybercrime, and the Digital Threat Analysis Center, which detects, assesses, and disrupts digital threats to Microsoft, its customers, and democracies worldwide. Microsoft’s Board maintains direct oversight over cybersecurity risk. The

 

 

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EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Board receives and provides feedback on regular updates from management regarding cybersecurity governance processes, the status of projects to strengthen internal cybersecurity, security features of the products and services we provide our customers, and the results of security breach simulations.

Racial Equity Initiative

We are committed to addressing racial injustice and inequity in the United States for Black and African American communities and helping improve lived experiences at Microsoft, in employees’ communities, and beyond. With input and feedback from employees and community leaders, we developed a set of actions that we believe are meaningful to improve the lived experience at Microsoft as well as drive change in the communities in which we live and work. Our Racial Equity Initiative focuses on three multi-year pillars, each containing actions and progress we expect to make or exceed by 2025. Details on the components of this important initiative and a fact sheet on our progress three years after its launch are available at microsoft.com/racial-equity-initiative. Microsoft’s Board, its Environmental, Social, and Public Policy Committee, and its Compensation Committee provide oversight on many aspects of the Company’s commitments through its Racial Equity Initiative.

 

 

Board of Directors Oversight Roles

Shareholders elect our Board to serve their long-term interests and to oversee management. Our Board and its committees work closely with management to provide oversight, review, and counsel related to long-term strategy, risks and opportunities, and feedback from shareholders. Our Board works with management to determine our mission and long-term strategy. It also oversees business affairs, integrity, risk management, CEO succession planning, and performs the annual CEO evaluation. Our Board looks to the expertise of its committees to provide strategic oversight in their areas of focus. Significant oversight areas are provided below.

Strategy

Led by our CEO, senior management develops and executes our business strategy. They manage our operations and work to model our desired culture, create innovative products, establish accountability, and control risk. Our CEO and senior management also align our structure, operations, people, policies, and compliance efforts to our mission and strategy.

Overseeing management’s development and execution of the Company’s strategy is one of our Board’s primary responsibilities. The Board works closely with senior management to respond to a dynamic business environment. Management benefits from the insights and perspectives of a diverse mix of directors with complementary qualifications, expertise, and attributes. Senior management and other leaders from across the Company provide business and strategy updates to our Board through regular strategy-focused meetings. At meetings throughout the year, the Board also assesses the strategic alignment of the Company’s budget and capital plan, business initiatives, and its strategic acquisition and integration process. For major initiatives, such as our approach to AI, the Board engages with management on strategic vision, investments, partnerships, capital requirements, and risks. For large acquisitions such as Activision Blizzard, GitHub, LinkedIn, and Nuance Communications, the Board engages management on a broad range of considerations, such as due diligence findings, valuation, and integration planning.

Risk Oversight

The Board of Directors

Effective risk management is critical to Microsoft’s ability to achieve its mission. The Board exercises direct oversight of strategic risks to the Company and other risk areas not delegated to one of the Board’s committees. For example, the Board maintains direct oversight over cybersecurity risk. The Board receives and provides feedback on regular updates from management regarding cybersecurity governance processes, the status of projects to strengthen internal cybersecurity, security features of the products and services we provide our customers, and the results of security breach simulations. The Board also discusses recent incidents throughout the industry and the emerging threat landscape.

 

 

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

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NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

The committees are charged with specific areas of risk oversight, summarized below, and regularly report back to the full Board.

 

 

Audit
Committee

             

 

Compensation
Committee

             

Environmental, Social,

and Public Policy

Committee

 

             

Governance and

Nominating

Committee

 

           

Oversees Microsoft’s processes to manage risk. Oversees the Company’s financial statements; compliance with legal and regulatory requirements and corporate policies and controls, including controls over financial reporting, computerized information systems and security; and the independent auditor and internal audit function.

 

              Oversees the Company’s compensation and benefits programs; human capital management and diversity and inclusion principles and programs; senior management succession planning and compensation; and advises the Board on CEO compensation.               Oversees key non-financial regulatory risks; management policies and programs relating to key environmental and social matters, including climate change and environmental sustainability, competition and antitrust, privacy, trade, digital safety, responsible AI, accessibility, human rights, and responsible sourcing; and reviews government relations activities and public policy agenda.               Oversees director selection and succession planning; Board effectiveness and independence, committee functions and charters; adherence to our corporate governance framework; and other corporate governance matters.
                 

Company Management

The Board, in consultation with each of its committees, oversees Company management in exercising its responsibility managing risk. The Board relies upon senior management to supervise risk management activities within the Company. Senior management is responsible for developing a continuously improving culture of risk-aware practices to identify and manage the appropriate level of risk in pursuit of our business objectives. On a regular basis, the Board and its committees engage with our senior management, our chief risk executive and chief compliance officer, and other members of management on risk as part of broad strategic and operational discussions which encompass interrelated risks, as well as on a risk-by-risk basis. Senior management is supported in these efforts through the operation of our enterprise risk management program. The program involves the input of management, the enterprise risk organization, a risk management community within our business teams, and subject matter experts from across the Company, and drives the identification, prioritization, and mitigation of the Company’s most significant risks. In addition, risk management is supported by our compliance organization, investigatory teams, internal audit and external audit reviews, and our legal department. Microsoft has also established robust standards of business conduct that apply to all employees globally and provides numerous methods for employees to elevate risk concerns directly to management or through anonymous channels.

Culture and Workplace

Our culture isn’t what we talk or write about; it’s what we live every day. Our senior management holds itself accountable for modeling the culture we strive for. We focus on creating a respectful, rewarding, diverse, and inclusive work environment where people can thrive, where they can do their best work, where they can proudly be their authentic selves, guided by our values, and where they know their needs can be met. Key to this environment is cultivating a growth mindset, where our workforce is focused on learning, listening, and growing.

Our employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs globally. Employees participate in our Employee Signals surveys, which cover a variety of topics such as thriving, inclusion, team culture, wellbeing, and learning and development. We also collect Daily Signals employee survey responses, giving us real-time insights into ways we can support our employees. In addition to Employee Signals and Daily Signals surveys, we gain insights through onboarding, exit surveys, internal Viva Engage channels, employee Q&A sessions, and our internal AskHR Service support. The Board and the Compensation Committee engage with senior management, including Human Resources executives, across a broad range of human capital management topics. Management prepares and reviews with the Board a variety of materials including culture, succession planning and development, compensation, benefits, employee recruiting and retention, and diversity and inclusion. Additionally, each year the Compensation and Audit Committees evaluate management’s annual assessment of risk related to our compensation policies and practices, including reviewing the work of management’s Sales Incentive Compensation Governance Committee.

 

 

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EXECUTIVE OFFICER   
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AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Microsoft Board Review of Sexual Harassment and Gender Discrimination Policies

In early 2022, the Board initiated an independent review of the effectiveness of the Company’s sexual harassment and gender discrimination policies and practices. Recognizing the importance of these issues to employees, shareholders, and other stakeholders, the Board directed that a third-party assessment be conducted to address the full scope of an advisory shareholder resolution approved by shareholders at the 2021 Annual Meeting. Throughout 2022, the law firm ArentFox Schiff LLP has worked to review and assess the Company’s policies and procedures relating to sexual harassment and gender discrimination, including reviewing the Company’s internal documents, interviewing executives and employees, and benchmarking against best practices at other companies. ArentFox provided the Board with a report detailing its findings and recommendations and Microsoft’s management team has prepared an implementation plan that addresses all the recommendations in the ArentFox report. The Board thoroughly reviewed the ArentFox report and approved the specific actions in the implementation plan. Microsoft published a full transparency report from ArentFox containing their findings and recommendations and published Microsoft’s implementation plan. Microsoft has now fully implemented the report’s recommendations and board-approved implementation plan and begun annual reporting of workplace investigations data at www.microsoft.com/transparency.

 

 

Our Governance Structure

Framework

We have developed a corporate governance framework designed to ensure our Board has the authority and practices in place to review and evaluate our business operations and to make decisions independent of management. Our goal is to align the interests of directors, management, and shareholders, and comply with or exceed the requirements of the Nasdaq Stock Market LLC (“Nasdaq”) and applicable laws and regulations. This framework establishes the practices our Board follows with respect to, among other things, Board composition and member selection, Board meetings and involvement of senior management, director compensation, CEO performance evaluation, management succession planning, and Board committees. The Board is committed to seeking opportunities for improvements on an ongoing basis. Each summer, the Board updates our corporate governance framework based on shareholder feedback, results from the annual shareholders meeting, the Board and committees’ annual assessments, governance best practices, and regulatory developments. Our Board maintains a variety of documents detailing the directives and procedures associated with corporate governance at Microsoft, listed below. These documents are available on our website at aka.ms/policiesandguidelines.

 

• Articles of Incorporation

• Bylaws

• Corporate Governance Guidelines

• Director Independence Guidelines

• Microsoft Finance Code of Professional Conduct

• Microsoft Standards of Business Conduct (“Trust Code”)

• Audit Committee Charter and Responsibilities Calendar

 

   • Compensation Committee Charter

• Environmental, Social, and Public Policy Committee Charter

• Governance and Nominating Committee Charter

• Executive Stock Ownership Policy

• Executive Compensation Recovery Policy

• Compensation Consultant Independence Standards 

Shareholder Rights

Microsoft strives to implement best practices in shareholder rights and to ensure the Company and Board align with the long-term interests of shareholders. We have enhanced our corporate governance framework over time based on input from our Board, shareholders, and other governance experts. Shareholder rights include:

 

 

Single class of shares with each share entitled to one vote

 

 

Annual election of all directors (unclassified board)

 

 

Majority voting standard for directors in uncontested elections

 

 

Confidential voting policy

 

 

Shareholders of 15% of outstanding shares have the right to call a special meeting

 

 

Proxy access bylaw allows groups of up to 20 shareholders holding 3% of shares for at least three years to nominate up to two individuals or 20% of the Board (whichever is greater) for inclusion in the proxy statement and ballot for election at an annual shareholders meeting

 

 

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OUR BOARD OF

DIRECTORS

 

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EXECUTIVE OFFICER   
COMPENSATION

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AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Other requirements that align Company and long-term interests of shareholders include:

 

 

Significant stock ownership requirements for directors, executive officers, and other senior leaders

 

 

Strong ‘no-fault’ executive compensation recovery (“clawback”) policy that applies to executive officers, other senior leaders, and our chief accounting officer

 

 

Strict hedging and pledging prohibitions against our directors and executive officers hedging their ownership of Microsoft stock, including by trading in options, puts, calls, or other derivative instruments related to Company equity or debt securities. Directors and executive officers are prohibited from purchasing Microsoft stock on margin, borrowing against Microsoft stock held in a margin account, or pledging Microsoft stock as collateral for a loan

 

 

Board tenure policy that seeks to maintain an average tenure of 10 years or less for the Board’s independent directors as a group

 

 

Public company board service guideline that, absent circumstances that enable the director to have sufficient capacity, generally no director should serve on more than three other public company boards. Directors who are current CEOs should not serve on more than one other public company board

Shareholder Engagement

Effective corporate governance includes regular, constructive conversations with our shareholders to proactively seek shareholder insights and to answer shareholder inquiries. We maintain an active dialogue with shareholders to ensure we thoughtfully consider a diversity of perspectives on issues including strategy, business performance, risk, culture and workplace topics, compensation practices, and a broad range of environmental and social topics. As noted above, the Board updates our corporate governance framework each summer based on a number of inputs, including shareholder feedback.

Our Office of the Corporate Secretary coordinates shareholder engagement with Investor Relations and provides a summary of all relevant feedback to our Board. In fiscal year 2023, members of our Board and management engaged with a cross-section of shareholders owning approximately 50% of Microsoft shares. In addition, throughout the year our Investor Relations group engages with our shareholders, frequently along with Satya Nadella, our Chairman and CEO, and Amy Hood, our CFO.

To communicate broadly with our shareholders, we also seek to transparently share relevant information through our Investor Relations website, our Annual Report, this Proxy Statement, our Reports Hub, and in posts on the Microsoft On the Issues blog.

Board Leadership

The Board’s independent directors elected Satya Nadella to the role of Chairman and CEO. In March 2023, the independent directors elected Sandra Peterson as Lead Independent Director. She succeeds John Thompson, who had served in the roles of Lead Independent Director or Board Chair since 2012.

In his role, Mr. Nadella leverages his deep understanding of the business to elevate the right strategic opportunities and identify key risks and mitigation approaches for the Board’s review. As Lead Independent Director, Ms. Peterson retains significant authority including providing input on behalf of the independent directors on Board agendas and schedules, calling meetings of the independent directors, authorizing retention of outside counsel, advisors, or other consultants, setting agendas for executive sessions, leading performance evaluations of the CEO, and overseeing CEO succession planning. Additional information about the role of the Lead Independent Director is described in this Part 1 under “Board Independence” below.

The Board does not have a policy as to whether the Chairman should be an independent director, an affiliated director, or a member of management. The independent directors annually appoint a Chairman of the Board. To ensure robust independent leadership on the Board, if the individual appointed as Chairman is not an independent director, or when the independent directors determine that it is in the best interests of the Company, the independent directors will also annually appoint a Lead Independent Director. Our Board believes its current leadership structure is appropriate because it effectively allocates authority, responsibility, and oversight between management and the independent members of our Board. It does this by giving primary responsibility for the operational leadership and strategic direction of the Company to our Chairman and Chief Executive Officer, while enabling the Lead Independent Director to facilitate our Board’s independent oversight of management, promote communication between management and our Board, and support our Board’s consideration of key governance matters. The Board believes its programs for overseeing risk, as described in this Part 1 under “Risk Oversight,” would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of structure.

 

 

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EXECUTIVE OFFICER   
COMPENSATION

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AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

CEO Succession

A primary responsibility of the Board is planning for CEO succession and overseeing identification and development of other members of the senior leadership team (“SLT”). The Board and the Compensation Committee work with the CEO and our Chief Human Resources Officer to plan for succession. For the CEO, the succession plan covers identification of internal and external candidates, and professional and leadership development plans for internal candidates. The Board annually reviews the CEO succession plan. The criteria used to assess potential CEO candidates are formulated based on the Company’s business strategies, and include strategic vision, leadership, and operational execution. The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool of potential CEO candidates. The Board maintains an emergency succession contingency plan that is reviewed on an annual basis by the Board and Governance and Nominating Committee. The plan identifies roles and responsibilities of individuals who would act if an unforeseen event prevented the CEO from continuing to serve. The Compensation Committee reviews with the CEO and reports to the Board on development and succession plans for the other members of the SLT. The Board may review development and succession planning more frequently as it deems necessary or desirable.

Annual Board and Committee Evaluation Process

The Board is committed to a rigorous self-evaluation process. The Governance and Nominating Committee annually evaluates the performance of the Board. In fiscal year 2023, the evaluation included utilizing a third-party facilitator to seek feedback from each director on the performance of the Board and each committee. The results were reported to and discussed with the Board and each relevant committee.

Our evaluation process is designed to elicit feedback on the processes, structure, composition, and effectiveness of the Board and each committee. The evaluation results have facilitated increased Board and committee effectiveness, including driving clarity on key areas for the Board’s focus over the coming year, focus on sustainable growth strategies for the Company, and input on management development and succession planning as well as Board and committee composition and recruiting.

Director Attendance

Each quarter, our Board holds two-day meetings comprised of committee and Board meetings. At each quarterly Board meeting, time is set aside for the independent directors to meet without management present. Additional executive sessions are held as needed.

In addition to the quarterly meetings, typically there are other regularly scheduled Board and committee meetings and several special meetings each year. Our Board met nine times during fiscal year 2023. In addition, the Board held periodic meetings dedicated to strategy topics which included presentations and discussions with members of our SLT and other senior management.

Each director nominee attended at least 75% of the aggregate of all fiscal year 2023 meetings of the Board and each committee on which he or she served. In fiscal year 2023, the Board and committees of the Board held a total of 35 meetings. Together, the director nominees attended at least 95% of the combined total meetings of the Board and the committees on which they were members in fiscal year 2023.

Directors are expected to attend the annual shareholders meeting, if practicable. All directors attended the 2022 Annual Meeting.

Director Orientation and Continuing Education

Our orientation programs are designed to familiarize new directors with our businesses, strategies, and policies and assist new directors in developing Company and industry knowledge to optimize their service on the Board.

Regular continuing education programs enhance the skills and knowledge directors use to perform their responsibilities. These programs may include internally developed programs or programs presented by third parties.

Director Stock Ownership Policy

To align the interests of our directors and shareholders, our directors are required to own Microsoft shares equal in value to at least three times the base annual retainer (cash and stock) payable to a director. Each director must retain 50% of all net shares (post-tax) from the retainer until reaching the minimum share ownership requirement. Stock deferred under the Deferred Compensation Plan for Non-Employee Directors counts toward the minimum ownership requirement. Each of our directors complied with our stock ownership policy in fiscal year 2023.

 

 

2023 PROXY STATEMENT

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Table of Contents
1  

 

GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Derivatives Trading, Hedging, and Pledging

Our directors and executive officers are prohibited from trading in options, puts, calls, or other derivative instruments related to Microsoft equity or debt securities. They also are prohibited from purchasing Microsoft common stock on margin, borrowing against Microsoft common stock held in a margin account, or pledging Microsoft common stock as collateral for a loan. Employees, other than executive officers, are generally permitted to engage in transactions designed to hedge or offset market risk.

Board Independence

The Board’s independence enables it to be objective and critical in carrying out its oversight responsibilities. The Corporate Governance Guidelines provide that a substantial majority of our directors will be independent. The independent members of the Board annually appoint a Lead Independent Director to facilitate the Board’s oversight of management, promote communication between management and our Board, engage with shareholders, and lead consideration of key governance matters. Key elements of our Board independence include:

 

 

11 of 12 director nominees are independent. We are committed to maintaining a substantial majority of directors who are independent of the Company and management. Except for our Chairman and CEO, Satya Nadella, all director nominees are independent

 

 

Board tenure. We are committed to board refreshment. To strike a balance between retaining directors with deep knowledge of the Company and adding directors with a fresh perspective, the Board seeks to maintain an average tenure of 10 years or less for its independent directors as a group. The average tenure for our independent director nominees is 5.4 years. The average tenure is 5.7 years if Mr. Nadella is included

 

 

Board diversity. The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool of potential Board nominees and CEO candidates

 

 

Executive sessions of independent directors. At each quarterly Board meeting, time is set aside for the independent directors to meet in executive session without management present. Additional executive sessions are held as needed

 

 

Committee independence. Only independent directors are members of the Board’s committees. Each committee meets regularly in executive session

 

 

Independent compensation consultant. The compensation consultant retained by the Compensation Committee is independent of the Company and management as required by the Compensation Consultant Independence Standards

 

 

Lead Independent Director. The Lead Independent Director has a clearly defined set of responsibilities, significant authority, and provides independent Board leadership. Sandra Peterson was selected by the independent members of the Board to serve as Lead Independent Director. Key responsibilities and authority include:

 

   

Chairs executive sessions and coordinates activities of the independent directors

 

   

Leads the Board’s annual CEO performance evaluation

 

   

Coordinates Board oversight of CEO succession planning, including maintenance of an emergency succession plan

 

   

Chairs the annual shareholders meeting

 

   

Acts as liaison between the independent directors and the Chairman and CEO

 

   

Authorizes retention of outside counsel, advisors, or other consultants who report directly to the Board

 

   

Leads the Board meetings when the Chairman and CEO is not present

 

   

Reviews and approves the agenda and schedule for Board meetings

 

   

Calls meetings of the independent directors

 

   

When requested, represents the Board with internal and external audiences including shareholders

 

 

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OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Board Committees

To support effective corporate governance, our Board delegates certain responsibilities to its committees, who report on their activities to the Board. These committees have the authority to engage legal counsel or other advisors or consultants as they deem appropriate to carry out their responsibilities. Our Board has four standing committees: an Audit Committee, a Compensation Committee, an Environmental, Social, and Public Policy Committee, and a Governance and Nominating Committee.

The table below provides current membership for each Board committee, followed by a summary of each committee’s responsibilities. Each committee has a charter describing its specific responsibilities which can be found on our website at aka.ms/ boardcommittees.

 

Director

  Audit   Compensation  

Environmental, Social,

and Public Policy

 

Governance and 

Nominating 

Reid G. Hoffman

   

 

   

 

  Member    

 

Hugh F. Johnston

  Chair,

Financial Expert

   

 

   

 

   

 

Teri L. List

  Financial Expert

and Member

   

 

   

 

  Member 

Satya Nadella

   

 

   

 

   

 

   

 

Sandra E. Peterson

   

 

  Member    

 

  Chair 

Penny S. Pritzker

   

 

   

 

  Chair    

 

Carlos A. Rodriguez

  Financial Expert

and Member

  Chair    

 

   

 

Charles W. Scharf

   

 

  Member    

 

  Member 

John W. Stanton

  Member    

 

  Member    

 

John W. Thompson*

   

 

   

 

  Member   Member 

Emma N. Walmsley

   

 

  Member   Member    

 

Padmasree Warrior*

   

 

  Member    

 

   

 

Number of meetings in fiscal year 2023

  9   6   4   7 

 

*

Mr. Thompson and Ms. Warrior will not seek re-election at the 2023 Annual Meeting. Catherine MacGregor and Mark Mason are both nominated for election to the Board at the Annual Meeting. The Board will consider committee appointments for Ms. MacGregor and Mr. Mason if they are elected to the Board.

Audit Committee

 

 

Oversee the work of our accounting function and internal control over financial reporting

 

 

Oversee internal auditing processes

 

 

Inquire about significant risks, review our policies for enterprise risk assessment and risk management, and except as to those risks for which oversight has been assigned to other committees of the Board or retained by the Board, assess the steps management has taken to control these risks

 

 

Review with management policies, practices, compliance, and risks relating to our investment portfolio

 

 

Review with management the Company’s business continuity, resiliency, and disaster preparedness planning

 

 

Review compliance with significant applicable legal, ethical, and regulatory requirements, including those relating to regulatory matters that may have a material impact on our consolidated financial statements or internal control over financial reporting

The Audit Committee is responsible for the compensation, retention, and oversight of the independent auditor engaged to issue audit reports on our consolidated financial statements and internal control over financial reporting. The Audit Committee relies on the expertise and knowledge of management, the internal auditor, and the independent auditor in carrying out its oversight responsibilities.

The Board has determined that each Audit Committee member has sufficient knowledge in financial and auditing matters to serve on the Audit Committee. All current members of the Audit Committee meet the Nasdaq listing standard of financial sophistication and three are “audit committee financial experts” under Securities and Exchange Commission (“SEC”) rules.

As provided in our Corporate Governance Guidelines, members of the Audit Committee ordinarily may not serve on over three public company audit committees (including Microsoft’s). In calculating service on a public company board or audit committee,

 

 

2023 PROXY STATEMENT

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EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

service on a board or audit committee of a parent and its substantially-owned subsidiary counts as service on a single board or audit committee. Any Audit Committee member’s service on over three public company audit committees will be subject to the Board’s determination that the member is able to effectively serve on the Company’s Audit Committee. The Governance and Nominating Committee and the Board considered Ms. List’s service on four public company audit committees, including her professional qualifications, former experience as a public company chief financial officer, and the nature of and time involved in her service on other boards. Following such review, the Board determined that Ms. List is able to effectively continue to serve on the Company’s Audit Committee.

Compensation Committee

 

 

Assist our Board in establishing the annual goals and objectives of the CEO

 

 

Establish the process for annually reviewing the CEO’s performance

 

 

Recommend our CEO’s compensation to the independent members of our Board for approval

 

 

Approve annual compensation, and in consultation with the CEO, oversee performance evaluations, for the non-CEO members of the SLT

 

 

Review and discuss with the CEO and report to the Board development and corporate succession plans for the non-CEO members of the SLT

 

 

Oversee administration of the Company’s equity-based compensation and retirement plans

 

 

Monitor and evaluate the compensation and benefits structure of Microsoft as the Committee deems appropriate, including policies regarding SLT compensation

 

 

Oversee and advise the Board and management about Company programs for diversity and inclusion and human capital management

 

 

Periodically review the compensation paid to non-employee directors and make recommendations to our Board for any adjustments

 

 

Oversee the process and review the results of investigations of any sexual harassment complaints against senior officers. The Committee will report to the full Board on the conclusions of any investigation that results in a founded determination and the disciplinary and other actions taken

Our senior executives for Human Resources support the Compensation Committee in its work. The Committee may delegate its authority to subcommittees and to one or more designated members of the Committee. The Committee may delegate to one or more executive officers the authority to make grants of equity-based compensation to eligible individuals who are not executive officers and to administer the Company’s equity-based compensation plans. The Committee has delegated to senior management the authority to make stock award grants to employees who are not members of the SLT or Section 16 officers and to administer the Company’s equity-based compensation plans.

Independent compensation consultant. The Compensation Committee retained Pay Governance LLC as an independent compensation consultant throughout fiscal year 2023. The consultant advises the Committee on marketplace trends in executive compensation, management proposals for compensation programs, and executive officer compensation decisions. The consultant also evaluates compensation for non-employee directors, the next levels of senior management, and equity compensation programs generally. The consultant discusses recommendations to the Board on CEO compensation with the Committee, and is directly accountable to the Committee. To maintain the independence of the consultant’s advice, the firm does not provide services to Microsoft other than those described above. The Committee has adopted Compensation Consultant Independence Standards which can be viewed on our website at aka.ms/policiesandguidelines. These standards require that the Committee annually assess the independence of its compensation consultant. A consultant satisfying the following requirements will be considered independent. The consultant (including each individual employee of the consultant providing services):

 

 

Is retained and terminated by, has its compensation fixed by, and reports solely to, the Compensation Committee

 

 

Is independent of the Company

 

 

Will not perform any work for Company management except at the request of the Compensation Committee Chair and in the capacity of the Committee’s agent

 

 

Should not provide any unrelated services or products to the Company and its affiliates or management, except for surveys purchased from the consultant’s firm

 

 

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   2  

 

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EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

In assessing the consultant’s independence, the Compensation Committee considers the nature and amount of work performed for the Committee during the year, the nature of any unrelated services performed for the Company, and the fees paid for those services in relation to the firm’s total revenue. The consultant annually prepares for the Committee an independence letter providing assurances and confirmation of the consultant’s independent status under the standards. The Committee believes that Pay Governance has been independent during its service for the Committee.

Environmental, Social, and Public Policy Committee

 

 

Assist the Board in overseeing the Company’s key non-financial regulatory risks that may have a material impact on the Company and its ability to sustain trust with customers, employees, and the public

 

 

Oversee management policies and programs relating to key environmental and social matters including climate change and environmental sustainability, competition and antitrust, privacy, trade, digital safety, responsible AI, accessibility, human rights, and responsible sourcing

 

 

Review our government relations activity and political activities and expenditures

 

 

Review our public policy agenda and position on significant public policy matters

Governance and Nominating Committee

 

 

Determine and recommend the slate of director nominees for election to our Board during the annual shareholders meeting

 

 

Identify, recruit, and recommend candidates for the Board

 

 

Review and make recommendations to the Board about the composition of Board committees

 

 

Annually evaluate the performance and effectiveness of the Board

 

 

Annually assess the independence of each director

 

 

Monitor adherence to, review, develop, and recommend changes to our corporate governance framework

 

 

Review and provide guidance to the Board and management about the framework for the Board’s oversight of, and involvement in, shareholder engagement

 

 

Annually review the charters of Board committees and, after consultation with the respective committees, recommend to the Board appropriate changes

 

 

Oversee the process and review the results of investigations of any sexual harassment complaints against members of the Board and the Chief Executive Officer. The Committee will report to the full Board on the conclusions of any investigation that results in a founded determination and the disciplinary and other actions taken

 

 

2023 PROXY STATEMENT

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

 

Director Selection and Qualifications

Shareholders elect our Board of Directors annually. In making its annual director nominations determination, the Board’s objective is to recommend a group of directors that can best ensure the continuing success of our business and represent shareholder interests through the exercise of sound judgment using its diversity of experience and perspectives.

The Governance and Nominating Committee recommends to the Board director candidates for nomination and election during the annual shareholders meeting or for appointment to fill vacancies. The Committee works with our Board to determine the characteristics, skills, and experience for the Board as a whole and its individual members with the objective of having a board with diverse backgrounds, skills, and experience. In making its recommendations to our Board, the Committee considers the qualifications of individual director candidates applying the Board membership criteria described below. The Committee retains any search firm involved in identifying potential candidates and approves their fees.

For all directors, we require an independent mindset, integrity, personal and professional ethics, business judgment, and the ability and willingness to commit sufficient time to the Board. Our Board considers many factors in evaluating the suitability of individual director candidates, including their general understanding of global business, sales and marketing, finance, and other disciplines relevant to the success of a large, publicly traded company; understanding of our business and technology; educational and professional background; personal accomplishment; and national, gender, age, and ethnic diversity.

This Proxy Statement includes a table summarizing the key qualifications, skills, and attributes currently most relevant to the decision to nominate candidates to serve on the Board. As the Board strives to maintain a diverse set of skills and attributes, it also expects that each member will be able to understand and contribute meaningfully to the oversight of the range of material business, risk, and regulatory issues the Company faces. Management’s responsibility includes educating and communicating to the Board in a way that enables effective oversight of this broad set of issues. The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected. We work with our search firm to ensure the candidate slate provided to the Committee includes diverse candidates.

The Board does not believe that directors should expect to be re-nominated annually. In determining whether to recommend a director for re-election, the Committee considers the director’s participation in and contributions to the activities of the Board, the results of the most recent Board evaluation, and meeting attendance.

When the Committee recruits new director candidates, that process typically involves either a search firm or a member of the Committee contacting a prospect to assess interest and availability. A candidate will then meet with members of the Board and Mr. Nadella, and then meet with members of management as appropriate. At the same time, the Committee and the search firm will contact references for the candidate. A background check is completed before a final candidate recommendation is made to the Board.

Shareholders have previously elected all Board nominees, except Ms. MacGregor and Mr. Mason. In recruiting Ms. MacGregor and Mr. Mason, the Committee retained the search firm Spencer Stuart to help identify director prospects, perform candidate outreach, assist in reference checks, and provide other related services.

The Committee assesses its efforts to maintain an effective and diverse board as part of its regular responsibilities, which include annually:

 

 

Reporting to our Board on the performance and effectiveness of the Board

 

 

Presenting to our Board individuals recommended for election to the Board at the annual shareholders meeting

 

 

Assessing the Committee’s own performance

Shareholder Recommendations and Nominations of Director Candidates

Recommendations

The Governance and Nominating Committee considers shareholder recommendations for candidates for the Board of Directors using the same criteria described above. The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of Company stock must be sent to the attention of MSC 123/9999, Office of the Corporate Secretary, Microsoft Corporation, One Microsoft Way, Redmond, WA, 98052-6399.

Nominations

Our Bylaws provide for proxy access shareholder nominations of director candidates by eligible shareholders. A shareholder who wishes to formally nominate a candidate, whether for inclusion in the Company’s proxy statement or not, must follow the procedures described in Article 1 of our Bylaws. Appropriately nominated proxy access candidates or candidates who comply with both our Advanced Notice Bylaw Provisions and the SEC’s Rule 14a-19 will be included in the Company’s proxy statement and ballot.

 

 

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DIRECTORS

 

   2  

 

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EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

 

Board Composition and Diversity

Our Board of Directors believes that having a diverse mix of directors with complementary qualifications, expertise, and attributes is essential to meeting its oversight responsibility. A mark indicates a specific area of focus or expertise on which the Board particularly relies. Not having a mark does not mean the director does not possess that qualification or skill. Our director nominees’ biographies describe each director’s background and relevant experience in more detail.

 

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2023 PROXY STATEMENT

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

 

 

Our Director Nominees

Following are biographies for the 12 directors nominated by the Board for election during the 2023 Annual Meeting.

 

 

  LOGO   Reid G. Hoffman    
  
 

Age: 56 | Director since: 2017 | Birthplace: United States | Independent

 

 

LOGOLOGOLOGO

 

       

Experience:

Greylock Partners (2009-present)

(venture capital firm)

•  Partner (2023-present)

•  General Partner (2009-2023)

Reinvent Capital (2019-present)

•  Advisory Partner (2019-present)

LinkedIn Corporation (2003-2016)

•  Co-founder and Chairman (2003-2016)

•  Executive Chairman (2009)

•  Chief Executive Officer (2003-2007 and 2008-2009)

•  President, Products (2007-2008)

PayPal Holdings, Inc. (2000-2002)

•  Executive Vice President (2000-2002)

  

    

Microsoft Committees:

• Environmental, Social, and Public Policy

 

Other Public Company Directorships:

• Joby Aviation, Inc.

• Aurora Innovation, Inc.

 

Former Public Company Directorships Held in the Past Five Years:

• Reinvent Technology Partners Z

    

 

  LOGO   Hugh F. Johnston    
  
 

Age: 62 | Director since: 2017 | Birthplace: United States | Independent

 

 

LOGOLOGOLOGOLOGO

 

 

       

Experience:

PepsiCo, Inc. (1987-1999 and 2002-present)

(food and beverage company)

•  Vice Chairman (2015-present) 

•  Executive Vice President and Chief Financial Officer (2010-present)

•  Executive Vice President, Global Operations (2009-2010)

•  President, Pepsi-Cola North America (2007-2009)

•  Various positions of increasing authority
(1987-1999 and 2002-2007)

Merck & Co., Inc. (1999-2002)

•  Vice President, Retail Marketing, Merck-Medco Managed Care LLC (1999-2002)

    

Microsoft Committees: 

• Audit (Chair)

 

Other Public Company Directorships:

• HCA Healthcare, Inc.

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

    

 

    LOGO   Board Diversity   LOGO   Financial       LOGO   Global
Business
      LOGO   Leadership       LOGO   Mergers and
Acquisitions
      LOGO   Sales and
Marketing
      LOGO   Technology

 

 

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OUR BOARD OF

DIRECTORS

 

   2  

 

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EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

  LOGO   Teri L. List    
  
 

Age: 60 | Director Since: 2014 | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

The Gap, Inc. (2016-2020)

(clothing and accessories retailer)

•  Executive Vice President and Chief Financial Officer (2016-2020)

Dick’s Sporting Goods, Inc. (2015-2016)

•  Executive Vice President and Chief Financial Officer (2015-2016)

Kraft Foods Group, Inc. (2013-2015)

•  Senior Advisor (2015)

•  Executive Vice President and Chief Financial Officer (2013-2015)

•  Senior Vice President (2013)

The Procter & Gamble Company (1994-2013)

•  Senior Vice President and Treasurer (2009-2013)

•  Various positions of increasing authority (1994-2009)

    

Microsoft Committees:

•  Audit

•  Governance and Nominating

 

Other Public Company Directorships:

•  Danaher Corporation

•  DoubleVerify Holdings, Inc.

•  Visa Inc.

 

Former Public Company Directorships

Held in the Past Five Years:

•  Oscar Health, Inc.

 

Other Positions:

•  Former Trustee, Financial Accounting Foundation

•  Former Practice Fellow, Financial Accounting Standards Board

    

 

  LOGO   Catherine MacGregor    
  
 

Age: 51 | Director Since: New Nominee | Birthplace: Morocco | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO

 

 

       

Experience:

Engie S.A. (2021-present)

(energy company)

•  Group Chief Executive Officer and Director (2021-present)

TechnipFMC plc (2019-2020)

•  President, Technip Energies (2019-2020)

Schlumberger N.V. (1995-2018)

•  President, Drilling Group (London) (2017)

•  President, Reservoir Characterization Group (France) (2016)

•  President, Europe & Africa, La Defense (France) (2013)

•  President, Wireline, Schlumberger Wireline (France) (2009)

•  Group Human Resource Director (France) (2007)

•  Various positions of increasing authority (Congo, UK,
Malaysia, US, and France) (1995-2007)

    

Microsoft Committees:

•  Appointment will be made after election

 

Other Public Company Directorships:

•  Engie S.A.

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

 

    

 

 

 

2023 PROXY STATEMENT

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

  LOGO   Mark A. L. Mason    
  
 

Age: 54 | Director Since: New Nominee | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO

 

 

       

Experience:

Citigroup Inc. (2001-present)

(banking and financial services company)

•  Chief Financial Officer (2019-present)

•  Chief Financial Officer, Institutional Clients Group (2014)

•  Chief Executive Officer, Citi Private Bank (2013)

•  Chief Executive Officer, Citi Holdings (2012)

•  Chief Operating Officer, Citi Holdings (2009)

•  Chief Financial Officer and Head of Strategy and M&A, Global Wealth Management (2006)

•  Various positions of increasing authority (2001-2006)

    

Microsoft Committees:

• Appointment will be made after election

 

Other Public Company Directorships:

• None

 

Former Public Company Directorships
Held in the Past Five Years:

•  Primerica, Inc.

    

 

  LOGO   Satya Nadella    
  
 

Age: 56 | Director Since: 2014 | Birthplace: India

 

 

LOGO    LOGO    LOGO    LOGO    LOGO    LOGO

 

 

       

Experience:

Microsoft Corporation (1992-present)

•  Chairman and Chief Executive Officer (2021-present)

•  Chief Executive Officer and Director (2014-2021)

•  Executive Vice President, Cloud and Enterprise (2013-2014)

•  President, Server and Tools (2011-2013)

•  Senior Vice President, Online Services Division (2009-2011)

•  Senior Vice President, Search, Portal, and Advertising (2008-2009)

•  Various positions of increasing authority (1992-2008)

    

Microsoft Committees:

• None

 

Other Public Company Directorships:

• Starbucks Corporation

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

    

 

    LOGO   Board Diversity   LOGO   Financial       LOGO   Global
Business
      LOGO   Leadership       LOGO   Mergers and
Acquisitions
      LOGO   Sales and
Marketing
      LOGO   Technology

 

 

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GOVERNANCE AND
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DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

  LOGO   Sandra E. Peterson    
  
 

Age: 64 | Director Since: 2015 | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

Microsoft Corporation (2015-present)

•  Lead Independent Director (2023-present)

Clayton, Dubilier & Rice, LLC (2019-present)

(investment firm)

•  Operating Partner (2019-present)

Johnson & Johnson (2012-2018)

•  Group Worldwide Chair and member of the Executive Committee (2012-2018)

Bayer CropScience AG (2010-2012)

•  Chief Executive Officer and Chairman of the Board of Management (2010-2012)

•  Member of Board of Management (2010)

Bayer HealthCare LLC (2005-2010)

•  Executive Vice President and President, Medical Care (2009-2010)

•  President, Diabetes Care Division (2005-2009)

Medco Health Solutions, Inc. (1999-2004)

•  Group President of Government (2003-2004)

•  Senior Vice President, Health Businesses (2001-2003)

•  Senior Vice President, Marketing and Strategy (1999-2001)

    

Microsoft Committees:

•  Compensation

•  Governance and Nominating (Chair)

 

Other Public Company Directorships:

•  None

 

Former Public Company Directorships

Held in the Past Five Years:

•  Covetrus, Inc.

•  Zymergen, Inc.

    

 

  LOGO   Penny S. Pritzker    
  
 

Age: 64 | Director Since: 2017 | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO

 

       

Experience:

United States Secretary of Commerce (2013-2017)

PSP Partners, LLC (present)

(private investment firm)

•  Founder and Chairman (present)

Pritzker Realty Group (present)

•  Co-founder and Chairman (present)

Inspired Capital Partners (present)

•  Co-founder and Chairman (present)

Artemis Real Estate Partners (present)

•  Co-founder (present)

The Parking Spot (1998-2011)

•  Co-founder and Chairman (1998-2011)

Vi Senior Living (1987-2011)

•  Founder and Chairman (1987-2011)

    

Microsoft Committees:

•  Environmental, Social, and Public Policy (Chair)

 

Other Public Company Directorships:

•  None

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

 

Other Positions:

•  Co-founder, Pritzker Traubert Foundation

    

 

 

 

2023 PROXY STATEMENT

  23


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1  

 

GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

  LOGO   Carlos A. Rodriguez    
  
 

Age: 59 | Director since: 2021 | Birthplace: Cuba | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

Automatic Data Processing, Inc. (1999-present)

(human capital management solutions provider)

•  Executive Chair (2023-present)

•  Chief Executive Officer and Director (2011-2022)

•  President, Chief Operating Officer, and Director (2011)

•  Various positions of increasing authority (1999-2011)

Vincam Group, Inc. (1996-1999)

(acquiredby Automatic Data Processing, Inc. in 1999)

•  Senior Vice President Finance and Chief Financial Officer (1997-1999)

•  Vice President, Mergers & Acquisitions (1996-1997)

•  Vice President, Operations (1996)

    

Microsoft Committees:

•  Audit

•  Compensation (Chair)

 

Other Public Company Directorships:

•  Automatic Data Processing, Inc.

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

    

 

  LOGO   Charles W. Scharf    
  
 

Age: 58 | Director Since: 2014 | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

Wells Fargo & Company (2019-present)

(banking and financial services company)

•  Chief Executive Officer, President, and Director (2019-present)

The Bank of New York Mellon Corporation (2017-2019)

•  Chairman and Chief Executive Officer (2018-2019)

•  Chief Executive Officer and Director (2017)

Visa Inc. (2012-2016)

•  Chief Executive Officer and Director (2012-2016)

JPMorgan Chase & Co. (2004-2012)

•  Managing Director, One Equity Partners, private investment arm (2011-2012)

•  Chief Executive Officer of Retail Financial Services (2004-2011)

Bank One Corporation (2000-2004)

•  Chief Executive Officer of the Retail Division (2002-2004)

•  Chief Financial Officer (2000-2002)

Citigroup Inc. (1999-2000)

•  Chief Financial Officer of the Global Corporate and Investment Bank Division (1999-2000)

    

Microsoft Committees:

•  Compensation

•  Governance and Nominating

 

Other Public Company Directorships:

•  Wells Fargo & Company

 

Former Public Company Directorships

Held in the Past Five Years:

•  The Bank of New York Mellon Corporation

    

 

    LOGO   Board Diversity   LOGO   Financial       LOGO   Global
Business
      LOGO   Leadership       LOGO   Mergers and
Acquisitions
      LOGO   Sales and
Marketing
      LOGO   Technology

 

 

24   

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1  

 

GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

  LOGO   John W. Stanton    
  
 

Age: 68 | Director Since: 2014 | Birthplace: United States | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

Trilogy Partnerships (2005-present)

(investment company)

•  Founder and Chairman (2005-present)

Clearwire Corp. (2008-2013)

•  Chairman of the Board (2011-2013)

•  Interim Chief Executive Officer (2011)

•  Board member (2008-2011)

Western Wireless Corporation (1992-2005)

•  Founder, Chief Executive Officer, and Chairman (1992-2005)

VoiceStream Wireless Corporation (1995-2003)

•  Chief Executive Officer and Chairman (1995-2003)

 

    

Microsoft Committees:

•  Audit

•  Environmental, Social, and Public Policy

 

Other Public Company Directorships:

•  Costco Wholesale Corporation

•  Trilogy International Partners, Inc.

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

 

Other Positions:

•  Chairman, First Avenue Entertainment LLLP, owner of Seattle Mariners (2016-present)

    

 

  LOGO   Emma N. Walmsley    
  
 

Age: 54 | Director Since: 2019 | Birthplace: United Kingdom | Independent

 

 

LOGO    LOGO    LOGO    LOGO    LOGO

 

       

Experience:

GSK plc (2010-present)

(healthcare company)

•  Chief Executive Officer and Director (2017-present)

•  Chief Executive Officer, Consumer Healthcare (2015-2016)

•  President, Consumer Healthcare (2012-2015)

•  President, Consumer Healthcare Europe (2010-2012)

L’Oreal, S.A. (1994-2010)

•  General Manager, Consumer Products, China (2007-2010)

•  Global Brand Head, Maybelline, USA (2002-2007)

•  UK General Manager, Garnier/Maybelline (1999-2002)

•  Various positions of increasing authority (1994-1999)

    

Microsoft Committees:

•  Compensation

•  Environmental, Social, and Public Policy

 

Other Public Company Directorships:

•  GSK plc

 

Former Public Company Directorships

Held in the Past Five Years:

•  None

    

 

 

2023 PROXY STATEMENT

  25


Table of Contents
1  

 

GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

How to Communicate with our Board

We will transmit shareholder communications related to corporate governance and other Board matters to the Board, a committee of the Board, or a director as designated in your message. Communications relating to other topics, including those that are primarily commercial in nature, will not be forwarded.

 

@ 

 

 

 

askboard@microsoft.com

   

LOGO

 

    MSC 123/9999

    Office of the Corporate Secretary

    Microsoft Corporation

    One Microsoft Way

    Redmond, WA 98052-6399

  

Concerns about accounting or auditing matters or possible violations of our Standards of Business Conduct should be reported under the procedures outlined in the Microsoft Standards of Business Conduct, which is available on our Microsoft integrity website at microsoft.com/legal/compliance/integrity.

Director Independence Guidelines

Our Board has adopted director independence guidelines to assist in determining each director’s independence. These guidelines are available on our website at aka.ms/policiesandguidelines. The guidelines either meet or are more restrictive than the definition of “independent director” in the listing requirements of Nasdaq and applicable laws and regulations. The guidelines identify categories of relationships the Board has determined would not affect a director’s independence and therefore are not considered by the Board in determining director independence.

Following the director independence guidelines, each year and before a new director is appointed, the Board must affirmatively determine a director has no relationship that would interfere with the exercise of independent judgment in carrying out their responsibilities as a director. Annually, each director completes a detailed questionnaire that provides information about relationships that might affect the determination of independence. Management provides the Governance and Nominating Committee and Board with relevant known facts and circumstances of any relationship bearing on the independence of a director or nominee that is outside the categories permitted under the director independence guidelines. The Committee then completes an assessment of each director considering all known relevant facts and circumstances concerning any relationship bearing on the independence of a director or nominee. This process includes evaluating whether any identified relationship otherwise adversely affects a director’s independence and affirmatively determining that the director has no material relationship with Microsoft, another director, or as a partner, shareholder, or officer of an organization that has a relationship with our Company.

The Governance and Nominating Committee also considers the tenure of a director, and for longer serving directors, whether the duration of service impacts the director’s independence from management, as demonstrated by the director’s relationship with management and the director’s participation in Board and committee deliberations. The Board seeks to maintain an average tenure of 10 years or less for its independent directors as a group.

Based on the review and recommendation by the Governance and Nominating Committee, the Board analyzed the independence of each director and nominee. The Board determined that Mses. List, MacGregor, Peterson, Pritzker, Walmsley, and Warrior, and Messrs. Hoffman, Johnston, Mason, Rodriguez, Scharf, Stanton, and Thompson meet the standards of independence under our Corporate Governance Guidelines, the director independence guidelines, and applicable Nasdaq listing standards, including that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment. In making its independence determination, the Committee and Board considered ordinary course transactions between Microsoft and certain related entities, for instance the purchase of software licenses by companies of which a director is an executive officer, and purchases by Microsoft of goods and services from such companies.

Certain Relationships and Related Transactions

We are a global company with extensive operations in the U.S. and many foreign countries. Every year, we spend billions of dollars for goods and services purchased from third parties. The authority of our employees to purchase goods and services is widely dispersed. Because of these wide-ranging activities, there may be transactions, business arrangements, or relationships with businesses and other organizations in which one of our directors, executive officers, nominees for director, or an owner of 5% or more of our stock (“5% shareholders”) or their immediate families, may also be a director, executive officer, or investor, or have some other direct or indirect material interest (“related entities”). We will refer to these transactions with related entities as related-party transactions where the amount involved exceeds $120,000 and a director, executive officer, nominee for director or 5% shareholders, or immediate family member has a direct or indirect material interest.

 

 

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Related-party transactions have the potential to create actual or perceived conflicts of interest between Microsoft and its directors, executive officers, nominees for director or 5% shareholders, or their immediate family members. The Audit Committee has established a written policy and procedures for review and approval of related-party transactions. If a related-party transaction subject to review involves directly or indirectly a member of the Audit Committee (or an immediate family member or domestic partner), the remaining Committee members will conduct the review. In evaluating a related-party transaction, the Audit Committee considers, among other factors:

 

 

The goods or services provided by or to the related party

 

 

The nature of the transaction and the costs to be incurred by Microsoft or payments to Microsoft

 

 

The benefits associated with the transaction and whether comparable or alternative goods or services are available to Microsoft from unrelated parties

 

 

The business advantage Microsoft would gain by engaging in the transaction

 

 

The significance of the transaction to Microsoft and to the related party

 

 

Management’s determination that the transaction is in the best interests of Microsoft

To receive Audit Committee approval, a related-party transaction must have a Microsoft business purpose and be on terms that are fair and reasonable to Microsoft and be as favorable to Microsoft as would be available from non-related entities in comparable transactions. The Audit Committee also requires that the transaction meet the same Microsoft standards that apply to comparable transactions with unaffiliated entities.

During fiscal year 2023, there were ordinary course transactions between Microsoft and certain related entities, for instance the purchase of software licenses by companies of which a director is an executive officer and purchases by Microsoft of goods and services from such companies. None of these transactions constituted a related-party transaction that required approval by the Audit Committee.

 

 

Director Compensation

The Compensation Committee periodically reviews the regular annual retainer paid to non-employee directors and makes recommendations for adjustments, as appropriate, to the full Board. Our objective for compensation to non-employee directors is to award the majority of compensation in equity and to make meaningful adjustments every few years, rather than smaller adjustments that are more frequent. There was no change in fiscal year 2023. Our CEO, Mr. Nadella does not receive pay for serving as a director or as Board Chairman.

 

Fiscal Year 2023 Compensation Structure for Non-Employee Directors

 

Regular Retainers

    

 

 

 

 

 

Annual Base Retainer (TOTAL)

     $360,000  

Cash

     $125,000  

Stock Award

     $235,000  

Committee Retainers (cash except stock award for Governance and Nominating Committee)

    

 

 

 

 

 

Annual Audit Committee Chair Retainer

     $45,000  

Annual Audit Committee Non-Chair Member Retainer

     $15,000  

Annual Compensation Committee Chair Retainer

     $35,000  

Annual Environmental, Social, and Public Policy Committee Chair Retainer

     $25,000  

Annual Governance and Nominating Committee Chair Retainer

     $25,000  

Lead Independent Director Retainer (stock award in addition to other retainers)

     $40,000  

The Company reimburses reasonable expenses incurred for Board-related activities. Directors may participate in our corporate matching gift program for charitable donations.

 

 

2023 PROXY STATEMENT

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GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Director retainers are paid quarterly in arrears. Quarterly periods are measured beginning with the annual shareholders meeting. At the end of each quarterly period, we pay 25% of the total annual retainer to each director. The number of shares awarded each quarterly period is determined by dividing the dollar value of the stock award by the market price of our common stock as of the last business day of the period. Retainers are pro-rated for directors who join or leave the Board or have a change in Board role during a quarterly period.

Directors may elect to defer and convert to deferred stock awards all or part of their annual cash retainer, and to defer receipt of all or part of their annual stock awards retainer under the Deferred Compensation Plan for Non-Employee Directors. Amounts deferred are maintained in bookkeeping accounts that are deemed invested in Microsoft common stock, and dividends paid on deemed investments are also deemed to be invested in our common stock. We calculate the number of shares credited by dividing the amount deferred by the closing market price of our common stock on the originally scheduled payment date. Accounts in the plan are distributed in shares of Microsoft common stock, with payments either in installments beginning on separation from Board service or in a lump sum paid no later than the fifth anniversary after separation from Board service.

Director Compensation

This table describes the cash and stock award portions of the annual retainer paid to each non-employee director who served in fiscal year 2023. Mr. Nadella received no compensation as a director or Board Chairman. He is excluded from the table because we fully describe his compensation in Part 2 – Named Executive Officer Compensation.

 

Name

  

Fees Earned or

Paid in Cash¹

($)

      

Stock Awards²

($)

      

All Other

Compensation3

($)

       Total
($)
 

Reid G. Hoffman4

     125,000          235,000         

 

 

 

 

 

       360,000  

Hugh F. Johnston

     170,000          235,000          12,500          417,500  

Teri L. List

     140,000          235,000          15,000          390,000  

Sandra E. Peterson5

     154,013          246,118          15,000          415,131  

Penny S. Pritzker6

     150,000          235,000          15,000          400,000  

Carlos A. Rodriguez7

     145,987          235,000         

 

 

 

 

 

       380,987  

Charles W. Scharf

     125,000          235,000         

 

 

 

 

 

       360,000  

John W. Stanton

     140,000          235,000          15,000          390,000  

John W. Thompson8

     125,000          288,882          15,000          428,882  

Emma N. Walmsley

     125,000          235,000          13,368          373,368  

Padmasree Warrior9

     125,000          235,000         

 

 

 

 

 

       360,000  

 

(1)

The value of fractional shares under stock awards that are paid in cash are reported in the Stock Awards column.

 

(2)

The aggregate award value in the “Stock Awards” column for each director represents four quarterly awards representing a grant date fair value under FASB ASC Topic 718 of $58,750, with exceptions as follows: Ms. Peterson was appointed lead independent director on March 15, 2023 succeeding Mr. Thompson. Mr. Thompson received awards with a grant date fair value of $75,000 for the first three quarters and a prorated award with a grant date fair value of $63,882 for the final quarter. Ms. Peterson received awards with a grant date fair value of $58,750 for the first three quarters and a prorated award with a grant date fair value of $69,868 for the final quarter.

 

(3)

Amounts in this column represent matching charitable contributions under our corporate giving program in fiscal year 2023, which matches director gifts up to $15,000 per calendar year.

 

(4)

Mr. Hoffman elected to defer his cash and stock compensation. The compensation deferred converted into 1,330 shares of our common stock.

 

(5)

Ms. Peterson stepped away from her role as chair of the Compensation Committee and was appointed Lead Independent Director and chair of the Governance and Nominating Committee effective March 15, 2023. The Compensation Committee chair retainer no longer applies and she received a prorated cash retainer of $34,013 for the final quarter. Ms. Peterson elected to defer her cash and stock compensation. The compensation deferred converted into 1,474 shares of our common stock.

 

(6)

Ms. Pritzker elected to defer her cash and stock compensation. The compensation deferred converted into 1,422 shares of our common stock.

 

(7)

Mr. Rodriguez was appointed to chair of the Compensation Committee on March 15, 2023 and received a prorated cash retainer of $40,987 for the final quarter. He elected to defer his cash and stock compensation. The compensation deferred converted into 1,403 shares of our common stock.

 

(8)

Mr. Thompson stepped away from his role of Lead Independent Director and chair of the Governance and Nominating Committee on March 15, 2023 and received prorated stock retainers applicable to those roles for the final quarter. He elected to defer his stock compensation. The compensation deferred converted into 1,075 shares of our common stock.

 

(9)

Ms. Warrior elected to defer a portion of her cash compensation. The compensation deferred converted into 229 shares of our common stock.

 

 

28   

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1  

 

GOVERNANCE AND
OUR BOARD OF

DIRECTORS

 

   2  

 

NAMED
EXECUTIVE OFFICER   
COMPENSATION

  3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

       

 

Lead Independent Director Compensation

In March 2023, the independent directors elected Sandra Peterson as Lead Independent Director. She succeeds John Thompson, who had served in the roles of Lead Independent Director or Board Chair since 2012. The Lead Independent Director Retainer reflects the additional time commitment for the Lead Independent Director role given the unique responsibilities of the Lead Independent Director detailed in Section 1 of this Proxy Statement on page 14, which includes:

 

 

Leads the Board meetings when the Chairman and CEO is not present

 

 

Reviews and approves the agenda and schedule for Board meetings

 

 

Calls meetings of the independent directors

 

 

Chairs executive sessions and coordinates activities of the independent directors

 

 

Leads the Board’s annual CEO performance evaluation

 

 

Coordinates Board oversight of CEO succession planning, including maintenance of an emergency succession plan

 

 

Chairs the annual shareholders meeting

 

 

Acts as liaison between the independent directors and the Chairman and CEO

 

 

Authorizes retention of outside counsel, advisors, or other consultants who report directly to the Board

 

 

When requested, represents the Board with internal and external audiences including shareholders

 

 

2023 PROXY STATEMENT

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

2. Named Executive Officer Compensation

 

 

A Letter from the Compensation Committee

Dear Shareholder,

Our executive compensation program is designed to achieve strong alignment between our long-term strategic goals and our shareholders’ interests, while providing a competitive total pay opportunity to attract and retain the key executives who drive our business and develop the next generation of leaders. We are committed to continually reviewing our compensation program to ensure it is grounded in our pay-for-performance philosophy.

At the beginning of fiscal 2023, we faced a changing global macroeconomic environment, including increasing inflation and rising interest rates, resulting in financial headwinds which created challenges in goal setting for our executive compensation program. We nonetheless continued to set rigorous performance goals that included meaningful year-over-year growth across our performance metrics and focused on long-term alignment of executive compensation with shareholder interests. As a result, for fiscal year 2023, the financial metric-based portion of our annual cash incentives achieved 63.61% of target, and the PSA program core metrics achieved 99.65% of target.

Our Company continued with its active shareholder outreach program during fiscal year 2023, engaging investors representing approximately 50% of our shares outstanding. The Compensation Committee Chair and Lead Independent Director participated in calls with investors holding over 20% of outstanding shares to discuss a range of governance topics including the Board’s long-term approach to executive compensation. During fiscal year 2023, we continued to address shareholders’ desire to ensure the ongoing retention and motivation of Mr. Nadella, and the independent members of the Board continue to have high confidence in Mr. Nadella’s exceptional leadership of Microsoft. The Board continues its support of a compensation structure that delivers 100% of Mr. Nadella’s equity compensation via performance stock awards. Under this program, over 95% of Mr. Nadella’s annual target compensation opportunity is performance-based. Again, for fiscal year 2023, we set Mr. Nadella’s target performance stock award at $50,000,000, which we believe is the appropriate level of equity compensation for a leader with his extraordinary capabilities and responsibilities and for a company of Microsoft’s extraordinary scale and complexity.

We also continue to look carefully at emerging investor expectations and best practices for addressing environmental, social, and governance (“ESG”) commitments in our executive compensation program. We have been early leaders in this practice, having included an assessment of CEO and Senior Leadership Team (“SLT”) progress on culture and diversity and inclusion since 2016 as part of the operational assessment component of the annual cash incentive under our Executive Incentive Plan. The execution of our sustainability goals is also evaluated as part of this operational assessment component under the Culture, Diversity & Sustainability category. We continue to seek feedback from investors and compensation experts as we thoughtfully consider future enhancements that connect executive compensation to Microsoft’s environmental and social commitments.

We are also pleased to report that Carlos Rodriguez was appointed as Chair of the Committee in March 2023. We continue to appreciate your support and welcome your feedback on our compensation program reflected in the following pages and look forward to continued dialogue in the future.

Sincerely,

The Compensation Committee

Carlos A. Rodriguez (Chair)

Sandra E. Peterson

Charles W. Scharf

Emma N. Walmsley

Padmasree Warrior

 

 

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GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information about our fiscal year 2023 compensation program for our fiscal year 2023 Named Executives (“NEOs”), who are: Satya Nadella, Amy Hood, Bradford Smith, Judson Althoff, and Chris Young. The content of this Compensation Discussion and Analysis is organized into six sections:

 

 

 Table of Contents 

  
  
Section 1 – Performance Update   p. 31
Section 2 – Executive Compensation Program   p. 35
Section 3 – Pay Setting Governance and Process   p. 37
Section 4 – Fiscal Year 2023 Compensation Program Design   p. 39
Section 5 – Fiscal Year 2023 Compensation Decisions and Results   p. 43
Section 6 – Other Compensation Policies and Information   p. 48

 

Microsoft’s executive compensation program is thoughtfully designed by our Compensation Committee and Board of Directors to align to Microsoft’s long-term strategy, and over the years we have evolved our executive pay program while maintaining an overarching compensation philosophy aimed at achieving strong alignment between our long-term strategic goals and our shareholders’ interests.

Our current executive compensation program has been structured to align with the business strategy that has been defined by the Board and Mr. Nadella, and each year, the Compensation Committee reviews the existing incentive structure, taking into consideration investor feedback, business performance, and our strategic roadmap, when considering the efficacy of further enhancements.

 

 

Section 1 – Performance Update

Achieving Strong Financial Results

Our strong business execution throughout fiscal year 2023 achieved the following financial performance:

Fiscal Year 2023 Business Performance

 

     

Revenue

  Operating Income   Net Income   Diluted Earnings per Share
     

$211.9 billion

  $88.5 billion   $72.4 billion   $9.68

Selected highlights from fiscal year 2023 include the following metrics. Percentages are year-over-year.

 

 

Microsoft Cloud revenue increased 22% to $111.6 billion

 

 

Office Commercial products and cloud services revenue increased 10%

 

 

Office Consumer products and cloud services revenue increased 2%

 

 

LinkedIn revenue increased 10%

 

 

Dynamics products and cloud services revenue increased 16%

 

 

Server products and cloud services revenue increased 19%

 

 

Windows Commercial products and cloud services revenue increased 5%

 

 

Search and news advertising revenue excluding traffic acquisition costs increased 11%

 

 

2023 PROXY STATEMENT

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COMPENSATION

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AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
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INFORMATION   
ABOUT THE
MEETING

 

 

     

 

A complete list of our fiscal year 2023 key performance metrics and their definitions is available in our Form 10-K for the fiscal year ended June 30, 2023.

Superior Shareholder Returns

 

Annual Cumulative Total Shareholder Return

during Mr. Nadella’s CEO tenure: MSFT vs. S&P 500

Feb. 4, 2014 through June 30, 2023

(includes reinvestment of dividends)

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Driving Business Success

When in 2014 the Board of Directors appointed Mr. Nadella as the third Chief Executive Officer in its history, Microsoft had revenues of $86.8 billion, net income of $22.1 billion, and diluted earnings per share of $2.63. Those figures have, respectively, more than doubled ($211.9 billion), more than tripled ($72.4 billion), and nearly quadrupled ($9.68) in the intervening years. In addition to another year of consistently strong financial performance, Mr. Nadella and his leadership team have positioned Microsoft to continue to drive performance for years to come. As discussed in more detail below, they have achieved this through:

 

 

Growing and diversifying the business through leading-edge innovation

 

 

Delivering on our ambition to reinvent productivity and business processes and multiplying opportunities for customers to realize value

 

 

Partnering with other technology providers to remove friction and accelerate customers’ digital transformations and executing strategic acquisitions to broaden our reach

Continued Innovation and Growth

As we move into the era of ubiquitous computing and ambient intelligence, Microsoft is committed to its mission of empowering every person and every organization on the planet to achieve more. Along with his continued focus on evolving the Company culture, Mr. Nadella and his leadership team have animated the growth of our products and services portfolio. The artificial intelligence (“AI”) moment has arrived, and under Mr. Nadella’s leadership, Microsoft is well positioned to seize the opportunity to have a positive impact for customers and partners across the globe. AI capabilities are being infused across our products and services to drive the at-scale adoption of unprecedented AI capabilities.

 

 

 

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Below are examples that illustrate the innovative products, services, and partnerships driving momentum and growth across the Company.

Azure. Azure cloud computing is perhaps the most powerful example of how Microsoft’s innovation is driving growth. Azure is a natural outgrowth of Microsoft’s DNA as a platform company. It was built to unlock a vast array of infrastructure-as-a-service (“IaaS”), platform-as-a-service (“PaaS”), and software-as-a-service (“SaaS”) solutions. We have developed – and continue to create – scores of offerings that build on Azure’s capabilities and multiply its usefulness. Offerings include AI services, such as Azure OpenAI Service; Azure Arc for management; Azure Synapse and Microsoft Fabric for data storage, integration, and analytics; and Power BI to glean and access data insights from across the enterprise.

Mr. Nadella has stated we aimed to build Azure as the “world’s computer.” We’ve built a global footprint, with 68 operating regions in 24 countries. Microsoft Cloud revenue, which includes other cloud offerings such as Office 365 Commercial and Dynamics 365, exceeded $110 billion, with Azure accounting for more than 50% of the total.

Security. Our security business has grown significantly through innovation and quickly recognizing market opportunities. We serve as a comprehensive security vendor for customers’ entire range of interoperating products from Microsoft and other companies. With over one million customers, our security business surpassed $20 billion of annual revenue. We continue to drive innovations, including through Security Copilot, an AI-powered security analysis tool that combines an advanced large language model with a security-specific model informed by our 65 trillion daily signals. We are committed to further improvement, including through our plan announced in fiscal year 2022 to invest $20 billion over five years to advance our security solutions and protect customers.

Microsoft 365. Our Microsoft 365 solutions continue to empower employees in organizations of all sizes as we bring together the best of Office 365, Windows, and advanced cybersecurity to deliver complete cloud-based experiences tailored to the needs of our users. Commercial paid seats of Office 365 have grown to more than 382 million as customers opt for greater productivity in conjunction with a more secure experience. We are bringing those same benefits to nearly 75 million consumers who have subscribed to Microsoft 365. AI will further enhance our ability to help make customers more productive. We have announced that our Microsoft 365 Copilot offering, which brings together next-generation AI with business data in the Microsoft Graph, all within the applications that millions of people use every day, will be generally available to customers on November 1, 2023.

Power Platform. Power Platform is making it even easier for teams of professional and citizen developers to build end-to-end business solutions together. With over 33 million monthly active users, Power Platform comprises an end-to-end suite of tools to automate workflows, create apps, build virtual agents, and analyze data. Because non-IT professionals can learn and use Power Platform, subject matter experts who are closest to the workflow can use low-code or no-code tools to improve business processes. Our recently announced Copilot for Power Platform will further enable no-code development. More than 126,000 organizations have experienced Copilot in Power Platform.

GitHub. GitHub is a source of dynamic innovation and a key element of Microsoft’s position as the premier developer platform. GitHub Copilot is a first-of-its-kind AI-based programmer that helps developers write better code faster. When enabled, GitHub Copilot writes up to 46% of the code, greatly increasing developer productivity. Over one million people have used GitHub Copilot and over 27,000 organizations utilize GitHub Copilot for Business. GitHub expanded features to transform it from simply a source code management platform to an entire suite for development, security, and operations, with features such as continuous integration/continuous delivery and package management in our Codespaces service. GitHub Advanced Security allows developers to scan code for vulnerabilities, secrets, tokens, and other issues that can compromise secure code, and ensure all dependencies and open-source components are up to date.

Reinventing Productivity

Microsoft is continually building connections between our products and services in ways that create powerful new levels of utility.

Microsoft Teams. Microsoft Teams, our premier communication and collaboration application which surpassed 300 million monthly active users, is one example of how we develop these synergies. Teams itself has also become a first-class platform for application development, as the number of third-party apps with more than 10,000 users increased nearly 40 percent year-over-year. Teams Premium, which meets enterprise demand for advanced features like end-to-end encryption and AI-powered intelligent recaps, surpassed 600,000 seats within five months of being released.

Intelligent data. A foundational element of the Microsoft Cloud is data storage and management. That is, however, only a first step toward the comprehensive digital transformation companies need to remain competitive. We designed our Intelligent Data Platform to unlock productivity, value, and insights from an enterprise’s data estate. In 2023, we introduced Microsoft Fabric, which enables the unification of data and analytics tools in one environment, establishing a single source of truth, integrated with Power

 

 

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BI and designed for the utilization of AI tools and integrations. Our analytics and machine learning tools drive productivity gains by transforming unstructured data into actionable information that supports operational reliability, effective supply chain management, and rapid product innovation.

Industry clouds. We recognize different industries have particular business requirements. Our industry clouds bring together capabilities across the entire Microsoft Cloud, along with industry-specific customizations, to improve time to value, increase agility, and lower costs. Our Clouds for Healthcare, Financial Services, Manufacturing, and Retail leverage customized combinations of products and services to overcome business challenges specific to each of those verticals. From data governance and AI to metaverse applications, our industry clouds help companies solve common challenges and allocate resources to their highest value and most differentiating activities.

Because sustainability is an existential priority for our society and for every business today, we offer a Cloud for Sustainability to help any organization track its carbon, water, and waste footprint to help meet its sustainability goals. Our Cloud for Nonprofit helps charitable organizations unlock the power of their data to achieve more transformative impact.

Advertising. Our advertising business continues to grow through differentiated offerings across our online properties and through strategic acquisitions. Our global reach and product breadth allows us to serve the needs of digital advertisers across both business-to-consumer advertising with Bing search engine and business-to-business advertising with LinkedIn Marketing Solutions. With the introduction of the new Bing in 2023, we are bringing the power of AI directly into the search experience, driving increased relevance for users and creating new monetization opportunities for marketers and publishers on the web.

Partnering and Integrating

We partner with many of the leading enterprise technology companies to empower customers and grow market opportunities together. In July of 2023, we announced support of Meta’s large language models on Azure and Windows. We have partnered with both Databricks and Snowflake to provide our customers with the broadest array of data and analytics solutions. We have developed a service with Oracle to accelerate adoption of Oracle workloads on Azure, making Microsoft the only public cloud with simplified direct access to Oracle databases running on Oracle Cloud. Through our collaboration with SAP, we’ve built a pathway for customers to migrate their SAP workloads to the cloud to take advantage of lower costs, increased agility, and reduced risk. Through the Azure VMware Solution, we have enabled enterprises to seamlessly move VMware-based workloads from their datacenters to Azure and integrate their VMware environments with Azure. In our rapidly growing security business, we have over 15,000 partners in our ecosystem working with us to bring better solutions and more choices to market. Now, instead of one conversation on productivity, another on infrastructure, and yet another on business applications, our customer conversation can revolve around how all these products more seamlessly merge, whether it’s our software alone, or a combination of ours and partner solutions.

Mr. Nadella has been bold and visionary in finding strategic acquisitions that build on and enhance our core offerings. LinkedIn, with its services that help both employers and workers network, grow professionally, and find one another, has shown consistent and strong growth since we acquired it in 2016. LinkedIn revenue grew to $15 billion in fiscal year 2023. Similarly, GitHub has continued to strengthen its position as the preferred platform for developers since its acquisition in 2018 and is used by over 100 million developers and 76% of the Fortune 500.

Our acquisition of Activision Blizzard as an investment will make it easier for people to play great games wherever, whenever, and however they want. We expect the transaction will increase innovation in content creation and reduce constraints on distribution. It also significantly expands our presence in mobile, the largest segment in the gaming business.

These examples of innovation, synergy, and partnership are far from exhaustive. They provide a view, however, into the diverse and innovative set of technologies and products Microsoft has built under Mr. Nadella’s leadership. It is a multi-faceted engine of growth that provides more avenues for continued success. The uses for Microsoft’s technology toolbox are as expansive as our customers’ imaginations. Mr. Nadella has quite intentionally conditioned Microsoft’s success on that of our customers – while providing the platform and technologies on which our customers will achieve it. This is a durable strategy that can thrive through economic cycles, business disruptions, and the ever-increasing pace of change that characterizes the current global marketplace, precisely because Microsoft enables companies and individuals to successfully address those very challenges.

Environmental and Social Leadership

At Microsoft, we focus on four enduring commitments that are central to meeting our mission and that become even more important in the era of AI: to expand opportunity, earn trust, protect fundamental rights, and advance sustainability. As we described in Part 1 –Governance and our Board of Directors, we believe Microsoft’s public and strategic environmental and social commitments

 

 

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play an important role in fostering Microsoft’s long-term success and value creation for our shareholders. We provide extensive public reporting on our environmental and social performance and progress towards our commitments at microsoft.com/transparency.

Among just a few of this year’s highlights:

 

 

Microsoft continues to advance our Responsible AI principles into practice across the Company to develop and deploy AI that will have a positive impact on society. We take a cross-company approach through cutting-edge research, best-of-breed engineering systems, and excellence in policy and governance. Microsoft also launched a five-point blueprint to advance AI responsibly through laws, policies, regulations, and industry obligations

 

 

Microsoft’s five-year, $20 billion commitment to advance our security solutions includes $150 million to help U.S. government agencies upgrade cybersecurity protections. We also enhanced our global skilling initiative with new commitments to help the U.S. and 27 other countries with substantial cybersecurity workforce shortages to grow their number of skilled candidates and increase diversity in the cybersecurity field

 

 

The Company continues transparently tracking and reporting annually on our progress towards our sustainability commitments, sharing our progress, challenges, and learnings as we pursue our commitments to become carbon negative, water positive, zero waste, and to build a Planetary Computer. In fiscal year 2023, we reported that in fiscal year 2022, our business grew by 18 percent and our overall emissions declined by 0.5 percent

 

 

Microsoft is a strong advocate for privacy protection around the globe and offers both our commercial and individual customers tools to help protect and manage their data. We enable our individual customers around the globe to exercise their core data protection rights through our privacy dashboard, where 3.2 million people each month control their data and make meaningful choices about how their data is used

 

 

While much more work remains, we made progress increasing diverse representation and inclusion at Microsoft and invested in our employees to advance our culture and environments where people can do their best work. In fiscal year 2023, Microsoft reported diversity data showing that we are a more diverse Microsoft overall today than we have ever been, with the highest year-over-year representation progress of the past five-year period for many employee communities

 

 

Section 2 – Executive Compensation Program

Executive Compensation Philosophy

We design our executive compensation program to attract, motivate, and retain the key executives who drive our success and industry leadership while considering individual and Company performance and alignment with the long-term interests of our shareholders. We achieve our objectives through a compensation program that:

 

 

Provides a competitive total pay opportunity that takes into account our relative scale and performance

 

 

Delivers a majority of our executives’ pay through performance-based incentives

 

 

Provides strong alignment with our shareholders, with 83% of the annual target compensation opportunity for our CEO and 80% of the annual target compensation opportunity for our NEOs (on average) delivered in the form of equity awards

 

 

Focuses on the long-term through equity awards with multi-year vesting or performance requirements

 

 

Does not encourage unnecessary and excessive risk-taking, assisted by our stock ownership policy and executive compensation recovery (“clawback”) policy

 

 

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PROPOSALS TO
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Compensation Best Practices

 

What We Do

 

  

What We Don’t Do

 

•  Maintain a stock ownership policy that reinforces the alignment of executive officer and shareholder interests (including requiring stock ownership of 15x base salary for the CEO)

 

•  Have a strong executive compensation recovery (“clawback”) policy to ensure accountability

 

•  Promote long-term focus through multi-year vesting and performance requirements

 

•  Prohibit pledging, hedging, and trading in derivatives of Microsoft securities

 

•  Retain an independent compensation consultant

 

•  Solicit investor feedback on our compensation program and potential enhancements through an extensive shareholder engagement program

 

•  Annual assessment of compensation-related risks

 

•  Settle all long-term incentives in Microsoft stock

  

•  No excessive perquisites (e.g., no executive-only club memberships or medical benefits), and no tax gross-ups

 

•  No employment agreements

 

•  No change in control payments or benefits

 

•  No executive-only retirement programs

 

•  No guaranteed bonuses

 

•  No dividends paid on unvested stock awards

 

•  No encouragement of unnecessary and excessive risk taking

Shareholder Engagement

   

 

Engaged with shareholders

owning approximately 50%

of shares in FY23

 

 

   
   

 

Compensation Committee Chair and Lead Independent Director engage with large shareholders (reaching over 20% of outstanding shares in FY23)

 

 

   

Our executive compensation program is grounded in a compensation philosophy aimed at achieving strong alignment between our long-term strategic goals and our shareholders’ interests. Feedback received from our shareholders through ongoing engagement discussions informs our Compensation Committee’s deliberations as it reviews the incentive structures in place on an ongoing basis.

Our Board and our Compensation Committee deeply value the continued interest of and feedback from our shareholders on our executive compensation program and are committed to maintaining an active dialogue with them to ensure their perspectives are thoughtfully taken into account.

We carefully consider both the level of voting support from our shareholders on our say-on-pay vote, as well as comments from shareholders, when evaluating our executive compensation program. At the 2022 Annual Meeting, over 88% of the votes cast supported our advisory resolution on the compensation of our Named Executives (“say-on-pay” vote).

As in prior years, in fiscal year 2023 we continued our active shareholder engagement program, discussing compensation and a broad range of ESG issues with shareholders representing approximately 50% of our outstanding shares, including participation by our Compensation Committee Chair and Lead Independent Director. The Compensation Committee Chair and Lead Independent Director joined a set of these calls with investors holding over 20% of outstanding shares to discuss a range of governance topics including the Board’s long-term approach to executive compensation.

In evaluating our compensation practices in fiscal 2023, our Compensation Committee was mindful of the support our shareholders expressed for our philosophy and practice of linking executive compensation to operational objectives and shareholder value creation, and did not make any substantial changes to our executive compensation program.

 

 

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INFORMATION   
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Section 3 – Pay Setting Governance and Process

Our Compensation Committee establishes the design of our executive compensation program. After considering Mr. Nadella’s recommendations, our Compensation Committee also approves the annual target compensation (base salaries, target cash incentives, and equity incentive compensation) for our Named Executives, except Mr. Nadella. After considering the recommendation of our Compensation Committee, the independent members of our Board approved Mr. Nadella’s base salary, target cash incentive, and target performance stock award, providing no time-based stock awards for fiscal year 2023.

Our Compensation Committee also retains, and seeks the advice of, Pay Governance, an executive compensation consulting firm that is independent of management. See Part 1 – Governance and our Board of Directors – Board Committees for more information on Pay Governance’s role and independence as an advisor to the Compensation Committee.

Competitive Pay

We compete for senior executive talent with global information technology companies, large market capitalization U.S. companies, and smaller, high-growth technology businesses, depending on the role. The current technology labor market is hyper-competitive with demand growing faster than the supply of specialized technical talent, resulting in significant increases in compensation at many of the companies with which we compete for this talent. The same conditions exist in the market for executive-level talent that can provide innovative leadership while managing at a global scale across several complex businesses. We expect these trends to continue and will work to ensure our approach to executive compensation is responsive to evolving market conditions.

Approach to Compensation Benchmarking

To ensure that our Board and Compensation Committee 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 data for a group of peer companies. We supplement this analysis with additional market information specific to each executive’s role and responsibilities, including information gleaned from our experience recruiting for executive positions at Microsoft. While this market analysis and supplemental data inform the decisions of the independent members of our Board and our Compensation Committee on the range of compensation opportunities, we do not tie Named Executive compensation to specific market percentiles. Because other companies actively recruit our executives to fill CEO and other senior leadership positions, we supplement market information with data on external opportunities potentially available to our executives. We also consider the relationship of annual target compensation among internal peers.

In setting our fiscal year 2023 executive compensation program design and compensation levels, we considered pay practices at the largest technology and general industry companies that our Compensation Committee believes are led by executives with similarly complex roles and responsibilities. Our Compensation Committee also screened these companies to ensure they had a significant presence outside the U.S. and excluded companies in the financial services sector because of the different regulatory environment in which they operate.

Peer Group Used for Fiscal Year 2023 Pay Analysis

For fiscal year 2023, the Compensation Committee reviewed the evolution of our business against our historical peer group, and as a result approved the use of two peer groups to better reflect the differentiated business, talent and, in some cases, pay models, across sectors:

 

 

Primary Peer Group of bellwether technology companies, which reflect Microsoft’s more direct competitors for executive talent

 

 

Secondary Peer Group of “large cap” general industry companies, which reflect the complexities of operating large, global, innovative businesses and Microsoft’s broader competition for executive talent

 

 

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The companies in the fiscal year 2023 peer groups are:

Primary Peer Group – Technology

 

Adobe

Alphabet

  

Amazon

Apple

  

Cisco Systems

IBM         

  

Intel

Meta

  

Oracle

Qualcomm

   Salesforce

Secondary Peer Group – General Industry

 

Accenture

AT&T

  

Comcast

Honeywell

  

Johnson & Johnson

Merck         

  

Netflix

Pfizer     

  

Procter & Gamble

Tesla

  

Verizon

Walt Disney

Given Microsoft’s significant size, scale, and growth, Microsoft is larger than the typical company in both peer groups, which is a factor when we set executive pay. The following charts show Microsoft’s position within the combined peer groups on the two screening criteria. Data are presented in billions as of August 1, 2023, with annual revenue based on the most recent publicly reported fiscal year-end data.

 

 

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Performance-Based Pay and Goal Setting

Our incentive compensation arrangements are tied to specific performance measures that drive long-term performance and value creation. For fiscal year 2023:

 

 

Over 95% of our CEO’s annual target compensation opportunity was performance-based and over 50% of the total pay opportunity for other Named Executives was performance-based

 

 

70% of our CEO’s annual cash incentive was tied to achieving pre-established financial metric targets (50% for our other Named Executives)

 

 

100% of our CEO’s annual target equity opportunity was delivered in the form of a performance-based stock award (50% for our other Named Executives), with payouts based on achievement against pre-established quantitative performance metrics

 

 

Management and our Compensation Committee discussed in detail the metrics that determine performance stock awards to ensure they are leading indicators that will drive long-term performance and value creation. The Committee establishes rigorous goals for each metric that require significant year-over-year improvement in order for target awards to be earned

 

 

Performance stock awards include a relative TSR modifier to strengthen the alignment of the interests of our Named Executives with the long-term interests of our shareholders; in order for the TSR modifier to affect the performance stock awards positively, our relative TSR must be above the 60th percentile of the S&P 500

Our Compensation Committee sets cash incentive and performance stock award (“PSA”) metric targets at the levels established, after review and engagement by the Board, for internal budgeting purposes. These targets are intended to be challenging but achievable. Our Compensation Committee then determines thresholds, maximums, and interim payout levels after considering historical data, upside/downside scenarios, sensitivity analysis, and year-over-year growth comparisons, to ensure rigorous alignment of payouts to performance. We set thresholds that we believe are reasonably achievable and maximums that we believe can be reached only with exceptional performance. Our Compensation Committee actively reviews the appropriateness of payout thresholds and maximums for each metric. Our Compensation Committee focuses on ensuring that our challenging goals, when achieved, will result in long-term shareholder value creation and, historically, our performance against these challenging goals has led to substantial returns to our shareholders.

 

 

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Focus on Pay for Performance

Over 95% of the annual target compensation opportunity for the CEO is performance-based and over 50% for our other Named Executives. All Named Executive Officers had at least 70% of the annual target compensation delivered in the form of equity awards, with average across all Named Executives over 80%, to incentivize a long-term focus and align their interests with those of our shareholders.

 

 Fiscal Year 2023 Pay Mix 

  
  

 

 

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Section 4 – Fiscal Year 2023 Compensation Program Design

Consistent with our philosophy, the compensation program for our Named Executives in fiscal year 2023 consisted of an annual base salary plus annual cash and equity incentives awarded under our Executive Incentive Plan (“Incentive Plan”).

Annual cash incentives were performance-based, with 70% determined formulaically based on achievement against pre-established financial targets for our CEO (50% for our other Named Executives) and 30% determined based on operational performance in three weighted performance categories for our CEO (50% for our other Named Executives). Our Compensation Committee and the independent members of our Board believe this allocation strengthens our CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy and provides a strong incentive for our other Named Executives to drive performance on those key initiatives, which we believe strongly contributes to our success.

Equity incentives under the Incentive Plan were allocated 100% to target PSAs for our CEO. Equity incentives under the Incentive Plan were allocated 50% to target PSAs and 50% to stock awards with four-year vesting (“SAs”) for our other Named Executives. Our Compensation Committee and the independent members of our Board believed the 100% PSA level for our CEO will strengthen the alignment of his pay and Microsoft’s long-term performance, while the 50/50 balance between PSAs and SAs appropriately supported our long-term business goals and long-term retention incentives for our other Named Executives, while also aligning their interests with those of our shareholders.

Base Salaries

Our Named Executives’ base salaries align with the scope and complexity of their roles, their capabilities, and competitive market conditions.

 

 

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Annual Cash Incentives

Cash incentives are determined in two performance categories for our CEO and other NEOs, as follows:

 

 

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*

“Incentive Plan Revenue” and “Incentive Plan Operating Income” are non-GAAP financial measures defined on page 43.

Financial

We include financial performance measures in our cash incentives to measure our success in meeting internal annual financial performance goals for revenue and profitability which we believe drive long-term value creation.

For fiscal year 2023, the financial portion of the annual cash incentives was determined based on meeting pre-established performance targets for Incentive Plan Revenue and Incentive Plan Operating Income. The fiscal year 2023 Incentive Plan Revenue and Incentive Plan Operating Income performance targets were based on meeting the Company’s fiscal year 2023 internal operating budget.

Operational Assessment

The operational assessment portion of each Named Executive’s fiscal year 2023 annual cash incentives was determined based on evaluation of their individual contributions to the furtherance of financial, operational, strategic, and ESG indicators in three performance categories. The performance indicators varied based on the Named Executive’s responsibilities and the function or group he or she leads, and may have included (in alphabetical order in each category):

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Product & Strategy  

 

      

 

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Customers & Stakeholders  

 

      

 

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Culture, Diversity &   Sustainability

 

         

 

• Efficiency and productivity

 

• Innovation

 

• Product development and implementation of strategic roadmap

 

• Quality

 

• Revenue, consumption, and market share

      

 

• Customer and partner engagement and outreach

 

• Customer satisfaction

 

• Developer engagement

 

      

 

• Compliance and integrity

 

• Culture

 

• Diversity and inclusion

 

• Organizational health

 

• Sustainability and carbon reduction

                   

For Mr. Nadella, the independent members of our Board also considered:

 

 

Input from Microsoft’s senior executives about Mr. Nadella’s leadership

 

 

Mr. Nadella’s evaluation of Microsoft’s and his individual performance over the past fiscal year

 

 

40   

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

Equity Compensation

Under the Incentive Plan, each year, our Named Executives receive PSAs and our Named Executives, other than Mr. Nadella, receive SAs.

Performance Stock Awards

PSAs are designed to encourage our executives to achieve rigorous goals in key performance metrics to drive long-term performance and value creation.

Due to the dynamic nature of our business and the specificity of the performance metrics that are chosen under our PSA program, we believe that measuring performance annually over our three-year performance period and modifying the actual awards eligible to be earned based on our three-year relative TSR provides the most accurate and holistic assessment of Microsoft’s long-term trajectory and performance achievements.

Fiscal Year 2023 Performance Stock Award Metrics and Weights

Fiscal year 2023 PSA metrics are strategic measures that drive long-term performance and value creation. Targets for the PSA metrics are set at the target levels established under Microsoft’s fiscal year business plan and are intended to be difficult but attainable, and additional information about our goal-setting process is on page 47. The metrics and weights used for fiscal year 2023 are in the table below.

Fiscal Year 2023 PSA Metrics

 

 Performance Metrics        Description    Weights
 Microsoft Cloud Revenue*        Revenue from Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties    30%

 Microsoft Cloud

 Subscribers Growth

       Paid seats for current or new per-user SaaS cloud services primarily in commercial customer segment    20%
 Teams Monthly Active Usage  Growth        Unique monthly active users of Teams in Enterprise, Corporate, Small and Medium Business, Education, and Consumer    20%

  Xbox Content & Services

 Revenue Growth*

       Revenue from Xbox content and services, comprising first- and third-party content (including games and in-game content), Xbox Game Pass and other subscriptions, Xbox Cloud Gaming, advertising, third-party disc royalties, and other cloud services    10%
 Windows 10/11 MAD  Growth        Windows monthly active devices (“MAD”) growth is defined as the count of Windows 10 and Windows 11 devices that were active in the last 28 days from a given date. The term device refers to Windows PCs and Tablets.    10%
 LinkedIn Sessions        Measure of member visits as a leading indicator of the overall quality of the LinkedIn member experience and opportunity for members to realize their economic opportunity    10%

 

* “Microsoft Cloud Revenue” and “Xbox Content & Services Revenue Growth”, when used as PSA metrics in this Compensation Discussion and Analysis, are non-GAAP financial measures defined on page 47.

 

  

 

 

2023 PROXY STATEMENT

  41


Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

The fiscal year 2023 PSA metrics were used to establish performance goals for (i) year 3 of the 2021 PSAs, (ii) year 2 of the 2022 PSAs, and (iii) year 1 of the 2023 PSAs, as shown below.

 

 PSA Metric Year 

 

 
 

 

 

LOGO

Our fiscal year 2023 PSA metric results can be found on page 47.

Results for the three years may be modified based on our Relative TSR percentile ranking as compared to the S&P 500, as shown below. Microsoft’s absolute TSR must be positive for the modifier to increase the amounts of compensation earned above 100%.

 

3-year Relative TSR Ranking1

   Modifier  

20th Percentile & Below

     75.00%  

30th Percentile

     87.50%  

40th to 60th Percentile

     100.00%  

70th Percentile

     125.00%  

80th Percentile & Above

     150.00%  

 

(1)

Relative TSR percentile ranking as compared to the S&P 500 results in the above payout modifiers

Stock Awards

Stock awards were granted under the Incentive Plan in September 2022 for shares of Microsoft common stock to Named Executives other than Mr. Nadella. These stock awards vest over four years, with 25% vesting on August 31, 2023 and 12.5% each six-months thereafter, to support long-term focus and align with shareholders’ interests as the value of such awards is dependent on our stock price and vesting is subject to continued employment except as described on pages 48-49 below.

No Other Fiscal Year 2023 Compensation

During fiscal year 2023, the Compensation Committee and independent members of our Board awarded no other compensation to our Named Executives.

 

 

42   

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

 

Section 5 – Fiscal Year 2023 Compensation Decisions and Results

Our Named Executives were awarded the following compensation in fiscal year 2023:

Fiscal Year 2023 Base Salaries

As part of the annual review of target compensation opportunities, our Compensation Committee and, for Mr. Nadella, the independent members of our Board, reviewed the base salaries of our Named Executives in September 2022. The independent members of our Board did not increase the base salary of Mr. Nadella, which it continued to believe was reasonable and appropriate given his role, capabilities, and experience, as well as the Company’s relative scale and performance. Our Compensation Committee also did not increase the base salaries of any of the NEOs based on a competitive market review.

Fiscal Year 2023 Cash Incentive Awards

We did not increase our target cash incentive opportunities in fiscal year 2023 as a percentage of base salary for the same reasons that we did not increase base salaries. For fiscal year 2023, these opportunities were: Mr. Nadella – 300%; Ms. Hood – 250%; Mr. Althoff – 250%; Mr. Smith – 250%; and Mr. Young – 200%.

Our Compensation Committee and, for Mr. Nadella, the independent members of our Board, determined the fiscal year 2023 cash incentive awards. These were based on two performance categories: financial results and operational performance results.

Final results under each portion of the cash incentive, and the resulting awards, were as follows:

 

  

 

   Nadella      Hood      Althoff      Smith      Young  

Financial results (70% CEO / 50% other NEOs)

     63.61%        63.61%        63.61%        63.61%        63.61%  

Operational results (30% CEO / 50% other NEOs)

     136.67%        120.00%        123.34%        126.67%        106.66%  

Total FY23 cash incentive (% of target)

     85.53%        91.81%        93.48%        95.14%        85.14%  

Total FY23 cash incentive ($)

     6,414,750        2,295,250        2,243,520        2,378,500        1,447,380  

Financial Results

The fiscal year 2023 financial performance measures are shown below, resulting in a weighted payout of 63.61%. We note that our Incentive Plan Revenue result was 95.38% of target, which equated to a 10.98% fiscal year 2023 growth rate, further demonstrating our commitment to rigorous goal setting.

 

Financial Results

($ in billions)

  

FY22

Actual

     FY23
Threshold
    

FY23

Target

    

FY23

Maximum

    

FY23

Actual

    

FY23

Growth Rate

 

FY23 Incentive Plan Revenue

     $198.30        $216.90        $230.75        $243.44        $220.08        10.98%  

FY23 Incentive Plan Operating Income

     $80.47        $88.54        $96.77        $109.35        $91.13        13.25%  

“Incentive Plan Revenue” and “Incentive Plan Operating Income” are non-GAAP financial measures. We calculate Incentive Plan Revenue by adjusting GAAP Revenue for (1) the net impact of revenue deferrals, (2) credits and incentives, and (3) the effect of foreign currency rate fluctuations. We exclude the effect of foreign currency rate fluctuations on a “constant dollar” basis by converting current period non-GAAP (i.e., adjusted for the items in the preceding two sentences) results for entities reporting in currencies other than U.S. dollars into U.S. dollars using constant exchange rates, which are determined at the outset of the current period, rather than the actual exchange rates in effect during the respective periods. For fiscal year 2023, we calculated Incentive Plan Operating Income by adjusting GAAP Operating Income for the effect of foreign currency rate fluctuations. These Incentive Plan financial metrics differ from the non-GAAP financial results we report in our quarterly earnings release materials. They should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP.

 

 

2023 PROXY STATEMENT

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

Operational Results

Satya Nadella

The key results influencing the Compensation Committee and the independent members of our Board decisions on the operational performance portion of Mr. Nadella’s cash incentive are set forth below. Results are out of a possible 200% in each category.

 

Average Financial:

63.61%

  +   

Average Operational:

136.67%

  =   

Overall Bonus:

85.53%

 

     

 

Product & Strategy (10%)

 

   

 

150%

Mr. Nadella’s vision, decisiveness, and leadership enabled Microsoft to excel in product and strategy during fiscal year 2023 and positioned the Company to be the acknowledged leader in AI for a changing world by:

 

•  Establishing leadership in AI infrastructure and capturing early AI market momentum through achievements such as the launch of Microsoft 365 Copilot, Azure OpenAI Service, and the new Bing and Edge.

•  Launching Microsoft Fabric as the most unified and AI-enabled analytics platform with over 8,000 active customer trials.

•  Critical Security leadership, as evidenced by increasing customer adoption of Microsoft security services and solutions and the innovation and thought leadership in Security AI with Security Copilot.

•  Achieving an all-time high in LinkedIn user engagement.

•  Growing total revenue by 7% year-over-year, with a significant portion of growth being delivered by new investments and innovation.

 

 

Customers & Stakeholders (10%)

 

   

 

150%

Again, in fiscal year 2023, Mr. Nadella furthered Microsoft’s success as the preferred or primary cloud partner for an increasing number of premier, global organizations while also expanding Microsoft’s share among Digital Natives.

 

•  Microsoft launched or expanded its Enterprise partnerships with leading organizations.

•  Digital Natives comprise one of Microsoft’s fastest-growing segments, turning to Microsoft for their cloud infrastructure, data, and AI needs.

•  On the consumer front, Microsoft partnered with Netflix to launch Netflix’s first ad-supported subscription tier, launched Bing Chat, and achieved strong user engagement on Microsoft’s gaming platforms.

 

     

 

Culture, Diversity & Sustainability (10%)

 

   

 

110%

Mr. Nadella navigated Microsoft through a volatile year – with many key successes and challenges.

 

•  Mr. Nadella directed a substantive and thought-leading approach to AI governance and continues to represent Microsoft in leading the commitment to responsible AI across the private and public sector.

•  Microsoft successfully navigated new cybersecurity regulations while also sustaining strong cybersecurity support for Ukraine and NATO and adding to its influence and capability around foreign cyber operations.

•  Mr. Nadella led Microsoft in the Company’s achievement of several key sustainability milestones, including:

• Developing a more comprehensive and strategic approach to strengthening internal carbon accounting capabilities and reducing Microsoft’s carbon footprint.

• Providing just under one million people with clean water and sanitation solutions by the end of calendar year 2022.

• Directing the enhancement of sustainability on Microsoft’s own properties – including reducing, reusing, and recovering waste on campus and in data centers.

•  While Microsoft was not immune to the workforce reductions experienced by many technology organizations, Mr. Nadella’s leadership encouraged a focus on dignity and respect for impacted employees throughout the process.

•  Mr. Nadella led by example in retaining the Company’s focus on diversity and inclusion through global employee resource group (ERG) events and senior leadership support.

 

 

 

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

Other Named Executives

The key results influencing our Compensation Committee’s decisions on the operational performance category portion of the cash incentive for the other Named Executives are summarized below.

 

 

 

 

Amy E. Hood, Executive Vice President and Chief Financial Officer

 

Delivered solid financial performance and cost management, while returning over $38 billion in cash to shareholders in the form of share repurchases and dividends.

 

Drove effective resource reallocation to fund AI transformation.

 

Continued intense focus on building efficiencies through process simplification, improvement and execution to drive operating leverage and align our cost structure with our revenue growth.

 

Demonstrated leadership on ESG efforts in sustainability, the Company’s racial equity initiative, and affordable housing investments.

 

Championed for diversity and inclusion driving increased representation across the Finance organization.

 

 

 

 

Judson B. Althoff, Executive Vice President and Chief Commercial Officer

 

Clear and effective leadership of Microsoft Customer & Partner Solutions (“MCAPS”) group to help deliver strong performance contributing to revenue growth.

 

Championed customer and partner engagement across the company, including driving AI transformation across numerous engagements.

 

Continued to streamline processes and enhance deal agility to optimize customer experiences.

 

Doubled down on driving MCAPS high-performance mindset and culture, providing greater clarity and alignment of business priorities and increasing confidence in career development.

 

Steady focus on advancing diversity and inclusion efforts.

 

 

 

 

Bradford L. Smith, Vice Chair and President

 

Championed Microsoft efforts on responsible AI practices, messages and public policy issues, including publishing a blueprint for “Governing AI”.

 

Continued leadership in combatting disinformation and foreign cyber influence operations.

 

Continued efforts to protect fundamental rights including access to the internet with a new strategy for the Airband program through new partnerships and broader focus to a wider range of technologies.

 

Led efforts to close the Activision Blizzard acquisition.

 

Drove strong performance for Microsoft Philanthropies in supporting products and services for non-profits.

 

Led progress on environmental sustainability and strengthened capabilities across the Company to connect the Company’s product strategy, data & reporting, and our public policy efforts.

 

 

 

 

Christopher D. Young, Executive Vice President, Business Development, Strategy, and Ventures

 

Key role in support of AI transformation efforts, providing thought leadership for business leaders on AI transformation strategies for their organizations.

 

Drove foundational partnerships and investments for the Company in strategic new growth areas.

 

Served as a key driver in important strategic transactions and corporate acquisitions.

 

Increased M12 Venture Fund engagements with early-stage companies.

 

Provided thought leadership on the importance of diversity and inclusion in the technology industry.

 

 

 

 

2023 PROXY STATEMENT

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Table of Contents
1  

 

GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

   3  

 

AUDIT
COMMITTEE  
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING  
THE MEETING

  5  

 

INFORMATION   
ABOUT THE
MEETING

 

 

     

 

Fiscal Year 2023 Stock Awards

The fiscal year 2023 PSAs and SAs granted to our Named Executives under the Incentive Plan are listed below. We did not increase our target award values for our Named Executives, except in the case of Mr. Althoff whose target award value increased from $12,600,000 to $14,640,000 based on a competitive market review.

 

Named Executive

   PSAs
(Target Number
of Shares)¹
     SAs
(Number
of Shares)²
     Aggregate
Target
Award Value³
($)

Satya Nadella

     191,226        0      50,000,000

Amy E. Hood

     33,465        33,465      17,500,000

Judson B. Althoff

     27,996        27,996      14,640,000

Bradford L. Smith

     29,641        29,641      15,500,000

Christopher D. Young

     14,342        14,342      7,500,000

 

(1)

The PSAs vest in full following the end of the three-year performance period, with the number of shares earned determined based on performance against goals set for each year in the period and relative TSR results for the period.

 

(2)

The SAs vest 25% on August 31, 2023, and 12.5% each six months thereafter until fully vested. Vesting is subject to continued employment except as described on pages 48-49 below.

 

(3)

Awarded value (in dollars) was converted to shares using the closing share price on August 31, 2022, rounded up to a whole number.

The amounts listed in the table above for fiscal year 2023 PSAs will not match the amounts in the “Stock Awards” column in the Summary Compensation Table or the Grants of Plan-Based Awards table. Because the grant date of a PSA occurs when the performance targets are set, and targets under our PSA awards are established annually, SAs listed in the Summary Compensation Table and Grants of Plan-Based Awards table include portions of current and prior year PSA awards, as described in more detail in Note (2) to the Summary Compensation Table on page 51.

Fiscal Year 2021 PSAs (Completed Performance Period)

Our Compensation Committee (and for Mr. Nadella, the independent members of our Board) granted PSAs in fiscal year 2021 that pay out based on specific pre-established, performance goals and strategic performance objectives tied to creating long-term shareholder value as well as our TSR performance relative to the S&P 500. Performance was measured over the three-fiscal year performance period ending June 30, 2023.

 

         Core Metric Year      

3-Year

Performance Period

       
 

 

    

 

  FY21     FY22     FY23     FY21 – FY23    

 

   

 

           
    

FY21

PSA

  Year 1        Year 2        Year 3        3-Year
Core
Metric
Average
    3-Year
rTSR
Modifier
    Final
Payout
  

 Payout % 

 

144.07%

   

95.75%

   

99.65%

   

113.16%

 

x

 

128.95%

 

=

 

145.92%

 

 

46   

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Table of Contents
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GOVERNANCE AND  
OUR BOARD OF
DIRECTORS

 

  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION