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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
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   Definitive Proxy Statement
   Definitive Additional Materials
   Soliciting Material Pursuant to §240.14a-12

Microsoft Corporation

 

(Name of Registrant as Specified In Its Charter)

 

 

 

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Notice of Annual Shareholders Meeting and

Proxy Statement 2021

 

                                           
  November 30, 2021   Virtual Meeting Site:  
  8:30 a.m. Pacific Time   virtualshareholdermeeting.com/MSFT21  

 

 

LOGO

 

  LOGO


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LOGO

 

 

”As we pursue our mission and opportunities ahead, we also recognize our increased responsibility in a world that will require much more from technology to address its most pressing challenges. To help people and organizations everywhere achieve more, we are focused on supporting inclusive economic opportunity, protecting fundamental rights, committing to a sustainable future, and earning the trust of our customers and the world.”

 

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    

 

 

 

   
     

Fundamental to Microsoft’s mission is realizing our enormous opportunities to create technology that benefits everyone on the planet, as well as the planet itself. As we think about our societal impacts, our current areas of focus include:

   

Trust in

technology

 

Inclusive

economic growth

 

Fundamental

rights of people

 

 

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.


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LOGO

Letter from our Chairman and Chief Executive Officer

October 14, 2021

Dear Shareholder,

On behalf of the Board of Directors, it is our pleasure to invite you to the 2021 Annual Shareholders Meeting of Microsoft Corporation (“Annual Meeting”), on November 30, 2021, 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/MSFT21. 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 further information on how to participate in the meeting, please see Part 5 – Information About the Meeting on page 83 in this Proxy Statement.

The Notice of 2021 Annual Shareholders Meeting 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/MSFT21.

Thank you for your continued investment in Microsoft.

Sincerely,

 

 

LOGO

Satya Nadella

Chairman and Chief Executive Officer



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LOGO

 

Letter from the Board of Directors

 

October 14, 2021

 

Dear Shareholder,

This past fiscal year presented continuing business, social, and environmental challenges on a truly global scale. We’re proud of the work Microsoft and its employees have done with our customers and partners to help the world use digital technology to successfully meet the challenges we all face. Throughout the year, the Board and executive leadership of Microsoft collaborated closely to ensure the Company continued to meet its commitments to a broad range of stakeholders, including its employees, customers, the communities we operate in, partners, suppliers, and of course, its shareholders.

Amidst the challenges, Microsoft once again broke records for financial performance in fiscal year 2021. Microsoft delivered strong results for its shareholders, including a return of $39.8 billion in the form of dividends and share repurchases. We look forward to more opportunity ahead as we remain committed to the long-term interests of the Company’s shareholders.

As Microsoft disclosed in numerous reports, the year also marked important progress on Microsoft’s Environmental, Social, and Governance (“ESG”) commitments. One year after announcing an ambitious set of climate-related pledges, Microsoft issued its most comprehensive environmental sustainability report to date, which details actions the Company is taking to be carbon negative, as well as setting our plans to become water positive, zero waste, and create a “Planetary Computer” to gather data that will help improve the world’s biodiversity. Microsoft issued a report detailing a number of the actions it has taken on the one-year anniversary of the Company’s launch of its Racial Equity Initiative, which involves a set of commitments the Company is taking over the next five years to address racial injustice. Microsoft reported advances in its 2020 Global Diversity and Inclusion Report, while acknowledging the significant work still needed. For these reports and information across a breadth of ESG 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 our Lead Independent Director and all Committee chairs and members.

We are pleased to announce the nomination of Carlos Rodriguez for election to the Board at our Annual Meeting. Mr. Rodriguez is President and CEO of Automatic Data Processing, Inc. (“ADP”) and a member of the ADP board. He is an accomplished business leader who has driven major advances in human capital management solutions at ADP and will bring significant insights and experience to Microsoft.

We were deeply saddened by the passing of Arne Sorenson earlier this year. We are grateful for his service to the Microsoft Board of Directors and mentorship over the years and we offer our continued condolences to his family, loved ones, and his friends and colleagues at Marriott.

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

 



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LOGO

 

 

Notice of 2021 Annual Shareholders Meeting

 

Date     November 30, 2021
Time     8:30 a.m. Pacific Time
Virtual Meeting     This year’s meeting is a virtual shareholders meeting at virtualshareholdermeeting.com/MSFT21
Record Date     September 30, 2021. 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”)

 

• Approve the Employee Stock Purchase Plan

 

• Ratify the selection of Deloitte & Touche LLP as our independent auditor for fiscal year 2022

 

• Vote on five 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 November 30, 2021. Our 2021 Proxy Statement and Annual Report to Shareholders are available at microsoft.com/investor.

 

By Order of the Board of Directors

 

 

LOGO

Hossein Nowbar

Secretary

Redmond, Washington

October 14, 2021

 


 

2021 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

     19  
     

 

Board Composition

     20  
     

 

Our Director Nominees

     22  
           

 

Director Compensation

 

    

 

29

 

 

 

  2

  

 

 

 

Named Executive
Officer
Compensation

 

 
 
 

     

A Letter from the Compensation Committee

     32  
     

Compensation Discussion and Analysis

     33  
     

Section 1 – Performance Update

     33  
     

Section 2 – Executive Compensation Program Enhancements

     36  
     

Section 3 – Pay Setting

     37  
     

Section 4 – Fiscal Year 2021 Compensation Program Design

     41  
     

Section 5 – Fiscal Year 2021 Compensation Decisions

     45  
        

Section 6 – Other Compensation Policies and Information

     52  
        

Compensation Committee Report

     54  
        

Fiscal Year 2021 Compensation Tables

     55  
        

Summary Compensation Table

     55  
        

Grants of Plan-Based Awards

     56  
        

Outstanding Equity Awards at June 30, 2021

     57  
        

Option Exercises and Stock Vested

     58  
        

Nonqualified Deferred Compensation

     58  
        

CEO Pay Ratio

     59  
        

Equity Compensation Plan Information

     59  
        

Stock Ownership Information

     60  
                      

Principal Shareholders

 

    

 

61

 

 

 

  3

  

 

 

 

Audit Committee
Matters

 

 
 

     

 

Audit Committee Report

     62  
     

 

Fees Billed by Deloitte & Touche

     64  
     

 

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

     65  
        
        
                      

 


 

ii    LOGO   


Table of Contents

 

         
  4   

 

 

 

Proposals to be
Voted on During
the Meeting

 

 
 
 

     

 

Management Proposal 1: Election of 12 Directors

     66  
     

 

Management Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation

     67  
     

 

Management Proposal 3: Approve Employee Stock Purchase Plan

     69  
     

 

Management Proposal 4: Ratification of the Selection of Deloitte & Touche LLP as Independent Auditor for Fiscal Year 2022

     72  
                      

 

Shareholder Proposals

 

    

 

73

 

 

 

  5   

 

 

 

Information About
the Meeting

 

 
 

     

 

Date, Time, and Place of Meeting

     83  
     

 

Proxy Materials are Available on the Internet

     83  
     

 

Participating in the Annual Meeting

     83  
     

 

Soliciting Proxies

     84  
     

 

Householding

     84  
     

 

Election of Directors

     84  
     

 

Voting

     85  
        

Shareholders Entitled to Vote; Quorum

     85  
        

Vote Required; Effect of Abstentions and Broker
Non-Votes

     85  
        

Vote Confidentiality

     85  
        

Tabulation of Votes

     86  
        

Where to Find More Proxy Voting Information

     86  
        

Where to Find our Corporate Governance Documents

     86  
        

Proposals by Shareholders for 2022 Annual Meeting

     86  
                      

Other Business

 

    

 

87

 

 

 

Annex A — Employee Stock Purchase Plan

 

    

 

88

 

 

 

 


 

2021 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: November 30, 2021

 

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/MSFT21

 

 

Record Date: September 30, 2021

 

Mailing Date:

This Proxy Statement was first mailed to shareholders on or about October 20, 2021.

 

 

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 of the proposals.

 

 

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 86 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

 

 

  

 

 

 

66

 

 

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

  

 

 

 

FOR

 

 

  

 

 

 

67

 

 

 

Approve Employee Stock Purchase Plan

  

 

 

 

FOR

 

 

  

 

 

 

69

 

 

Ratification of the Selection of Deloitte & Touche LLP as our Independent Auditor for Fiscal Year 2022

  

 

 

 

FOR

 

 

  

 

 

 

72

 

 

Shareholder Proposals     

 

 

 

 

 

    

 

 

 

 

 

 

Report on median pay gaps across race and gender

     AGAINST        73  

 

Report on effectiveness of workplace sexual harassment policies

     AGAINST        75  

 

Prohibition on sales of facial recognition technology to all government entities

     AGAINST        77  

 

Report on implementation of the Fair Chance Business Pledge

     AGAINST        79  

 

Report on how lobbying activities align with Company policies

     AGAINST        81  

 

2021 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. The Board has nominated Carlos Rodriguez for election as director. If elected, his term will begin on November 30, 2021. The Board has approved an increase in its size from 11 members to 12 members effective as of November 30, 2021.

 

Name

Occupation

  Age  

Director

Since

  Independent  

 Other Public 

Boards

  Committee Memberships
  AC     CC     GN     RPP 

Reid G. Hoffman

General Partner, Greylock Partners

  54   2017   Yes   2                

Hugh F. Johnston

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

  60   2017   Yes   1  

LOGO

 

LOGO

           

Teri L. List

Former Executive Vice President and CFO,

The Gap, Inc.

  58   2014   Yes   3  

LOGO

     

LOGO

   

Satya Nadella

Chairman and CEO, Microsoft Corporation

  54   2014   No   1                

Sandra E. Peterson

Operating Partner, Clayton, Dubilier & Rice, LLC

  62   2015   Yes   2      

LOGO

 

LOGO

   

Penny S. Pritzker

Founder and Chairman, PSP Partners, LLC

  62   2017   Yes   0              

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Carlos A. Rodriguez

President, CEO, and Director, Automatic Data Processing, Inc.

  57   Nominee   Yes   1                

Charles W. Scharf

CEO, President, and Director, Wells Fargo & Company

  56   2014   Yes   1      

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John W. Stanton

Founder and Chairman, Trilogy Partnerships

  66   2014   Yes   2  

LOGO

         

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John W. Thompson

Lead Independent Director, Microsoft Corporation;

Former CEO and Director, Virtual Instruments Corporation

  72   2012   Yes   1          

LOGO

 

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Emma N. Walmsley

CEO and Director, GlaxoSmithKline plc

  52   2019   Yes   1      

LOGO

     

LOGO

Padmasree Warrior

Founder, President, and CEO, Fable Group, Inc.

  60   2015   Yes   1      

LOGO

       

 

AC: Audit Committee

CC: Compensation Committee

GN: Governance and Nominating Committee

RPP: Regulatory and Public Policy Committee

  

 

LOGO   Chair

 

LOGO   Member

 

LOGO   Financial Expert and Member

The Board will consider committee appointments for Carlos Rodriguez if he is elected to the Board.


 

2    LOGO   


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 60% of the annual target compensation opportunity for our Named Executives was performance-based on average

 

•  50% (70% for the CEO) of the annual cash incentive is determined based on pre-established financial targets, and the other 50% (30% for the CEO) is determined based on operational performance in three weighted performance categories

 

• 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 align executives’ and shareholders’ long-term interests

 

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

   
   

 

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

   
 

 

   

    Sound Program Design    

 

   
     
   

We design our executive officer compensation programs 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 vesting of stock awards

 

•  Does not encourage unnecessary and excessive risk taking

   
         

 

   

    Executive Pay Program Incorporates Shareholder Feedback    

 

   
     
   

In discussing the design of our compensation program with investors in fiscal year 2021, several key themes emerged in the feedback we received. The Compensation Committee evaluated these themes and implemented enhancements to our fiscal year 2021 compensation program that both respond directly to shareholder input and further increase pay-for-performance alignment at Microsoft. Shareholder feedback and responsive actions taken in fiscal year 2021 include:

 

   
   

Feedback Themes

 

•  Increase the component of the annual cash incentive based on pre-established metrics to further strengthen our CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy

 

•  Shift the mix of our CEO’s equity to be majority performance stock award

 

•  Include a downside adjustment on the PSA payout, so that the TSR multiplier provides both upside and downside exposure for executives

 

Actions Taken

 

•  Increased the weighting of the financial performance portion of the CEO’s annual cash incentive from 50% to 70% for fiscal year 2021, split evenly between Incentive Plan Revenue (35%) and Incentive Plan Operating Income (35%)

 

•  Increased the performance stock award portion of our CEO’s equity awards from 50% to 70% for fiscal 2021

 

•  Revised the relative TSR modifier for fiscal year 2021 PSAs to include a downside adjustment on PSA payouts if relative TSR falls below the 40th percentile of the S&P 500

   
         

 

2021 PROXY STATEMENT  3


Table of Contents

Business Overview

Our Business Performance

In fiscal year 2021, we continued to achieve strong business results, focusing on enabling the success and earning the trust of our customers. We expanded our offerings and accelerated innovation to capture the opportunities that the era of intelligent cloud and intelligent edge is creating for our customers. We continue to improve our position as a trusted partner to our customers, accelerating their digital transformations through our key cloud technologies, productivity tools, and artificial intelligence assets.

 

   

    Fiscal Year 2021 Achievements    

 

   
     
                              
      

$168.1 billion

 

Revenue, an 18% increase

               

$69.9 billion

 

Operating income, a 32% increase

               

$61.3 billion

 

Net income, a 38%
increase

               

$8.05

 

Diluted earnings per share,
a 40% increase

      
                 
                         
   

Percentages are year-over-year.

 

Other highlights from fiscal year 2021 included:

 

• Commercial cloud revenue increased 34% to $69.1 billion

 

• Office Commercial products and cloud services revenue increased 13%

 

• Office Consumer products and cloud services revenue increased 10%

 

• Linkedln revenue increased 27%

 

• Dynamics products and cloud services revenue increased 25%

 

• Server products and cloud services revenue increased 27%

 

• Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased slightly

 

• Windows Commercial products and cloud services revenue increased 14%

 

• Xbox content and services revenue increased 23%

 

• Search advertising revenue, excluding traffic acquisition costs, increased 13%

 

• Surface revenue increased 5%

 

Key performance indicators are defined in our Form 10-K for the fiscal year ended June 30, 2021.

 

   

 

   

    Strong Long-Term Performance    

 

   
     

Total Shareholder Return*

through June 30, 2021

 

LOGO

  

 

Our total shareholder

return and total cash

returned to shareholders

for the past three years

have continued to

be strong.

  

Total Cash Returned

to Shareholders

(in billions)

 

LOGO

 

* Total shareholder return includes reinvestment of dividends.

 


 

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Table of Contents

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 2021, 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    

 

   
     
       
 

 

 

LOGO     

 

Board Diversity

 

       

 

LOGO

 

 

LOGO

 

 

LOGO

   

8

               
    

 

 

LOGO     

 

Financial

 

     
   

6

                   
    

 

 

LOGO     

 

Global Business

 

     
   

11

         
    

 

 

LOGO     

 

 

Leadership

 

     
   

12

       
    

 

 

LOGO     

 

Mergers and Acquisitions

 

     
   

12

       
    

 

 

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Sales and Marketing

 

     
   

5

                     
    

 

 

LOGO     

 

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 listing standard of financial sophistication and two members are audit committee financial experts under the Securities and Exchange Commission (“SEC”) rules

     

 

2021 PROXY STATEMENT  5


Table of Contents
   

    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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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

 

       

 

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. As the practice of Environmental, Social, and Governance (“ESG”) investing has advanced, Microsoft and its Board have proactively engaged with investors to learn from their perspectives and to share the Company’s approach. Microsoft’s Board of Directors and management team understands that ESG performance is linked in myriad ways to the Company’s long-term financial performance and growth that is sustainable in every sense of the word. We are committed to building and executing on strategies to help foster a healthy planet and advance a more inclusive economy that fosters additional growth opportunities for everyone.

From our CEO and senior management and throughout our organization, we are working to conduct our business in principled ways that make a significant positive impact on important global issues. Our Board of Directors provides insight, feedback, and oversight across a broad range of environmental and social matters. In particular, the responsibilities of the Board’s Regulatory and Public Policy Committee include providing oversight and guidance to the Board and management about the Company’s policies and programs that relate to corporate social responsibility. The Audit Committee, Compensation Committee, and Governance and Nominating Committee also have responsibilities relating to ESG topics and in fiscal year 2021 each of these Committees considered emerging ESG issues that fall under their charter.

 

 

Concrete Commitments Plus Transparency Drive Results

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. This year Microsoft released its first annual progress reports related to important commitments we have made to environmental sustainability and racial equity. 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 global standards such as sector-based materiality maps provided by the Sustainable Accounting Standards Board. 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 ESG commitments.

 

 

Engagement with Environmental and Social Topics

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

 


 

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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

 

       

 

Environmental Sustainability

Our strategy for a sustainable future focuses on climate, 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 to accountability by including progress on sustainability goals as a factor in determining executive pay. The report on the first year of progress meeting these commitments is available at aka.ms/MSFTsustainabilityreport2020 and the latest information is available at microsoft.com/environment. Microsoft’s Regulatory and Public Policy Committee provides oversight and guidance on Microsoft’s environmental sustainability strategy and commitments.

Human Capital

We aim to recruit, develop, and retain world-changing and diverse talent. To foster their success and ours, we seek to create an environment where people can do their best work – a place where they can proudly be their authentic selves, and where they know their needs can be met. We’ve used the concept of a growth mindset to transform our culture. It starts with a belief that everyone can grow and develop; that potential is nurtured, not predetermined; and that anyone can change their mindset. We’re also working to transform human resources using data, technology, process excellence, and investing in our people. For instance, we’ve sought to align our employee benefits to our culture, evolving them to be more holistic and inclusive.

Over the past several years we’ve sought to drive inclusive opportunity by providing increased transparency on our diversity and inclusion (“D&I”) commitments and making progress in applying and advancing D&I practices across our workplace, including a focus on allyship, behavior modeling, broadening our search for talent, and nurturing employee advocacy groups. Information regarding our diversity and racial equity initiatives is available at microsoft.com/diversity and microsoft.com/racial-equity-initiative, and our general approach to human capital management in the “Human Capital Resources” section of our Form 10-K for the fiscal year ended June 30, 2021. As just one recent example of our commitment to our people, in fiscal year 2021 Microsoft expanded eligibility for stock grants in our annual performance rewards system to hourly employees and non-U.S. employees in equivalent levels (excluding employees at nonintegrated acquisition subsidiaries). For the fiscal year 2021 rewards period, 99.99% of our employees who were eligible for our annual performance rewards were eligible for stock grants. Microsoft’s Board and its Compensation Committee provide oversight and guidance to management on workplace and culture.

Racial Equity Initiative

Microsoft’s Racial Equity Initiative is a series of commitments designed to address the injustice and inequity experienced by racial and ethnic minorities in the U.S., including Black and African American communities, which centers on three multi-year pillars.

 

 

Increasing our representation and strengthening our culture of inclusion by doubling the number of Black and African American and Hispanic and Latinx people managers, senior individual contributors, and senior leaders in the U.S. by 2025

 

 

Evolving our ecosystem with our supply chain, banking partners, and partner ecosystem

 

 

Strengthening our communities by using data, technology, and partnerships to help address racial injustice and inequities of the Black and African American communities in the U.S., and improve the safety and well-being of our employees and their communities

A link to the first year progress report for the communities pillar of this initiative, and other information, is available at microsoft.com/racial-equity-initiative. Microsoft’s Board, its Regulatory and Public Policy Committee, and its Compensation Committee provide oversight on many aspects of the Company’s commitments through its Racial Equity Initiative.

Responsible Artificial Intelligence

Microsoft is committed to ensuring our artificial intelligence (“AI”) breakthroughs are developed responsibly, earn people’s trust, and benefit society. Microsoft created our Office of Responsible AI (“ORA”) and a multidisciplinary internal AI, Ethics, and Effects in Engineering and Research Committee (“AETHER”), to establish an internal governance structure that provide principles, practices, tools, and compliance processes across the Company that help to ensure Microsoft is upholding its AI principles in its development of AI technology and products. ORA sets our rules and governance processes, working closely to enable teams across the Company,

 


 

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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

 

       

 

and AETHER advises our leadership on the challenges and opportunities presented by AI innovations. Together, ORA and AETHER work closely with our engineering and sales teams to help them uphold Microsoft’s AI principles in their day-to-day work. We are active on the public policy front calling for laws and regulation on AI technologies like facial recognition to ensure that the promise of AI is realized for the benefit of society at large while protecting fundamental rights. We describe our approach to AI at microsoft.com/ai/our-approach. Microsoft’s Board and its Regulatory and Public Policy Committee provide oversight and guidance on Microsoft’s approach to Responsible AI.

 

 

A Code of Conduct that Drives Compliance and Culture

As our shareholders and other stakeholders increasingly focus on the importance of ESG topics, Microsoft benefits 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 (“Standards”) at aka.ms/policiesandguidelines which apply to our employees, officers, Board of Directors, and our subsidiaries and controlled affiliates across the globe. These Standards require not only legal compliance, but also broader commitments to address accessibility, diversity and inclusion, human rights, and privacy. In support of these Standards, 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.

 

 

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 and 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. Examples of 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 dynamically changing 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 and its strategic acquisition and integration process. For large acquisitions such as LinkedIn, GitHub, ZeniMax Media, and our pending acquisition of Nuance Communications, the Board engages management on a broad range of considerations, such as due diligence findings, valuation, and integration planning.

 


 

2021 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

 

       

 

   

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

 

      
      

 

Audit
Committee

             

 

Compensation
Committee

             

Governance and Nominating
Committee

 

             

Regulatory and
Public Policy Committee

 

      
                 
      

With the Board, oversees Microsoft’s risk management. Provides oversight with respect to 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; as well as the independent auditor and internal audit function.

 

              Provides oversight with respect to compensation and benefits programs, oversees human capital management and diversity and inclusion, oversees senior management succession planning and compensation, and advises the Board on CEO compensation.               Provides oversight with respect to director selection and succession planning, Board effectiveness and independence, committee functions and charters, adherence to our corporate governance framework, and other corporate governance matters.               Provides oversight and guidance with respect to key non-financial regulatory risks; oversees management policies and programs relating to competition and antitrust, privacy, trade, digital safety, artificial intelligence, and environmental sustainability; and reviews government relations activities and public policy agenda.       
                                             

 

   

    Company Management    

 

   
     

 

The Board, in consultation with each of its committees, oversees company management in exercising its responsibility managing risk.

 

The Board of Directors 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 our 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 to modeling the culture we strive for. We focus on creating a respectful, rewarding, diverse, and inclusive work environment that allows our people to build meaningful careers. Key to this environment is cultivating a growth mindset, where our workforce is focused on learning, listening, and growing. We have identified four attributes that allow growth mindset to flourish:

 

 

Obsessing over what matters to our customers

 

 

Becoming more diverse and inclusive in everything we do

 

 

Operating as “One Microsoft” – a unified company instead of multiple siloed businesses

 

 

Making a difference in the lives of each other, our customers, and the world around

 


 

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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 employee listening systems enable us to gather feedback directly from our workforce to inform our programs and employee needs globally. Eighty-eight percent of employees globally participated in our fiscal year 2021 MS Poll engagement survey, which covers a variety of topics such as inclusion, pay and benefits, and learning and development. Throughout the fiscal year, we also collect nearly 75,000 Daily Pulse employee survey responses. During fiscal year 2021, our Daily Pulse surveys gave us invaluable insights into ways we could support employees through the COVID-19 pandemic and addressing racial injustice. In addition to poll and pulse surveys, we gain insights through onboarding and exit surveys, internal Yammer channels, employee Q&A sessions, and 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. These topics include 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.

 

 

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’ self-assessments, governance best practices, and regulatory developments.

 

   

    Our Corporate Governance Documents    

 

   
     

• Articles of Incorporation

• Bylaws

• Corporate Governance Guidelines

• Director Independence Guidelines

• Microsoft Finance Code of Professional Conduct

• Microsoft Standards of Business Conduct

• Audit Committee Charter and Responsibilities Calendar

 

   • Compensation Committee Charter

• Governance and Nominating Committee Charter

• Regulatory and Public Policy Committee Charter

• Executive Stock Ownership Policy

• Executive Compensation Recovery Policy

• Compensation Consultant Independence Standards    

These documents are available on our website at aka.ms/policiesandguidelines.

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

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

 

 

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

 


 

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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

 

       

 

 

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

 

 

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 ESG issues. 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 2021, 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 Mr. Nadella, our Chairman and CEO, and Ms. Hood, our CFO.

To communicate broadly with our shareholders, we also seek to transparently share ESG information relevant to our shareholders 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

In fiscal year 2021, John Thompson served as Chairman until June 16, 2021. Effective June 16, the Board’s independent directors unanimously elected Satya Nadella to the role of Chairman and CEO, and unanimously elected John W. Thompson as Lead Independent Director, a role he held previously from 2012 to 2014. In this 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, Mr. Thompson retains significant authority including providing input on behalf of the independent directors on Board agendas, calling meetings of the independent directors, setting agendas for executive sessions, and leading performance evaluations of the CEO. Additional information about the role of the Lead Independent Director is available under ‘Key Elements of 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,” would be effective under a variety of leadership frameworks and therefore do not materially affect its choice of structure.

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

 


 

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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

 

       

 

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 2021, the evaluation included utilizing a third-party facilitator to seek feedback from each director, and the results were reported to and discussed with the Board. The report includes an assessment of the Board’s compliance with the principles in the Corporate Governance Guidelines and identifies areas in which the Board could enhance its performance.

Our evaluation process is designed to elicit feedback on the processes, structure, composition, and effectiveness of the Board. The evaluation results have led to changes to facilitate increased Board effectiveness, including driving clarity on key areas for the Board’s focus over the coming year, input on Board composition and recruiting, input on how to best operationalize Board meetings in a virtual environment, and the appropriate cadence and frequency for Board and committee meetings.

In addition, each committee annually evaluates its performance and reports the results to the Board. In fiscal year 2021 the evaluation of each committee included an assessment of the committee’s compliance with the principles in the Corporate Governance Guidelines and its charter, and identified areas in which the committee could enhance its performance. Results requiring additional review or consideration are discussed at subsequent Board and committee meetings.

Director Attendance

Each quarter, our Board holds two-day meetings. Committee meetings occur the first day before the Board meeting. 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 ten times during fiscal year 2021. In addition, in place of the annual strategy retreat in fiscal year 2021, the Board held six 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 2021 meetings of the Board and each committee on which he or she served. In fiscal year 2021, the Board and committees of the Board held a total of 33 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 2021.

Directors are expected to attend the annual shareholders meeting, if practicable. All directors attended the 2020 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 2021.

 


 

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GOVERNANCE AND
OUR BOARD OF

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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

 

       

 

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 Board Independence at Microsoft    

 

   
     

•  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 will seek 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 5.1 years. The average tenure is 5.3 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. John Thompson was selected by the independent members of the Board to serve as Lead Independent Director. Key responsibilities and authority include:

 

• 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

 

 


 

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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

 

       

 

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 an Audit Committee, Compensation Committee, Governance and Nominating Committee, and Regulatory and Public Policy Committee.

The table below provides summary information about each director nominee 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. Carlos Rodriguez is nominated for election to the Board at the Annual Meeting. The Board will consider committee appointments for Mr. Rodriguez if he is elected to the Board.

Membership

 

Director

   Audit        Compensation    

    Governance and

Nominating

 

 

   
     Regulatory and
Public Policy

 

Reid G. Hoffman

                         

Hugh F. Johnston

   LOGO   LOGO                     

Teri L. List

   LOGO          LOGO          

Satya Nadella

                         

Sandra E. Peterson

        LOGO     LOGO          

Penny S. Pritzker

                      LOGO  

Charles W. Scharf

        LOGO     LOGO          

John W. Stanton

   LOGO                  LOGO  

John W. Thompson

              LOGO       LOGO  

Emma N. Walmsley

        LOGO             LOGO  

Padmasree Warrior

        LOGO                

Number of meetings in fiscal year 2021

   9    6     4       4  
   LOGO   Chair             LOGO   Member             LOGO   Financial Expert and Member 

 

 


 

2021 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

 

       

 

   

    Audit    

 

   
     

•  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 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 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 two are “audit committee financial experts” under 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, 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.

 

 


 

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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    

 

   
     

•  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

 

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 2021. 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, neither firm provides or provided 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

 

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.

 

 


 

2021 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

 

       

 

        Governance and Nominating    

 

   
     

•  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

 

 

 

        Regulatory and Public Policy    

 

   
     

•  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 legal, regulatory, compliance, and corporate responsibility matters concerning competition and antitrust, privacy, trade, digital safety, artificial intelligence, and environmental sustainability, as well as significant issues relating to 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

 

 


 

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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. In all cases, a record of significant accomplishment in a relevant arena is a must. 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 previously elected all Board nominees, except Mr. Rodriguez. In recruiting Mr. Rodriguez, 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 during 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 will be included in the Company’s proxy statement and ballot.

 


 

2021 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

 

       

 

 

Board Composition

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.

 

   

    Director Nominee Qualifications, Expertise, and Attributes    

 

   
     
       
   

    

 

 

 

 

 

LOGO

 

 

LOGO     

 

Board Diversity

Representation of gender, ethnic, or other perspectives that expand the Board’s understanding of the needs and viewpoints of our customers, partners, employees, governments, and other stakeholders worldwide.

                 

8

          
 

 

LOGO     

 

Financial

Leadership of a financial firm or management of the finance function of an enterprise, resulting in proficiency in complex financial management, capital allocation, and financial reporting processes.

             

6

              
 

 

LOGO     

 

 

Global Business

Experience driving business success in markets around the world, with an understanding of diverse business environments, economic conditions, cultures, and regulatory frameworks, and a broad perspective on global market opportunities.

                       

11

    
 

 

LOGO     

 

 

Leadership

Extended leadership experience for a significant enterprise, resulting in a practical understanding of organizations, processes, strategic planning, and risk management. Demonstrated strengths in developing talent, planning succession, and driving change and long-term growth.

                         

12

  
 

 

LOGO     

 

 

Mergers and Acquisitions

A history of leading growth through acquisitions and other business combinations, with the ability to assess “build or buy” decisions, analyze the fit of a target with a company’s strategy and culture, accurately value transactions, and evaluate operational integration plans.

                         

12

  
 

 

LOGO     

 

 

Sales and Marketing

Experience developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation.

           

5

                
 

 

LOGO     

 

 

Technology

A significant background working in technology, resulting in knowledge of how to anticipate technological trends, generate disruptive innovation, and extend or create new business models.

               

7

            
       

 

    

                                                

 


 

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GOVERNANCE AND
OUR BOARD OF

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      2  

 

NAMED
EXECUTIVE OFFICER            
COMPENSATION

  3  

 

AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

       

 

 

Board Diversity

The table below summarizes the key qualifications, skills, and attributes most relevant to the decision to nominate candidates to serve on the Board. 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.

 

LOGO

 


 

2021 PROXY STATEMENT

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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

 

       

 

 

 

Our Director Nominees

Following are biographies for the 12 directors nominated by the Board for election during the 2021 Annual Meeting.

 

    LOGO    Reid G. Hoffman       
      
    

Age: 54 | Director since: 2017 | Birthplace: United States | Independent

 

 

LOGO   LOGO   LOGO

 

       

Experience:

Greylock Partners (2009-present)

(venture capital firm)

•  General Partner (2021-present)

•  Partner (2009-2021)

Reinvent Capital (2019-present)

•  Advisory Partner (2021-present)

•  Partner (2019-2021)

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:    

•  None

 

Other public company directorships:

•  Reinvent Technology Partners

•  Reinvent Technology Partners Z

 

Former public company directorships held in the past five years:

•  LinkedIn Corporation

    

 

 

    LOGO    Hugh F. Johnston       
      
    

Age: 60 | Director since: 2017 | Birthplace: United States | Independent

 

 

LOGO   LOGO   LOGO   LOGO

 

 

       

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:

•  Twitter Inc.

    

 

 

    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
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    Teri L. List       
      
    

Age: 58 | 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.

•  Oscar Health, Inc.

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

 

Other Positions:

•  Former Trustee, Financial Accounting Foundation

•  Former Practice Fellow, Financial Accounting Standards Board

 

    

 

 

    LOGO    Satya Nadella       
      
    

Age: 54 | Director Since: 2014 | Birthplace: India

 

 

LOGO        LOGO        LOGO        LOGO        LOGO

 

 

       

Experience:

Microsoft Corporation (1992-present)

•  Chairman and Chief Executive Officer (2021 to 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

    

 


 

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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    Sandra E. Peterson       
      
    

Age: 62 | Director Since: 2015 | Birthplace: United States | Independent

 

 

LOGO        LOGO        LOGO        LOGO        LOGO        LOGO

 

       

Experience:

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)

•  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 (Chair)

•  Governance and Nominating

 

Other Public Company Directorships:

•  Covetrus, Inc.

•  Zymergen, Inc.

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

    

 

    LOGO    Penny S. Pritzker       
      
    

Age: 62 | 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:

•  Regulatory 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

    

 

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

 


 

24   

LOGO


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

 

       

 

    LOGO    Carlos A. Rodriguez       
      
    

Age: 57 | Director since: Nominee | Birthplace: Cuba | Independent

 

 

LOGO        LOGO        LOGO        LOGO        LOGO

 

       

Experience:

Automatic Data Processing, Inc. (1999-present)

(human capital management solutions provider)

•  President, Chief Executive Officer, and Director (2011-present)

•  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:

•  Appointment will be made after election

 

Other public company directorships:

•  Automatic Data Processing, Inc.

 

Former public company directorships
held in the past five years:

•  None

    

 

    LOGO    Charles W. Scharf       
      
    

Age: 56 | 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 and President (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

•  Visa Inc.

    

 


 

2021 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

 

       

 

    LOGO    John W. Stanton       
      
    

Age: 66 | 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

•  Regulatory and Public Policy

 

Other Public Company Directorships:

•  Costco Wholesale Corporation

•  Trilogy International Partners, Inc.

 

Former Public Company Directorships
Held in the Past Five Years:

•  Columbia Sportswear Company

 

Other Positions:

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

 

    

 

    LOGO    John W. Thompson       
      
    

Age: 72 | Director Since: 2012 | Birthplace: United States | Independent

 

 

LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO

 

       

Experience:

Microsoft Corporation (2012-present)

•  Lead Independent Director (2021-present)

•  Independent Board Chair (2014-2021)

•  Lead Independent Director (2012-2014)

Virtual Instruments Corporation (2010-2016)

•  Chief Executive Officer and Director (2010-2016)

Symantec Corp. (1999-2011)

•  Chairman of the Board (1999-2011)

•  Chairman and Chief Executive Officer (1999-2009)

IBM Corporation (1971-1999)

•  General Manager, IBM Americas (1996-1999)

•  Various positions of increasing authority (1971-1996)

 

    

Microsoft Committees:

•  Governance and Nominating (Chair)

•  Regulatory and Public Policy

 

Other Public Company Directorships:

•  Illumina, Inc.

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

 

Other Positions:

•  Partner, Lightspeed Venture Partners

 

    

 

 

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

 


 

26   

LOGO


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

 

       

 

    LOGO    Emma N. Walmsley       
      
    

Age: 52 | Director Since: 2019 | Birthplace: United Kingdom | Independent

 

 

LOGO        LOGO        LOGO        LOGO        LOGO

 

       

Experience:

GlaxoSmithKline plc (2010-present)
(healthcare company)

•  Chief Executive Officer (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

•  Regulatory and Public Policy

 

Other Public Company Directorships:

•  GlaxoSmithKline plc

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

    

 

    LOGO    Padmasree Warrior       
      
    

Age: 60 | Director Since: 2015 | Birthplace: India | Independent

 

 

LOGO        LOGO        LOGO        LOGO        LOGO

 

       

Experience:

Fable Group, Inc. (2019-present)
(curated fiction and non-fiction for mobile devices)

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

NIO Inc. (2015-2018)

•  Chief Development Officer (2015-2018)

•  Board member (2015-2018)

NIO USA, Inc. (2015-2018)

•  Chief Executive Officer and Director (2015-2018)

Cisco Systems, Inc. (2008-2015)

•  Strategic Advisor (2015)

•  Chief Technology and Strategy Officer (2012-2015)

•  Chief Technology Officer, Senior Vice President, Engineering and General Manager Global Enterprise segment (2010-2012)

•  Chief Technology Officer (2008-2010)

Motorola, Inc. (1999-2007)

•  Executive Vice President and Chief Technology Officer (1999-2007)

 

    

Microsoft Committees:

•  Compensation

 

Other Public Company Directorships:

•  Spotify Technology S.A.

 

Former Public Company Directorships
Held in the Past Five Years:

•  None

    

 


 

2021 PROXY STATEMENT

  27


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 his or her 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, Peterson, Pritzker, Walmsley, and Warrior, and Messrs. Hoffman, Johnston, 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. Arne Sorenson, who passed away in February 2021, was independent throughout his Board service. 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. In reaching that conclusion with respect to Ms. Pritzker, the Committee and Board considered transactions between LinkedIn, a subsidiary of Microsoft, and 3Q Digital, Inc., a digital marketing company (“3Q”), which accounted for more than 5% of 3Q’s annual revenue for its last completed fiscal year. 3Q has provided digital marketing services for LinkedIn since 2015. In 2019, trusts for the benefit of Ms. Pritzker and her family acquired an indirect majority interest in 3Q. In making its determination regarding Ms. Pritzker’s independence, the Committee and Board noted that Ms. Pritzker is not a director or officer of, and holds no direct equity ownership interest in, 3Q or any of its parent organizations. The Committee and Board further noted that Ms. Pritzker has recused herself from participation in any decisions related to 3Q or the Trusts’ investment therein and does not otherwise have the ability to control the Trusts’ investment or other decisions regarding 3Q. Ms. Pritzker was not involved in the negotiation of the commercial agreements between 3Q and LinkedIn. In May 2021, the commercial relationship between LinkedIn and 3Q was terminated.

 


 

28   

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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

 

       

 

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.

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 2021, 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 Board. We have not increased director pay since fiscal year 2015. As our CEO, Mr. Nadella does not receive additional pay for serving as a director or as Board Chairman. The independent Board Chair retainer reflects the compensation for Mr. Thompson’s fiscal year 2021 service.

 

Fiscal Year 2021 Compensation Structure for Directors

 

Regular Retainers (all directors except Messrs. Nadella and Thompson)

    

 

 

 

 

 

Annual Base Retainer (TOTAL)

     $325,000  

Cash

     $125,000  

Stock Award

     $200,000  

Annual Committee Chair Retainer

     $15,000  

Annual Audit Committee Chair Retainer

     $45,000  

Annual Audit Committee Non-Chair Member Retainer

     $15,000  

Independent Board Chair Retainer (Mr. Thompson)

    

 

 

 

 

 

Annual Independent Chair Retainer (TOTAL – in lieu of other retainers)

     $485,000  

Cash

     $125,000  

Stock Award

     $360,000  

 


 

2021 PROXY STATEMENT

  29


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

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 2021. Mr. Nadella received no compensation as a director or Board Chair. 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          200,000          0          325,000  

Hugh F. Johnston

     170,000          200,000          5,000          375,000  

Teri L. List5

     140,000          200,000          15,000          355,000  

Sandra E. Peterson6

     140,000          200,000          15,000          355,000  

Penny S. Pritzker7

     140,000          200,000          0          340,000  

Charles W. Scharf

     125,000          200,000          0          325,000  

Arne M. Sorenson8

     116,653          150,000          0          266,653  

John W. Stanton

     140,000          200,000          15,000          355,000  

John W. Thompson9

     125,000          360,000          15,000          500,000  

Emma N. Walmsley

     125,000          200,000          13,422          338,422  

Padmasree Warrior10

     125,000          200,000          0          325,000  

 

(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, each with a grant date fair value under FASB ASC Topic 718 of $50,000, with exceptions as follows: Mr. Thompson received four quarterly awards, each with a grant date fair value under FASB ASC Topic 718 of $90,000; Mr. Sorenson received three quarterly awards, each with a grant date fair value under FASB ASC Topic 718 of $50,000.

 

(3)

Amounts in this column represent matching charitable contributions under our corporate giving program in fiscal year 2021, 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 1,432 shares of our common stock.

 

(5)

Ms. List elected to defer her cash and stock compensation. The compensation deferred converted into 1,498 shares of our common stock.

 

(6)

Ms. Peterson elected to defer her cash and stock compensation. The compensation deferred converted into 1,498 shares of our common stock.

 

(7)

Ms. Pritzker elected to defer her cash and stock compensation. The compensation deferred converted into 1,498 shares of our common stock.

 

(8)

As Mr. Sorenson passed away in February 2021, his final prorated stock and cash retainers of $11,653 were paid out in cash and are reflected in the “Fees Earned or Paid in Cash” column

 

(9)

Mr. Thompson’s Independent Board Chair compensation continued through June 30, 2021. Mr. Thompson elected to defer his stock compensation. The compensation deferred converted into 1,586 shares of our common stock.

 

(10)

Ms. Warrior elected to defer a portion of her cash compensation. The compensation deferred converted into 274 shares of our common stock.

 


 

30   

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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

 

       

 

Independent Board Chair Compensation

Mr. Thompson served as Board Chair during fiscal year 2021, until June 16, 2021 when the Board’s independent directors unanimously elected him to assume the role of Lead Independent Director. Mr. Thompson’s pay reflects the additional time commitment for the Board Chair role compared to other independent directors, which includes: (i) calling meetings of the Board and independent directors, (ii) setting the agenda for Board meetings in consultation with other directors, the CEO, and the Corporate Secretary, (iii) chairing executive sessions and coordinating activities of the independent directors, (iv) leading the Board’s annual CEO performance evaluation, and (v) when requested, representing the Board with internal and external audiences including shareholders. Pay to Mr. Thompson continued at the same level through June 30, 2021.

 


 

2021 PROXY STATEMENT

  31


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,

COVID-19 continues to disrupt our communities and workplaces, and despite those challenges, we are proud of the Company’s efforts to deliver another year of historic financial performance. Microsoft’s diverse product portfolio, durable business models, and integrated, modern technology stack uniquely positioned the Company for continued progress during the past year.

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.

Our Company continued with its active shareholder engagement program during fiscal year 2021, engaging investors representing approximately 50% of our shares outstanding. This included calls led by the Compensation Committee Chair and Independent Board Chair focused on soliciting our shareholders’ perspectives on our compensation structure and disclosure. We carefully considered shareholder feedback as we made changes to our fiscal year 2021 compensation program.

For fiscal year 2021, we increased pay-for-performance alignment with shareholder interests in response to shareholder feedback. Our changes included the following:

 

 

Increased the weighting of the financial metrics portion of the CEO’s annual cash incentive from 50% to 70%

 

 

Increased the portion of our CEO’s equity awards tied to performance metrics from 50% to 70%

 

 

Revised the TSR modifier to our performance stock awards (“PSAs”) for all named executive officers (“Named Executives”) to provide for a reduction in payout for all PSA recipients, if relative TSR falls below the 40th percentile of the S&P 500

As a result of COVID-19 disruptions to markets, during fiscal year 2021 we made a one-time decision to use semi-annual goals for the financial metrics used in both our cash incentive and performance stock award portions of our Executive Incentive Plan. This change was consistent with the goal-setting process used for our Company’s broad-based sales incentive programs and was made to mitigate some of the uncertainty in the marketplace.

We also continue to look carefully at emerging investor expectations and best practices for addressing ESG commitments in our executive compensation programs. We have been early leaders in this practice, including an assessment of CEO and senior leadership team progress on culture and diversity and inclusion since 2016 as part of the culture and organizational leadership category of the operational assessment component of the annual cash incentive under our Executive Incentive Plan. With senior management’s focus on achieving Microsoft’s ambitious carbon reduction commitments, CEO and senior leadership team progress on sustainability is assessed as part of the customers and stakeholders category of the operational assessment component of the cash incentive. We continue to seek feedback from investors and compensation experts as we thoughtfully consider further future enhancements that connect executive compensation to Microsoft’s environmental and social commitments.

We believe that these enhancements build on our efforts to thoughtfully align the interests of our shareholders and incentivize growth in the long-term. We 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

Sandra E. Peterson (Chair)

Charles W. Scharf

Emma N. Walmsley

Padmasree Warrior

 


 

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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

 

 

     

 

 

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides information about our fiscal year 2021 compensation program for our fiscal year 2021 Named Executives. The content of this Compensation Discussion and Analysis is organized into six sections:

 

   

    Table of Contents    

 

    
      
   

Section 1 – Performance Update

  p. 33
   

Section  2 – Executive Compensation Program Enhancements

  p. 36
   

Section 3 – Pay Setting

  p. 37
   

Section  4 – Fiscal Year 2021 Compensation Program Design

  p. 41
   

Section  5 – Fiscal Year 2021 Compensation Decisions

  p. 45
   

Section  6 – Other Compensation Policies and Information

  p. 52    

 

Microsoft’s executive compensation program is thoughtfully designed by our Compensation Committee and Board of Directors to closely track 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, in considering the efficacy of further enhancements.

 

 

Section 1 – Performance Update

Innovating Amid Disruption and Uncertainty

Despite the economic uncertainties and social disruptions that continued through fiscal year 2021, Mr. Nadella and Microsoft’s executive team delivered another year of historic financial performance. They achieved this through relentless focus on introducing technology innovations to make our customers more productive and resilient. In fiscal year 2021 we witnessed a second wave of digital transformation, as companies and industries accelerated their digital initiatives to build resilience and transform their operations. The persistence of the COVID-19 pandemic, as it continues to alter how we do business and live our daily lives, has forced individuals and businesses to continue to adapt, and the cloud has been key to helping the world not only adapt, but build even faster for the future.

A small sampling of our innovation and business milestones from the year includes:

 

 

Our next generation analytics service, Azure Synapse, accelerates time to insight by bringing together data integration, enterprise data warehousing, and big data analytics into one unified service

 

 

Azure Cognitive Services make it easier for organizations to build AI applications that see, hear, speak, search, understand, and accelerate decision making

 

 

Power Platform – featuring Power BI for business insights in the cloud and Power Apps and Automate for business productivity and process automation – continues to grow adoption and revenue at a rapid pace

 

 

With cybersecurity more complex and higher stakes than ever, the accelerated demand for integrated, end-to-end solutions spanning identity, security, compliance, and device management, helped our security business surpass $10 billion in annual revenue

 

 

LinkedIn continues to be the preferred professional social network, with annual revenues exceeding $10 billion

 


 

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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

 

 

     

 

 

Dynamics products and cloud services gained momentum throughout the year with four consecutive quarters of accelerating revenue

 

 

72% of the Fortune 50 now use GitHub to build, ship, and maintain software

 

 

Azure Synapse Analytics, a hyperscale service brings together data integration, enterprise data warehousing, and big data analytics, facilitates machine learning and AI to increase predictive and analytical power, common sense reasoning, alignment with human preferences, and augmentation of human capability

 

 

Teams continues to power hybrid work, with nearly 250 million monthly active users benefiting from enhanced collaboration features, extensibility, and deeper integration with Dynamics 365

 

 

Microsoft Mesh builds on this collaborative momentum, allowing for holographic interactions with true presence in a natural way, on any device

 

 

We did the work to enable the launch of Windows 365 in fiscal year 2022, bringing to market a new category: the cloud PC. Just as applications moved to the cloud with software-as-a-service, we’re now bringing the operating system to the cloud

 

 

Windows 11 is the biggest update to our operating system in a decade. As we readied ourselves for launch in fiscal year 2022, we reimagined everything – from the Windows platform to the store – to help people and organizations be more productive and secure, and to build a more open ecosystem for developers and creators

 

 

With our pending acquisition of Nuance Communications, we expect to accelerate our cloud and AI solutions portfolio, particularly in the crucial health care sector

 

 

With Game Pass, we are redefining how games are distributed, played, and viewed. We added cloud gaming via the browser, expanding our reach across PC and mobile. With our acquisition of ZeniMax Media, we made 20 of the world’s most iconic and beloved games accessible via Game Pass

Our business model is built on the foundational mission to empower every person and every organization on the planet to achieve more. Our performance in fiscal year 2021, whether measured by financial performance, our innovation pipeline, or the empowerment of our customers, demonstrates our strategy’s capacity and reach. We see change and disruption as invitations to conceive new products, new technologies, and new ideas that can further transform the industry and our business.

Achieving Strong Financial Results

Our strong business execution throughout fiscal year 2021 achieved the following financial performance:

 

   

    Fiscal Year 2021 Business Performance    

 

    
      

$168.1 billion

  $69.9 billion   $61.3 billion   $8.05
       

Revenue, an 18% increase

  Operating income, a 32% increase  

Net income, a 38%

increase

 

Diluted earnings per share,

a 40% increase

   

    

       

Percentages are year-over-year.

Other highlights from fiscal year 2021 included:

 

 

Commercial cloud revenue increased 34% to $69.1 billion

 

 

Office Commercial products and cloud services revenue increased 13%

 

 

Office Consumer products and cloud services revenue increased 10%

 

 

LinkedIn revenue increased 27%

 

 

Dynamics products and cloud services revenue increased 25%

 

 

Server products and cloud services revenue increased 27%

 

 

Windows original equipment manufacturer licensing (“Windows OEM”) revenue increased slightly

 

 

Windows Commercial products and cloud services revenue increased 14%

 

 

Xbox content and services revenue increased 23%

 

 

Search advertising revenue, excluding traffic acquisition costs, increased 13%

 

 

Surface revenue increased 5%

These key performance indicators above are defined in our Form 10-K for the fiscal year ended June 30, 2021.

 


 

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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

 

 

     

 

   

    Continuing Superior Shareholder Returns    

 

   
     

Aggregate Total Shareholder Return (TSR)

MSFT vs. S&P 500

through June 30, 2021

(includes reinvestment of dividends)

 

 

 

Annual TSR during Mr. Nadella’s CEO

Tenure: MSFT vs. S&P 500

Feb. 4, 2014 through June 30, 2021

(includes reinvestment of dividends)

LOGO     

 

   

LOGO

 

 

LOGO

 

Building for the Future

We believe enhancing the Company’s value over the long-term involves not only achieving consistently strong results, but also building trust by investing in a secure technology ecosystem, healthier societies, and a sustainable environment.

We made significant progress on multiple initiatives in fiscal year 2021. Our digital skills program aims to expand access to the technical capabilities needed in the modern workplace and into the future, particularly for those with lower incomes, women, and underrepresented minorities. We are taking concrete action to address racial injustice and inequity by increasing representation and strengthening inclusion at Microsoft, by working to increase diversity among our suppliers and partners, and by strengthening our communities through the power of data, technology, and partnership. We reported numbers demonstrating that we are well on our way to achieving our commitment to double the number of Black and African American and Hispanic and Latinx people managers, senior individual contributors, and senior leaders in the U.S. by 2025. In 2021 we also reported on the significant progress made towards meeting the ambitious carbon negative and other sustainability goals the Company announced in 2020 and developed the Microsoft Cloud for Sustainability offering designed to help companies measure, understand, and take charge of their carbon emissions, set sustainability goals, and take measurable action.

To advance trust, our organizations that promote the responsible use of AI deepened their engagement with both our internal engineering groups to embed responsible practices into our products, and with external regulators and stakeholders to advocate for regulations that enable technologies such as AI and facial recognition to benefit society at large. These programs reflect the growing momentum of our social and environmental commitments, which continue to accelerate despite the disruptions of the COVID-19 pandemic. With the encouragement and guidance of the Board, we have built concrete and ambitious commitments for these programs to ensure progress and accountability.

Our continued success in fiscal year 2021 required intense focus on accelerating our customers’ digital transformations, maintaining stable business operations, agility to adapt to rapidly changing circumstances, and excellence in our strategic vision. Mr. Nadella and his senior leadership team’s success in addressing these challenges supports compensation decisions made for fiscal year 2021 performance.

 


 

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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 2 – Executive Compensation Program Enhancements

Shareholder Engagement

 

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 2020 Annual Meeting, 94.7% of the votes cast supported our advisory resolution on the compensation of our Named Executives (“say-on-pay” vote).

       

  Shareholder Engagement   

 

   
       
     

 

Engaged with shareholders

owning approximately 50% of shares in FY21

 

   
   

 

Compensation Committee Chair and Independent Board Chair held compensation-focused “Virtual Shareholder Listening Tour” with shareholders owning over 20% of shares in FY21

   
             

As in prior years, in fiscal year 2021 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. For fiscal year 2021, we expanded our scope of shareholder outreach to obtain specific feedback on executive compensation program related matters. After assuming the Chair of the Compensation Committee, Ms. Peterson proactively sought shareholder feedback and – together with our Independent Board Chair – held conversations with shareholders representing over 20% of our outstanding shares. Shareholders generally encouraged the Board to increase the proportion of compensation that is tied to pre-established metrics and to enhance disclosures of the process used to determine incentive compensation results.

 

   

Executive Pay Program

    Incorporates Shareholder Feedback     

 

    
      

In discussing the design of our compensation program with investors in fiscal year 2021, several key themes emerged in the feedback we received. The Compensation Committee evaluated these themes and implemented enhancements to our fiscal year 2021 compensation program that both respond directly to shareholder input and further increase pay-for-performance alignment at Microsoft. Shareholder feedback and responsive actions taken in fiscal year 2021 include:

 

 

Feedback Themes

 

  

Actions Taken

 

•  Increase the component of the annual cash incentive based on pre-established metrics to further strengthen our CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy

 

•  Shift the mix of our CEO’s equity to be majority performance stock awards

 

•  Include a downside adjustment on the PSA payout, so that the TSR multiplier provides both upside and downside exposure for executives

  

•  Increased the weighting of the financial performance portion of the CEO’s annual cash incentive from 50% to 70% for fiscal year 2021, split evenly between Incentive Plan Revenue (35%) and Incentive Plan Operating Income (35%)

 

•  Increased the performance stock award portion of our CEO’s equity awards from 50% to 70% for fiscal year 2021

 

•  Revised the relative TSR modifier for fiscal year 2021 PSAs to include a downside adjustment on PSA payouts if relative TSR falls below the 40th percentile of the S&P 500

      

 


 

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OUR BOARD OF
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  2  

 

NAMED
EXECUTIVE OFFICER
COMPENSATION

      3  

 

AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

This table provides a comparison of our CEO’s fiscal year 2020 and fiscal year 2021 incentive compensation program design:

 

Pay Element    

  FY20 Elements / Metrics / Weightings     FY21 Elements / Metrics / Weightings  

Annual    

Cash    

Incentives    

 

Financial

• Incentive Plan Revenue (25%)

• Incentive Plan Operating Income (25%)

 

 

50%

 

 

Financial (new)

• Incentive Plan Revenue (35%)

• Incentive Plan Operating Income (35%)

 

 

70%

 

 

 

Operational

• Product & Strategy (16.67%)

• Customers & Stakeholders (16.67%)

• Culture & Organizational Leadership (16.66%)

 

 

50%

 

 

 

Operational (new)

• Product & Strategy (10%)

• Customers & Stakeholders (10%)

• Culture & Organizational Leadership (10%)

 

 

30%

 

Long-Term    

Equity    

 

Performance Stock Award

Three, one-year performance periods with the following metrics:

• Commercial Cloud Revenue (35%)

• Commercial Cloud Subscribers (34%)

• Teams Monthly Active Usage (10%)

• Xbox Game Pass Subscribers (7%)

• Surface Revenue (7%)

• LinkedIn Sessions (7%)

 

 

50%

 

 

Performance Stock Award (new)

Three, one-year performance periods with the following metrics:

• Commercial Cloud Revenue (33%)

• Commercial Cloud Subscribers (32%)

• Teams Monthly Active Usage (20%)

• Xbox Game Pass Subscribers (5%)

• Surface Revenue (5%)

• LinkedIn Sessions (5%)

 

 

70%

 

 

 

Relative TSR multiplier (1-1.5x) is triggered only if Microsoft’s TSR is positive and above the 60th percentile of the S&P 500

 

 

 

 

Relative TSR modifier has been revised to include a downside adjustment if relative TSR falls below the 40th percentile of the S&P 500, beginning with FY21 awards

 

 

 

Stock Award

• Four-year ratable vesting

 

 

 

 

50%

 

 

 

Stock Award (no change)

• Four-year ratable vesting

 

 

 

 

30%

 

 

 

 

Section 3 – Pay Setting

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 approve Mr. Nadella’s base salary, target cash incentive, regular stock awards, and target performance stock award.

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.

Executive Compensation Philosophy

We design our executive officer 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

 

 

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

 

 

Provides strong alignment with our shareholders, with at least 70% of the annual target compensation opportunity for our Named Executives 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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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

 

 

     

 

   

    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

  

•  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

      

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 technology labor market is hyper-competitive with demand growing faster than the supply of technical talent, resulting in significant increases in compensation at the companies with whom 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 adjust our approach to executive compensation to respond 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 officer’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 executive officer compensation to specific market percentiles. Because other companies actively recruit our executive officers to fill CEO and other senior leadership positions, we supplement market information with data on external opportunities potentially available to our executive officers. We also consider the relationship of annual target compensation among internal peers.

In setting our fiscal year 2021 executive compensation 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 2021 Pay Analysis

For fiscal year 2021, 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 with two components 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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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 companies in the fiscal year 2021 peer groups are:

Primary Peer Group – Technology

 

Adobe

Alphabet                

  

Amazon

Apple

  

Cisco Systems

Facebook

  

IBM

Intel

  

Oracle

Qualcomm

   Salesforce

Secondary Peer Group – General Industry

 

Accenture

AT&T

  

Comcast

Honeywell

  

Johnson & Johnson

Merck

  

Pfizer

Procter & Gamble

  

Tesla

Walt Disney

   Verizon

Given Microsoft’s significant scale and growth, Microsoft is larger than the typical company in both peer groups. The following graph shows Microsoft’s position within the peer group on the two screening criteria (in billions), based on each peer company’s most recent publicly reported fiscal year-end data as of August 23, 2021.

 

           Min        25th
Percentile
       50th
Percentile
       75th
Percentile
    MSFT        Max  
                            
                            
                                                                

Annual Revenue

         $13          $41          $70          $99      

 

$168

85th Percentile  

 

 

 

 

       $386  
                                                                
                            
                                                                

Market Cap

         $131          $208          $229          $408      

 

$2,040

98th Percentile  

 

 

 

 

       $2,286  
                                                                

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 2021:

 

 

Over 60% of our Named Executives’ annual target compensation opportunity was performance-based, on average

 

 

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

 

 

50% of our Named Executives’ annual target equity opportunity (70% in the case of the CEO) was delivered in the form of a performance-based stock award 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 and the Committee establishes rigorous goals to require significant improvement

 

 

Performance stock awards include a relative TSR modifier to strengthen the alignment of the interests of our executive officers with the long-term interests of our shareholders

Our Compensation Committee sets cash incentive and 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 shareholder value creation and, historically, our performance on these challenging goals has led to substantial returns to our shareholders.

 


 

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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

 

 

     

 

Pay Mix

At least 70% of the annual target compensation opportunity for our Named Executives is equity-based to incentivize a long-term focus and align their interests with those of our shareholders. Over 70% of the annual target compensation opportunity for the CEO is performance-based.

 

   

 

    Pay Mix    

 

    
      

 

 

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GOVERNANCE AND        
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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

 

 

     

 

 

Section 4 – Fiscal Year 2021 Compensation Program Design

Consistent with our philosophy, the compensation program for our Named Executives in fiscal year 2021 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 50% determined formulaically based on achievement against pre-established financial targets (70% in the case of our CEO) and 50% determined based on operational performance in three weighted performance categories (30% in the case of our CEO). Our Compensation Committee and the independent members of our Board believe this strengthens our CEO’s accountability to achieving results on the objective financial metrics that most closely align with our business strategy.

Equity incentives under the Incentive Plan were allocated 50% to target performance stock awards (“PSAs”) (70% in the case of our CEO) and 50% to stock awards with four-year vesting (“SAs”) (30% in the case of our CEO). Our Compensation Committee and the independent members of our Board believed the 70/30 balance between PSAs and SAs for our CEO will strengthen the alignment of his pay and 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.

For fiscal year 2021, we made a one-time decision to use semi-annual goals for the financial metrics used in both our cash incentive and performance stock award portions of our Executive Incentive Plan. This change was consistent with the goal-setting process used for our Company’s broad-based sales incentive programs and was made to mitigate some of the uncertainty in the marketplace. We did not make other changes to our Executive Incentive Plan due to COVID-19, such as granting discretionary awards, shifting to more time-based awards, reducing target incentive opportunities, or adjusting previously granted awards.

Base Salaries

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

Annual Cash Incentives

Cash incentives are determined in two performance categories, as follows.

For our CEO

 

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For other Named Executives

 

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*

“Incentive Plan Revenue” and “Incentive Plan Operating Income” are non-GAAP financial measures defined on pages 45-46.

 


 

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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

 

 

     

 

Financial

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

For fiscal year 2021, the financial formulaic 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 2021 Incentive Plan Revenue and Incentive Plan Operating Income performance targets were based on meeting the Company’s fiscal year 2021 internal operating budget.

Operational Assessment

The operational assessment portion of each Named Executive’s fiscal year 2021 annual cash incentives was determined based on evaluation of their individual contributions to the furtherance of financial, operational, and strategic 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):

 

 

  LOGO

 

 

 

Product & Strategy   

 

           

 

  LOGO

 

 

 

Customers & Stakeholders   

 

         

 

  LOGO

 

 

 

Culture & Organizational    Leadership

 

  
                                
   

 

•  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  

 

•  Progress on Environmental, Social, and Governance goals

             

 

•  Compliance and integrity

 

•  Culture

 

•  Diversity and inclusion

 

•  Organizational health

    

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

 

 

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

 

 

The scorecard we use to measure performance against Microsoft’s annual business plan

 

 

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

Equity Compensation

Under the Incentive Plan, each year our Named Executives receive both PSAs and 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 in the performance metrics that are chosen under our PSA program, we believe that measuring performance annually over our three-year performance period and modifying awards based on our three-year relative TSR provides the most accurate assessment of Microsoft’s long-term trajectory and performance achievements.

 


 

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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

 

 

     

 

Fiscal Year 2021 Performance Stock Award Metrics and Weights

Fiscal year 2021 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 39. The metrics and weights used for fiscal year 2021 are in the table below.

 

   

    Fiscal Year 2021 PSA Metrics    

 

    
      
      Performance Metrics        Description    Weights    
   
      Commercial Cloud Revenue*          Revenue from our commercial cloud business, which includes Azure, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties    33%    
   
      Commercial Cloud   Subscribers        Paid seats for current or new per-user SaaS cloud services primarily in commercial customer segment    32%    
   
      Teams Monthly Active Usage        Unique monthly active users of Teams in Enterprise, Corporate, Small and Medium Business, and Education    20%    
   
      Xbox Game Pass Subscribers        Current number of paid Game Pass Subscriptions (Console, PC, Ultimate)    5%    
   
      Surface Revenue*        Revenue from Surface devices and accessories    5%    
   
      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    5%    
 

 

* “Commercial Cloud Revenue” and “Surface Revenue”, when used as PSA metrics in this Compensation Discussion and Analysis, are non-GAAP financial measures defined on page 51.

 

The fiscal year 2021 PSA metrics were used to establish performance goals for (1) year 3 of the 2019 PSAs, (2) year 2 of the 2020 PSAs, and (3) year 1 of the 2021 PSAs, as shown below.

 

   

    PSA Metrics    

 

   
     

LOGO

 

Our fiscal year 2021 PSA metric results can be found on pages 50-51 below.

 

 


 

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COMPENSATION

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AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

Stock Awards

Stock awards were granted under the Incentive Plan in September 2020 for shares of Microsoft common stock (in November 2020 for Mr. Young). These stock awards vest over four years, with 25% vesting on August 31, 2021 (September 14, 2021 for Mr. Courtois) and 12.5% each six-months thereafter, to support long-term focus and align with shareholders’ interests. Vesting is subject to continued employment except as described on pages 52-53 below.

On-Hire Compensation

In connection with his employment as our Executive Vice President, Business Development, Strategy, and Ventures on November 11, 2020, our Compensation Committee determined to award Mr. Young an on-hire cash bonus in the amount of $5,000,000, with the first installment of $3,500,000 payable within 30 days after his employment start date in fiscal year 2021 and the second $1,500,000 installment payable within 30 days after the first anniversary of his employment start date. Each installment is repayable to Microsoft if Mr. Young resigns his employment, or his employment is terminated for “misconduct” prior to the first anniversary of his employment start date (for the first installment) or the second anniversary of his employment start date (for the second installment). In addition, Mr. Young received an on-hire stock award with a value of $18,000,000 that has a 4-year ratable vesting, 25% 12 months from the award date and 25% every 12 months thereafter. This on-hire cash and stock award compensation was granted with consideration of Mr. Young’s most recent position as CEO of global technology company McAfee and in response to competitive offers for chief executive officer roles to attract Mr. Young. The Compensation Committee believes Mr. Young’s employment terms and compensation are appropriate due to his experience as a chief executive officer and his unique skill set leading complex technology businesses in both private and public companies, and were necessary to encourage Mr. Young to join the Company.

No Other Fiscal Year 2021 Compensation

During fiscal year 2021, no other compensation was awarded to our Named Executives.

 


 

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AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

 

Section 5 – Fiscal Year 2021 Compensation Decisions

Our Named Executives were awarded the following compensation in fiscal year 2021:

Fiscal Year 2021 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 2020. The independent members of our Board did not increase the base salary of $2.5 million for Mr. Nadella, which it continued to believe was reasonable and appropriate given his role, capabilities, and experience. Our Compensation Committee approved base salaries of $1 million for Ms. Hood, $960,000 for Mr. Smith, and 800,000 for Mr. Courtois based on a competitive market review of their roles and contributions over the past several years. In connection with his employment as our Executive Vice President, Business Development, Strategy, and Ventures, the Compensation Committee set Mr. Young’s initial base salary at $850,000.

Fiscal Year 2021 Cash Incentive Awards

We did not increase our target cash incentive opportunities in fiscal year 2021, which are defined as a percentage of base salary. For fiscal year 2021, these opportunities were: Mr. Nadella – 300%; Ms. Hood – 250%; Mr. Courtois – 225%; and Mr. Smith – 250%. In connection with his employment as our Executive Vice President, Business Development, Strategy, and Ventures, the Compensation Committee set Mr. Young’s target percentage for a cash incentive in fiscal year 2021 of 200% of his base salary.

In fiscal year 2021, in connection with the disruptions of COVID-19, we made a one-time decision to use semi-annual goals for the financial metrics used in our cash incentive program. This change was consistent with the goal-setting process used for our broad-based sales incentive programs.

Our Compensation Committee and, for Mr. Nadella, the independent members of our Board, determined the fiscal year 2021 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      Courtois      Smith      Young  

Financial results (50%) (70% for the CEO)

     200.00%        200.00%        200.00%        200.00%        200.00%  

Operational results (50%) (30% for the CEO)

     165.00%        165.00%        150.00%        165.00%        130.00%  

Total FY21 cash incentive (% of target)

     189.50%        182.50%        175.00%        182.50%        165.00%  

Total FY21 cash incentive ($)

     $14,212,500        $4,543,490        $3,670,4061        $4,303,958        $1,788,188  

 

(1)

Amounts paid in Euros have been converted to U.S. dollars using the average daily exchange rates from July 1, 2020 to June 30, 2021 of 1 to $1.19.

Financial Results

We achieved greater than target performance on the fiscal year 2021 financial performance measures shown below, resulting in a weighted payout of 200%.

 

Financial Results

($ in billions)

  

FY20

Actual1

     FY21
Threshold
    

FY21

Target

     FY21
Maximum
    

FY21

Actual

    

FY21

Growth

Rate

 

FY21 H1 Incentive Plan Revenue

     $65.49        $65.19        $68.55        $71.57        $74.12        13.18%  

FY21 H2 Incentive Plan Revenue

     $83.15        $85.32        $90.67        $95.57        $96.42        15.96%  

FY21 H1 Incentive Plan Operating Income

     $26.25        $25.34        $27.39        $30.68        $32.81        24.99%  

FY21 H2 Incentive Plan Operating Income

     $26.13        $27.45        $30.00        $33.90        $34.34        31.42%  

 

(1)

FY20 actual results are presented in FY21 constant dollar exchange rates, which removes the impact of currency fluctuations from period-over-period comparisons.

“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 calculate Incentive Plan Operating Income by adjusting GAAP Operating Income for 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

 


 

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AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

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. 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.

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.

 

   

    Weighted Performance Categories - Satya Nadella     

 

   
     
   

1 Product & Strategy (10.0% weight)

       

     LOGO  145%    

 

    
   
 

 

 

As digital transformation accelerated across all industries in fiscal year 2021, Mr. Nadella led Microsoft to strong growth across our business segments. Full year revenue growth for fiscal year 2021 remained strong (18% year-over-year) despite the significant challenges our business teams have faced during the COVID-19 pandemic. Under Mr. Nadella’s leadership, during fiscal year 2021 Microsoft deepened the differentiation in its commercial business and consumer business portfolios, including significant growth in Office 365 Commercial revenue (22% year-over-year) and Teams monthly active users growth to nearly 250 million. Additionally, we experienced strong engagement and revenue in our Gaming business, and all-time high LinkedIn user engagement with annual revenues exceeding $10 billion. Mr. Nadella delivered on our desire to swiftly bring to market new offerings, including Azure Synapse, Microsoft Viva, additional collaboration features in Teams, and identity, security, compliance, and device management features that helped our security business surpass $10 billion in annual revenue. In addition, Mr. Nadella strengthened and deepened Microsoft’s capabilities across critical offerings including AI, industry-specific solutions, and gaming through strategic acquisitions. Furthermore, he positioned the Company for future growth as customer commitments grew meaningfully in the Azure, Microsoft 365, and Game Pass product areas and development work was completed to launch Windows 11 in fiscal year 2022.

    

 

   
   

2 Customers & Stakeholders (10.0% weight)

             LOGO  170%     

 

    
   
 

 

 

Mr. Nadella led Microsoft in facing the many challenges arising during fiscal year 2021, advancing our mission to provide services and solutions to all people and organizations around the globe, and navigating the Company through the COVID-19 pandemic. Under Mr. Nadella’s leadership, Microsoft continued making progress on issues that matter to customers and governments throughout the world, establishing groundbreaking partnerships across the healthcare, financial services, manufacturing, and public sectors.

 

Microsoft has further positioned itself as a leader in cybersecurity, with nearly 600,000 organizations using our security offerings across Azure and Microsoft 365. Under Mr. Nadella’s leadership, Microsoft has continued to advance global cybersecurity policy through its work with governments, the UN, the Paris Peace Forum, the Cybersecurity Tech Accord, and the Company’s Defending Democracy Program. Mr. Nadella also initiated our aggressive ten-year carbon reduction commitment and implemented a variety of internal programs to drive achievement of that commitment, including the largest carbon removal purchase in business history.

 

Under Mr. Nadella’s leadership, Microsoft continued to meaningfully impact the lives of users across geographies, expanding efforts to ensure an inclusive economic recovery. In rural and urban settings, Microsoft tools and initiatives have enabled learning and training, including addressing the disability divide in accessibility through investments in technology, workforce, and workplace, and providing access to broadband service

    

 

          

 


 

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AUDIT
COMMITTEE        
MATTERS

  4  

 

PROPOSALS TO
BE VOTED ON DURING        
THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

         
   

3Culture & Organizational Leadership (10.0% weight)

           

     LOGO  180%    

 

    
   
 

 

 

Mr. Nadella furthered the Company’s cultural growth and engagement during fiscal year 2021. The living culture and talent of the Company is a core priority for the Board and Mr. Nadella, and his efforts in this area have been exceptional. Under Mr. Nadella’s leadership, Microsoft is well on its way to achieving the company’s commitment to double the representation of Black and African American, and Hispanic and Latinx senior leaders and people mangers by 2025. Additionally, Microsoft achieved a notable increase in representation of women globally in a year of significant employee population growth. Mr. Nadella accelerated the execution of the Company’s talent strategy by hiring a number of critical leaders across multiple functions, with a particular focus on the consumer, to best position Microsoft for near-term and longer-term growth and successful executive succession.

 

Additionally, during fiscal year 2021, Mr. Nadella led Microsoft’s efforts to expand its employee and community-focused health and wellbeing initiatives, including expanded benefits for working parents, development of high-volume vaccine clinics focused on equitable distribution, and the creation of a hybrid workplace.

 

Mr. Nadella has enthusiastically fostered a culture of empowerment. By implementing a manager framework of Model, Coach, Care, at a time when employees were feeling more isolated than ever, Mr. Nadella fostered a culture of employee well-being. Over the course of fiscal year 2021 as we all navigated disrupted work and home environments, employees, through our engagement surveys, provided historically strong ratings for the Company, its values, and its leadership.

    

 

          

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.

 

Named Executive

   Key Results

Amy E. Hood

  

•  Strong financial performance and management with accelerated revenue growth of 18% and operating income growth of 32%, and returned over $39 billion in cash to shareholders in the form of share repurchases and dividends

 

•  Continued investments in large and growing markets, with gaming, security, and now LinkedIn, surpassing $10 billion in annual revenue

 

•  Accelerated Microsoft’s Racial Equity Initiative efforts around engaging our ecosystem by working with suppliers and partners to extend the vision for societal change, and served as a champion for diversity and inclusion to drive increased representation within the organization and enhancing employee sentiment year-over-year

 

•  Drove significant progress toward the Company goal to become carbon negative by 2030, including strong investments with the Climate Investment Fund and enhancements to procurement and real estate practices

 

•  Partnered across the organization to deliver solid impact – reinvigorating Windows as an important revenue driver, accelerating the pivot to “digital first” in light of changing market conditions, solidifying our commercial strategy, and refining our consumer strategy

 

•  Enabled record level of merger and acquisition activity to optimize growth, strategy, technical fit, and value creation in a fiscally responsible, compliant manner

 


 

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PROPOSALS TO
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THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

Named Executive

   Key Results

Jean-Philippe Courtois

  

•  Led Global Sales, Marketing, and Operations (“GSMO”) groups to deliver strong financial performance and contributed to Microsoft’s 18% growth in revenue

 

•  Enhanced Microsoft’s position as not only a technology provider but a strategic partner for global customers across all industries, helping to sustain, reinvent, and improve business models as digital transformation was accelerated

 

•  Built on Microsoft’s strength as the most trusted Cloud and AI enabler to customers, governments, and communities across the globe by collaborating with them to accelerate the opportunities in those industries that are critical to a country’s economic growth

 

•  Drove strong focus on embedding diversity and inclusion conversations and learning moments in the global field culture and across the Company

 

•  Pursued efforts to strengthen net customer satisfaction scores to historically high levels by providing deep industry expertise and enhancing the competitive positioning of Microsoft’s services

 

•  Expanded both breadth and depth of developer engagement through third-party events and meetups, Microsoft Build, and the rollout of the Cloud Skills Challenge to connect with global developers in MS Learn

 

•  Championed efforts to elevate the role of the manager, especially through the remote pandemic environment, setting the stage to serve as executive sponsor of The Forum for Partners and Manager Coaching to promote our leadership principles and manager framework

Bradford L. Smith

  

•  Published the first Microsoft Environmental Sustainability Report announcing strong progress towards our commitment to become carbon negative by 2030, on track to our goal with a significant reduction in our emissions during the first year. Completed the largest carbon removal purchase in business history of 1.3 million metric tons and continued to enhance our practices, such as expanding our internal carbon tax and launching a more aggressive renewable energy strategy for our data centers

 

•  Launched a 5-year commitment to build on our existing initiatives and bridge the “Disability Divide” by opening doors for people with disabilities through investment in technology, workforce and workplace

 

•  Led the Strengthening our Communities pillar of Microsoft’s Racial Equity Initiative across four prongs of justice reform, urban broadband, skills and education, and support for nonprofits

 

•  Brought clear focus on the criticality of security, including effective public outreach to governments and testimony before multiple congressional committees. Took additional action to disrupt nation-state and criminal activity, advance international norms, and create an internal geo-political intelligence capability

 

• Surpassed Global Skills Initiative goal to bring digital skills to 25 million people worldwide and doubled down on efforts to support a more inclusive skills-based labor market, including extended free content and certification offerings to the end of 2021

 

•  Pursued enhancements to the Responsible AI Standard and advanced work to integrate further within engineering groups, while continuing to advance Microsoft’s external reputation as an ethical leader in the responsible AI space, including through additional controls on the use of facial recognition

 

•  Introduced a comprehensive annual regulatory review to further strengthen compliance with global regulation in six fields – privacy, cybersecurity, national security, lawful access, digital safety, and responsible AI

Christopher D. Young

  

•  Successfully committed to mid-year onboarding, and quickly established himself as a strong business leader demonstrating impact across the organization

 

•  Leveraged expertise in security products, the external market, and knowledge of customer problem set to further refine our strategy

 

•  Expanded existing global partnerships while uncovering and unblocking new growth opportunities

 

•  Implemented further rigor into the evaluation and execution of strategic partnership opportunities, including alliances, venture investments, and joint ventures aligned with our corporate strategy

 

•  Led as a champion for inclusion, increased diversity representation within the organization, and served as active ally to employee resource groups

 


 

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COMMITTEE        
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  4  

 

PROPOSALS TO
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THE MEETING

  5  

 

INFORMATION            
ABOUT THE
MEETING

 

 

     

 

Fiscal Year 2021 Stock Awards

The fiscal year 2021 PSAs and SAs granted to our Named Executives under the Incentive Plan are listed below.

 

Named Executive

  

PSAs

(Target Number

of Shares)¹

    

SAs

(Number

of Shares)²

    

Aggregate

Target

Award Value³

($)

 

Satya Nadella

     77,595        33,255        25,000,000  

Amy E. Hood

     32,147        32,147        14,500,000  

Jean-Philippe Courtois

     22,170        22,170        10,000,000  

Bradford L. Smith

     27,935        27,935        12,600,000  

Christopher D. Young

     17,318        17,318        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, 2021 (September 14, 2021 for Mr. Courtois) and 12.5% each six months thereafter until fully vested. Vesting is subject to continued employment except as described on pages 52-53 below.

 

(3)

Awarded value (in dollars) was converted to shares using the closing share price on August 31, 2020 (November 11, 2020 for Mr. Young), rounded up to a whole number.

The amounts listed in the table above for fiscal year 2021 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 55.

Fiscal Year 2019 PSAs (Completed Performance Period)

Our Compensation Committee (and for Mr. Nadella, the independent members of our Board) granted PSAs in fiscal year 2019 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, 2021.

The actual performance under the fiscal year 2019 PSAs reflected the strong business achievement on core metrics and Microsoft’s relative TSR during this period. Performance on the core metrics under these PSAs is shown in the following table:

As a result of COVID-19 disruptions to markets, during fiscal year 2021 we made a one-time decision to use semi-annual goals for the financial metrics used in our cash incentive and performance stock award portions of our Executive Incentive Plan. The goals were weighted equally between the first half of the fiscal year (H1) and the second half (H2). This change was consistent with the goal-setting process used for our broad-based sales incentive programs.

 


 

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AUDIT
COMMITTEE        
MATTERS

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PROPOSALS TO
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INFORMATION            
ABOUT THE
MEETING

 

 

     

 

   

    Fiscal Year 2019 PSA Core Metric Payout Percentages    

 

   
     
  

 

 

Metric

(FY19)

  Weight  

FY19

        Payout

(%)

   

 

<