Microsoft CEO Satya Nadella made a whopping $42.9 million this year - here's how his compensation breaks down and how it compares to other CEOs like Elon Musk, whose pay package could be worth billions even though he took nothing home last year

Andy Kiersz

Dec 6, 2019, 22:44 IST

Microsoft CEO Satya Nadella made a whopping $42.9 million this year - here's how his compensation breaks down and how it compares to other CEOs like Elon Musk, whose pay package could be worth billions even though he took nothing home last year

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Nadella's compensation was a mix of base salary, cash incentives, and stock awards.

Microsoft CEO Satya Nadella's nearly $43 million pay package in 2019 made headlines after a Microsoft investor asked the board about the payout during the company's annual shareholder meeting on Wednesday.
Nadella's pay is closely tied to Microsoft's business and stock performance, and a strong year meant a big payout for the CEO.
Although Nadella made more than most big-company CEOs, the mix of salary, cash bonuses, and stock awards in his compensation package is similarly structured to those of other top executives.
Nadella's pay structure contrasts with a more unorthodox model like that of Elon Musk, whose compensation plan consists of a potentially massive payout contingent on Tesla achieving some very ambitious business and stock market goals that could either be worth billions or nothing in the long run.
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Microsoft CEO Satya Nadella's nearly $43 million pay package in 2019 made headlines after a Microsoft investor asked the board about the payout during the company's annual shareholder meeting on Wednesday.

Microsoft Chairman John Thompson responded by noting that the company's stock price has performed extremely well since Nadella became CEO in 2014.

"The notion we are going to have a cultural expansion or change in this company would not have happen if it were not for Satya, quite frankly," Thompson was quoted in Business Insider . "Strong execution of his vision around an intelligent cloud has clearly been the driver of growth for this company."

Nadella's $42.9 million pay package in 2019 represents a big jump up from the previous year, about 66% higher than his $25.8 million compensation in 2018.

Nadella's pay package, while very large relative to the CEOs of most other big companies, is structurally similar to those of many of his peers. His pay was a mix of a base salary, stock grants, and various performance based incentives.

Here's a breakdown of Nadella's 2019 payment, according to Microsoft's 2019 proxy statement as filed with the SEC:

A base salary of $2,333,333. The proxy statement notes that Nadella's base salary rate of $2.5 million for fiscal year 2019 was a raise of $1 million over the previous year.
Cash incentive bonus pay of $10,796,868. Top executives at the company, including Nadella, are paid cash bonuses based on quantitative revenue and operating income results and qualitative performance targets. The company outperformed the revenue and operating income targets, and the proxy statement notes that Nadella's qualitative goals of improving products, customer and stakeholder relations, and company culture were all exceeded.
Stock awards of $29,668,651. This is a split between basic stock awards scheduled to vest gradually over four years and performance-based awards. Top executives often receive a large portion of their compensation in company stock, under the theory that CEOs who are large shareholders in the company themselves will be incentivized to improve value for all shareholders. The performance-based awards are determined by the company's performance on several business metrics and on how Microsoft's stock fares compared to the S&P 500 as a whole. Since the performance-based awards will only fully vest if the company hits those goals, their reported value is an estimate based on simulating company performance over the next several years.
Other compensation of $111,363. According to the proxy statement, this includes $9,500 in retirement plan matching contributions, $1,863 in athletic club membership benefits, and $100,000 in matching charitable contributions.

The proxy statement repeatedly said that Nadella's high performance-based pay was the result of the company's success over the last several years. The statement points out that Microsoft's market capitalization grew from about $300 billion when Nadella became CEO to over $850 billion in September 2018, and several core business areas, like cloud computing, have grown dramatically under his tenure.

Many CEOs receive similarly structured, if smaller, pay packages, mixing some combination of salary, cash bonuses, and stock grants. For example, Exxon Mobil CEO Darren Woods's 2018 compensation of $18.8 million was a mix of a $1.4 million salary, $2.5 million bonus, $11.6 million in stock awards, and $3.3 million in pension and other compensation.

A notable exception in the last couple years is Elon Musk's 2018 compensation agreement with Tesla.

Under that plan, Musk's compensation is almost entirely in the form of extremely large performance-based stock awards tied to very ambitious revenue and stock performance goals.

The first set of goals involves the company achieving a $100 billion market capitalization and either revenue of $20 billion or earnings of $1.5 billion, at which point stock options for Musk to purchase an additional 1% of Tesla's stock beyond his current holdings in the company would vest.

While the company's recent financial reports show that the first set of revenue and earnings goals have been met, Tesla's current market cap of about $60 billion remains well below the target, and so Musk has not yet received anything from the ambitious compensation plan.

Per the SEC's rules for reporting CEO compensation, Tesla reported in a proxy statement earlier this year that Musk was awarded nearly $2.3 billion in stock options in 2018 under the terms of the compensation agreement - over 50 times Nadella's total reported 2019 compensation. But in reality, because Tesla's financial and stock performance goals have not yet been attained, Musk took home nothing last year, despite that apparently large award on paper.