YEAR IN REVIEW 2009 — DECEMBER
the recommendations of the Walker
Report, which concluded the need for
more disclosure by bank boards of executive pay and their need to be more
involved in monitoring banks’ risk taking and compensation setting.
The buzz heats up in the corporate and
investment communities as to how to
handle the coming end of broker vot-
ing — the practice of brokerage firms
casting votes without guidance from
shareholders for elections of corporate
directors. “Mundane elections of company board members are about to get
a lot more interesting” in 2010, writes
the NYP.
Committee Members identified by the
Wachtell Lipton law firm in a client advisory, with the firm noting, “Compensation committees will need to determine
the appropriate level of consideration to
be given to RiskMetrics Group’s position
on pay practices.”
“Assessing RiskMetrics” is one of the
year-ahead Key Issues for Compensation
Don’t be piggish: Harvard Law School’s
exec comp guru Lucian Bebchuk looks
Why Microsoft adopted ‘say on pay’
an annual say on pay vote. Microsoft will of course comply with any
requirements that emerge either through federal legislation or regulaAt Microsoft’s annual shareholder meeting in November 2009 more tory changes adopted by the Securities and Exchange Commission.
than 3 million stockholders had the opportunity to cast an advisory
We will continue to look at additional ways to engage with our
vote on compensation programs for senior Microsoft executives. shareholders on executive compensation. Just as Microsoft believes
This was the first time that Microsoft shareholders could weigh in on in constant innovation in our products and services, we believe there
the compensation of the company’s top leaders — a practice known is considerable room for innovation in shareholder dialogue.
informally as shareholder say on pay.
More broadly, we will keep pursuing opportunities to demonstrate
Our say on pay policy was shaped in an environment of economic commitment to strong corporate governance principles. As economic
crisis and low public confidence in the business community. We saw it uncertainty continues and public confidence in business leadership
as an opportunity to express our longstandremains low, scrutiny from elected officials
ing commitment to strong corporate goverand regulators will only intensify. If boards of
nance principles and progressive practices,
directors want to protect the flexibility they
and to take our own step toward helping
need to serve their shareholders, they will
restore public confidence in business. We
need to take steps to assert their leadership
recognized at the time that policymakers
for stronger governance.
in Washington, D.C., were focusing as well
With more than 12,000 public companies
on strengthening corporate governance
in the U.S., each with its own growth trajecpolicies via federal legislation, but we also
tory, competitive position, and set of stratfelt it was important to take the initiative
egies and assets, we continue to believe
ourselves.
boards need flexibility to adopt governance
For Microsoft, our say on pay policy
policies that suit their companies’ particular
grew out of extensive study and dialogue
circumstances.
with corporate governance advocates,
Ultimately, it will be up to Congress, the
other companies, our largest shareholdPresident, and federal regulators to deterers, and shareholder proponents of say on
mine how much flexibility the business
pay, including the United Brotherhood of
community will retain. Only time will tell.
Carpenters, Walden Asset Management,
But there is still opportunity for the business
and Calvert Investments. It was part of an
community to develop a stronger voice in
ongoing comprehensive approach to execuWashington if it takes proactive and respontive compensation. We have also increased
sible steps now to address reasonable
obligations for executives to own company Microsoft’s Brad Smith: The company’s belief
governance needs.
stock, added stronger policies to claw back in constant innovation in its products and
executive compensation in circumstances services includes ‘considerable room for
Brad Smith is Microsoft’s general counthat involve restated financial or nonfinan- innovation in shareholder dialogue.’
sel and senior vice president, Legal and
cial metrics (even if no improper conduct
Corporate Affairs. He leads the company’s
is involved), and ensured the independence of the consultant to the Department of Legal and Corporate Affairs, which has just over 1,000
board’s compensation committee.
employees and is responsible for the company’s legal work, its intelWhile our discussions on say on pay led us to the conclusion that lectual property portfolio, and its government affairs and philanthropic
a three-year cycle is optimal for say on pay votes at Microsoft, we work. He also serves as Microsoft’s corporate secretary and its chief
acknowledge that there are important constituencies who support compliance officer.
BY BRAD SMITH
ANNUAL REPORT 2010 49