CalPERS Opposes Microsoft Stock Plan

November 4, 2003 ( - A Microsoft plan to pay workers with stock shares instead of options has drawn opposition from a powerful public pension fund.

The California Public Employees’ Retirement System (CalPERS), said that while it “applauds” Microsoft’s move, CalPERS voted its shares against the plan because it wanted the company to disclose more information about the proposal, according to a Seattle Times report. CalPERS said it specifically wants to know what percentage of the stock grants will carry performance criteria and asserted that those criteria aren’t strong enough.

Microsoft decided in July to stop issuing stock options and replace them with grants. It has asked shareholders to approve the changes by letting shares designated for options be used for grants (See  Microsoft Wants to Give Workers a Real Stock “Option” ). It will also let employees sell unprofitable options and hasn’t sought investor approval for that plan, a sticking point for some investors (See  Microsoft Unveils Under-water Option Plan Details ).

The fund, which owns 55.7 million Microsoft shares, also objected because of the lack of an investor vote. Microsoft spokesman Mark Murray defended the performance criteria of the compensation plan, which he said will “provide very strong accountability and value to shareholders.”

An Activist History

CalPERS has a history of using its proxy votes to influence companies on accountability and governance issues, such as excessive pay for executives (See  A Call to Action ).

Now it’s turning its attention to Microsoft, which is asking shareholders to approve changes to its compensation plan and to elect board members. Voting results are expected to be announced November 11 at the company’s annual shareholder meeting.

In addition to the stock shares issue, CalPERS withheld votes for directors on Microsoft’s three-member audit committee because the company authorized its auditor, Deloitte, to perform other services, CalPERS spokesman Brad Pacheco said.

Microsoft’s board earlier this year adopted policies “discouraging” the use of Deloitte for activities other than auditing, although it’s still allowed, Murray said. “The vast majority of what we paid them was for their auditing of our financial statements,” Murray said.  

The group also opposed audit-committee member Jon Shirley because he used to be Microsoft’s president. The Ohio Public Employees Retirement System, which holds 21.7 million shares, also withheld votes on Shirley and voted against the new pay plan.


Also, Institutional Shareholder Services (ISS) has recommended to its 700 clients that they withhold votes on Shirley and vote yes on the new compensation plan, Senior Vice President Patrick McGurn said. The group, which advises money managers on corporate governance practices, is concerned that Microsoft hasn’t given holders a chance to vote on the plan to let employees sell their options.

The group advised Microsoft that while it recommended voting for the overall compensation plan, if the company doesn’t give holders a chance to vote on the options sale proposal, ISS will consider recommending that next year holders withhold votes for the entire Microsoft board.