Posted by John Seethoff        
Vice President and Deputy General Counsel

Earlier this week President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law.  While the legislation is focused primarily on overhauling the U.S. financial regulatory system, the Act contains eight provisions addressing corporate governance and executive compensation that will have a significant impact on public companies.

The Act writes another chapter in the discussion about shareholders voting on executive pay (commonly referred to as “say-on-pay”).  Last year, we considered two shareholder proposals for our 2009 annual meeting requesting an advisory vote on whether to implement “say-on-pay.” Instead we went a step further and held our first say-on-pay vote giving shareholders the opportunity to weigh in on the policies and practices for compensation of the Company’s top leaders.  Brad Smith, Microsoft’s general counsel and senior vice president, Legal and Corporate Affairs details Microsoft's say-on-pay policy in the latest edition of Directors & Boards, one of the industry’s leading voices on governance matters.  In the article, Brad addresses Microsoft's rationale for giving shareholders a voice when it comes to executive compensation and holding the advisory vote on a three-year cycle as the best way for Microsoft to take a long-term approach to its business and be accountable to its shareholders.  We believe it is important that US public companies be allowed to tailor their approach to specific governance topics in a way that best fits the needs of each company and its shareholders.  It is encouraging that Congress took this path by establishing a flexible approach that allows companies to hold say-on-pay votes every one, two or three years based on a vote by each company’s shareholders.

The Act also specifies additional independence requirements for board compensation committee members, establishes standards for compensation consultant independence, gives compensation committees the authority to hire and oversee independent advisors, and requires clawback policies for executive compensation based on inaccurate financial statements.  We believe our current governance framework already meets these requirements.

Strong corporate governance policies and practices can help restore public trust in public companies and solidify the foundation for a broad economic recovery.  With the passage of the bill, now the hard work begins for regulators and public companies who are preparing for these changes, much of which will likely occur in time for the 2011 proxy season.

Our Board of Directors and management welcome thoughtful discussion on these and any other corporate governance issues.  At any time, Microsoft shareholders may communicate directly with the Company's Board of Directors, any committee of the Board, or any individual director by e-mailing us at askboard@microsoft.com.

For additional information about corporate governance at Microsoft, please click here.  I invite you to leave a comment on this blog below.