Shareholders will be allowed to vote every three years on the pay of Microsoft executives, starting with the annual meeting on November 19, the world's biggest software company said in a regulatory filing on Friday.
The votes will not be binding, but Microsoft said that, in the result of a significant negative vote, it would consult directly with shareholders to better understand the concerns that influenced the vote.
The U.S. Congress has been discussing legislation on so- called say on pay measures to give shareholders more involvement in executive pay in the wake of scandals over massive bonuses paid to failing firms in the past few years, but so far none has been made law.
Microsoft said it adopted the vote after discussions with shareholders, including Walden Asset Management, Calvert Investments and the United Brotherhood of Carpenters, which had submitted similar proposals for say-on-pay votes.
The U.S. House of Representatives approved a bill to give shareholders annual nonbinding votes on executive pay earlier this summer, but legislation has since stalled.
Wall Street banks have attracted the most scrutiny of their pay packages, but Microsoft said it wanted to be transparent in its governance to foster investor trust.
Given the interest in executive pay, we think it makes sense to encourage more dialogue with our shareholders on our compensation approach, said Brad Smith, Microsoft general counsel, in a statement.
The company is not known for its huge pay packages, although many of its employees and executives have become millionaires through owning Microsoft shares.
Chief Executive Steve Ballmer was paid only $665,833 in salary for fiscal 2009, which ended in June, according to Friday's filing, only slightly up from the previous year's $640,833. His cash incentive payment has yet to be established. Last year it was $700,000.
Ballmer, who owns about 408 million Microsoft shares worth more than $10 billion, has requested no equity compensation from the company.
The 2009 fiscal year was tough for Microsoft, as it was for most U.S. companies. It had its first-ever drop in annual revenue and operating profit fell 9 percent to $20.4 billion. Its shares fell 13.6 percent over the 12-month period.
Because of the uncertain economy, Microsoft said in January that all employees and executives would not receive merit-based salary increases for fiscal year 2010.
The company left its quarterly dividend at 13 cents per share.
(Reporting by Bill Rigby; editing by Richard Chang)