Microsoft is now tying Satya Nadella's pay to LinkedIn's performance

Key Points
  • Microsoft paid $27 billion for LinkedIn in 2016 and is now tying its performance to executive pay.
  • Almost one-third of Nadella's latest annual pay came from performance stock awards.
  • LinkedIn will be one of six areas tracked, alongside metrics like the number of Windows 10 monthly active devices.
Microsoft CEO Satya Nadella speaks at an Economic Club of Chicago dinner in Chicago on Oct. 3, 2018.
Scott Olson | Getty Images News | Getty Images

Two years after Microsoft paid $27 billion for LinkedIn, its most expensive acquisition ever, the company is tying the professional networking site's performance to CEO Satya Nadella's compensation.

Microsoft said in a regulatory filing earlier this week that activity on LinkedIn will be one factor in how much Nadella and four other top company executives, including Chief Financial Officer Amy Hood, get paid. It's the latest evidence that Microsoft considers LinkedIn a highly important asset as the company seeks new growth channels outside of its core software businesses.

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According to the filing, the "number of times logged-in members visit LinkedIn, separated by 30 minutes of inactivity," on desktop and mobile devices will be evaluated over a three-year period to help determine the number of performance stock awards (PSAs) that get doled out to Nadella, Hood and the other executives — Jean-Philippe Courtois and Peggy Johnson, who are both executive vice presidents, and Chief Legal Officer Brad Smith.

Not included in that group are LinkedIn CEO Jeff Weiner or billionaire co-founder Reid Hoffman, who sits on Microsoft's board.

Nadella earned $25.8 million for fiscal year 2018, from a combination of salary, bonus and stock awards. PSAs, one type of equity award, accounted for 32.5 percent of his total pay, and also represented a significant percentage of compensation to the other executives.

While LinkedIn performance is already being tracked, the payout related to LinkedIn sessions won't be made until 2020 and will be based on three-year performance.

Jeff Weiner, chief executive officer of LinkedIn Corp., speaks during a news conference in Bengaluru, India.
Bloomberg | Getty Images

LinkedIn sessions will determine 6 percent of total PSAs. That's still well behind the importance of commercial cloud revenue performance, which accounts for 34 percent, commercial cloud subscribers at 33 percent and two other metrics at 11 percent. But of the six metrics that make up PSAs, LinkedIn activity is the only new addition for 2018.

Tying compensation to particular segments is about "driving new growth areas," according to the filing.

A Microsoft spokesperson told CNBC in an email that company shareholders originally suggested incorporating a LinkedIn metric into compensation for the named executives. The board and senior leadership team discussed the idea, and it was approved by the compensation committee and then the entire board. Hoffman does not sit on the compensation committee.

LinkedIn revenue more than doubled in fiscal 2018 to $5.3 billion — just under 5 percent of Microsoft's total revenue. Earlier this month LinkedIn made its first acquisition as part of Microsoft, paying more than $400 million for Glint. In the most recent quarter LinkedIn had 575 million members, and 41 percent session growth.

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