More Microsoft Millionaires

Remember the Microsoft millionaires?  I do.  Well, I remember reading about them.  I never actually met any.

Anyway, the Microsoft millionaires were Microsoft employees in the 80s and 90s who became millionaires.  They accomplished this feat not through salary and bonuses (how east coast) but by getting paid in Microsoft stock.  The stock appreciated throughout this time period as Microsoft persuaded the business world to migrate from mainframes to networked PCs.  And the appreciation was big enough to make more than a few millionaires out of Microsoft staffers.

One might think that it would have been difficult to become a Microsoft millionaire over the past decade, because ten years ago, at the top of the tech bubble, Microsoft's split-adjusted price was almost twice as high as its 29.98 close on December 4, 2009.

Difficult, but not impossible, especially if you're a Microsoft officer.  Case in point: Robert Muglia, Senior VP, acquired over 900,000 shares over a two-day period (November 18 and 19, 2009) for 25 and change, and sold all of them almost simultaneously for about 30, its then-market price.  Five bucks a share profit is a respectable, but not spectacular trade, but when you're trading 900,000 shares, that adds up to approximately $4.5 million (the exact figure is $4,483,030, according to my calculation based on the Form 4 filed with the SEC on Nov. 18).  Craig Mundie, Chief Research Strategy Officer, also made over seven figures on November 17 by buying, and then selling the same day, 367,000 shares at prices comparable to Mr. Muglia's.

How did this happen?  Stock options, of course.  Messrs. Muglia and Mundie exercised stock options granted as part of their compensation package to acquire the shares.  The Form 4s don't tell us when the options were granted, but the way these things usually work is the strike price of the option is the closing price on the day of the grant.

When execs exercise their options and sell their newly-acquired shares the same day, it shows that options are not so much a way of aligning management's interests with shareholders as pure compensation.

And another thing: The Form 4s filed by M & M indicate that their options became exercisable the same day – February 20, 2006 – so both guys held on to them for three and a half years.  Then both of them exercised the options, sold the shares, and made seven figures each at exactly the same time.  Not exactly a vote of confidence in the share price.

Got Microsoft in your portfolio?