The software maker hired Kevin Turner to fill that post, in which he will oversee sales, marketing and other aspects of the company's functional units. Product units will continue to report up to CEO Steve Ballmer.
Turner, who is 40, has been serving as CEO of Wal-Mart's Sam's Club warehouse unit. Before that, he was Wal-Mart's chief information officer.
Microsoft disclosed the details of Turner's pay package in a regulatory filing Thursday with the Securities and Exchange Commission. Turner will be an "at will" employee, with a salary of $570,000 per year. He also will receive a $7 million up-front payment and other stock awards to help compensate him for stock-based pay that he forfeits by leaving Wal-Mart.
Microsoft said that its current sales chief, Kevin Johnson, will move to an unspecified new role once Turner joins Microsoft in the first week of September.
"Over the past 13 years, Kevin Johnson has had an immense impact on the success we have realized at Microsoft," Ballmer said in a statement. "As he is one of Microsoft's strongest executives, I look forward to further applying Kevin's leadership in a very exciting capacity to be announced in the near future."
Microsoft said in June that it was : A regulatory filing revealed that he will get a salary of $570,000 and also be eligible for a bonus of up to that same amount. In fiscal 2004, Johnson took home $480,336 in salary and a $435,000 bonus.
The chief operating officer post has not been filled at the Redmond, Wash.-based company since President and COO.
Matt Rosoff, an analyst at Kirkland, Wash.-based Directions on Microsoft, said that adding a clear No. 3 person makes sense.
"I think it's a good and necessary move for Microsoft, as Steve Ballmer had a lot of direct reports, and probably doesn't need to have as tight control over day-to-day operations as he does over day-to-day product development," Rosoff said. However, he noted that "historically, though, the number-three spot at Microsoft has been tough to fill, particularly for an outsider."
A Microsoft representative declined to say how many candidates the company interviewed and whether any insiders were considered for the post.
"Kevin Turner's experience as a proven leader of people in Wal-Mart's incredibly dynamic sales environment, his IT background as CIO of a world-class company and his familiarity with our products and technologies as a Microsoft customer for more than a decade uniquely qualify him to serve as our COO," Ballmer said in an e-mail to Microsoft workers on Thursday.
In addition to the up-front compensation, Microsoft will award Turner 325,000 shares of stock that will vest over a period of many years, beginning in 2008 and running through to retirement. Johnson will have to forfeit the entire $7 million up-front payment if he leaves voluntarily or is terminated for cause before completing 12 months of employment. A portion of the hiring bonus will have to be repaid if he leaves voluntarily within three years or is terminated for cause.
Turner will also be eligible for a bonus of up to the amount of his salary and will participate in the company's stock award program, with a target award of 624,000 shares. The actual size of the award will be determined by Microsoft's achievement of certain goals.
Additionally, Turner will be able to take part in an "executive relocation assistance program," in which the company will arrange for a third party to purchase his current primary residence at its appraised value if it is not sold as of a mutually agreed-upon date.
The executives who will report to Turner include:; Rodrigo Costa, who manages Microsoft's dealings with computer makers; Alain Crozier, chief financial officer in the sales and marketing group; government sales executive Gerri Elliot; Microsoft services and IT head Rick Devenuti; marketing chief Mich Matthews; and North America region boss Bill Veghte.
Turner had worked his way up through the ranks at Wal-Mart, according to his biography on that company's Web site. He joined the retailer in 1985 as a cashier at a store in Ada, Okla., as he worked during college. He joined the company's internal audit department in 1988, and the following year, he moved to its information systems unit, working his way through a succession of jobs: business analyst, director, vice president, assistant CIO and then CIO.