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Gates, Ballmer pay holds at about $900,000

Paychecks stay the same for the top two, but compensation changes for other Microsoft workers as stock grants replace options.

Microsoft CEO Steve Ballmer and Chairman Bill Gates each took home just more than $900,000 in pay last year, a slight increase from last year, according to documents filed Monday with the U.S. Securities and Exchange Commission.

As is the company's policy, neither Gates nor Ballmer received additional stock compensation, which accounts for the bulk of pay for many of the company's workers. Even without additional shares, Gates still holds about 10 percent of Microsoft shares and Ballmer holds just less than 4 percent, according to the filing.

While things stayed largely the same for Gates and Ballmer on the pay front, most other employees saw dramatic changes in the past year, as Microsoft shifted from awarding stock options to giving out actual shares of company stock. The company also announced a program that allowed workers to sell "underwater" stock options to Wall Street firm JPMorgan Chase.

Two top executives--Windows chief Jim Allchin and sales head Kevin Johnson--reaped significant gains from the company's stock option transfer program, with Allchin receiving $1.4 million and Johnson just more than $1 million. Allchin received roughly $900,000 in base and bonus pay over the past fiscal year, while Johnson received about $915,000. Office unit head Jeff Raikes received more than $962,000 in cash and bonuses.

As part of the company's new practice of giving restricted shares to top executives who meet certain customer satisfaction goals, Allchin, Johnson and Raikes also are eligible to receive several hundred thousand shares of restricted stock, the value of which would far exceed their cash salaries. In the past, those executives and others would have received stock options for meeting performance goals.

Allchin and Raikes have a target award of 780,000 shares and could receive a maximum of 1.17 million shares, while Johnson has a target award of 320,000 and could get up to 480,000 shares.

The exact awards will not be determined until June 2006, the end of a two-and-a-half-year performance period. At that time, each executive will receive from zero percent to 150 percent of their targeted award.

Microsoft also announced on Monday that longtime director Wm. G. Reed Jr., has decided not to seek re-election to the company's board. Reed, former chairman of Simpson Investment, cited a desire to spend more time on personal matters. Reed has been on the Microsoft board since October 1987. Microsoft said its directors have approved a reduction in the size of the board from 10 to nine members, upon Reed's retirement.

Microsoft is asking that shareholders, at the company's annual meeting in November, approve two changes to its stock compensation plans, both related to the company's plans for a $3-per-share special dividend. That one-time dividend is part of a plan announced in July to give back up to $75 billion to shareholders through the combination of an increased dividend, a massive stock buyback and the cash payout.

The company is seeking permission to make changes that would adjust the share price and number of stock options given to employees to reflect the impact of the payout and would also boost the number of restricted shares granted to employees to reflect the one-time dividend.

Shareholders will also be asked to approve the company's remaining slate of directors and outside auditor, Deloitte Touche Tohmatsu. The meeting is slated for Nov. 9 in Bellevue, Wash.