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Monday, 08 November 2010 15:11

Ballmer sells chunk of Microsoft shares


Steve Ballmer has revealed that he is selling a substantial portion of his personal shareholding in Microsoft, but says he's still "fully committed to Microsoft".

Microsoft CEO Steve Ballmer has stated that by the end of the year he will sell up to 75 million of his 408 million Microsoft shares (as at Microsoft's most recent proxy report).

In a statement issued by Microsoft, Ballmer said "Even though this is a personal financial matter, I want to be clear about this to avoid any confusion.

"I am excited about our new products and the potential for our technology to change people's lives, and I remain fully committed to Microsoft and its success."

The reasons given for the sale were "financial diversification and to assist in tax planning before the end of the calendar year."

Nobody likes paying more tax than they need to, and the well-to-do seem particularly sensitive on the matter. As the late Kerry Packer famously put it in 1991, "Of course I am minimising my tax, and anyone in this country that doesn't minimise their tax needs their heads read."

But while many of us would probably benefit from greater financial diversification, can senior executives of listed companies sell down their stakes in the companies they run without attracting criticism or suspicion?


The statement from Microsoft notes that this will be Ballmer's first stock sale for seven years, prompting the question 'why now?' If he had been in the habit of rebalancing his portfolio at the end of every calendar year, a 2010 tranche would have been unremarkable.

It's easy to see why investors and analysts might view with suspicion a 'one off' sale in a year that's seen some commentators suggest Microsoft is still too dependent on Windows and Office for its revenue and profit.

So it's understandable that Ballmer would emphasise his commitment to the company and his excitement about its products and technology, but his fellow shareholders might have been even more convinced if he had been able to say something along the lines of "I believe I'm leaving $X on the table by selling right now, but I need the cash to pay my tax bill." The applicable laws and regulations can make it difficult for senior executives to be so candid. It's not unusual for press releases on financial matters from US companies to be shorter than the disclaimers that are appended to them.

Microsoft's shares dropped by 1.07% to $US26.85 on Friday, the day Microsoft issued the statement and disclosed to the US Securities and Exchange Commission the news that Ballmer had sold over 49 million shares. He is still the second largest shareholder in the company.

We understand that only permanent employees at Microsoft receive shares in the company as part of their package (either as a direct component of their remuneration or as part of a discounted employee share ownership scheme, and that Microsoft has a practice of taking on temporary employees, dropping them at the end of the initial contract, and then rehiring them several months later. Such people miss out on certain benefits, but put up with the practice for various reasons including the hope that they will one day be offered permanent positions.

This 're-hire' practice appears to be the result of a 1996 class action brought against Microsoft by then current and former employees who claimed they were misclassified as temporary workers and thus denied access to the stock purchase plan. That case, which followed an Internal Revenue Service reclassification of a number of freelance workers as employees, was settled by Microsoft.


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Stephen Withers

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Stephen Withers is one of Australia¹s most experienced IT journalists, having begun his career in the days of 8-bit 'microcomputers'. He covers the gamut from gadgets to enterprise systems. In previous lives he has been an academic, a systems programmer, an IT support manager, and an online services manager. Stephen holds an honours degree in Management Sciences and a PhD in Industrial and Business Studies.



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