Microsoft (MSFT) DEF 14ADefinitive proxy

Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. We urge you to promptly vote and submit your proxy via the Internet, by phone, or by signing, dating, and returning the enclosed proxy card in the envelope provided for your convenience. If you attend the Annual Meeting, you can vote in person even if you previously submitted your proxy.

This year’s shareholder question and answer session will include both live questions and questions submitted in advance. You may submit a question in advance of the meeting atwww.proxyvote.com after logging in with the control number found next to the label “Control Number” for postal mail recipients or next to the field labeled “Control Number” within the body of your email. We will respond to you by email if your online question isn’t answered during the meeting.

For those who can’t attend in person, we again are offering a virtual shareholder meeting in which you can view the meeting, submit questions, and vote online atmicrosoft.onlineshareholdermeeting.com. We will also provide a live webcast of the Annual Meeting from the Microsoft Investor Relations website atwww.microsoft.com/investor. A transcript with video and audio of the entire Annual Meeting will be available on the Investor Relations website after the meeting. We hope this will allow those who cannot attend the meeting in person to hear Microsoft executives discuss the past year’s results and our future opportunities. In addition, we make available at our Investor Relations website a variety of information for investors. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find pertinent information about us.

On behalf of the Board of Directors, thank you for your continued investment in Microsoft. We look forward to greeting as many of you as possible.

Sincerely,

Notice of 2018 Annual Shareholders Meeting

By order of the Board of Directors

Carolyn Frantz

Secretary

Redmond, Washington

October 16, 2018

The use of cameras at the Annual Meeting is prohibited and they will not be allowed into the meeting or any other adjacent areas, except by credentialed media. We realize that many mobile phones havebuilt-in cameras; while these phones may be brought into the venue, the camera function may not be used at any time.

2018 PROXY STATEMENT  i

Proxy Statement table of contents

ii

2018 PROXY STATEMENT  iii

 

Vote in advance of the meeting						Vote your shares atwww.proxyvote.com. Have your Notice of Internet Availability or proxy card in hand for the16-digit control number needed to vote.
						Call toll-free number 1-800-690-6903
						Sign, date, and return the enclosed proxy card or voting instruction form.

 

Vote in person at the meeting						See Part 6 – “Information about the meeting”for details on admission requirements to attend the Annual Meeting.

 

2018 PROXY STATEMENT  1

 

Executive compensation advisory vote

Our Board of Directors recommends that shareholders vote to approve, on an advisory basis, the compensation paid to the Company’s named executive officers (“Named Executives”) as described in this Proxy Statement (the“say-on-pay” vote), for the following reasons.

 

 

Pay for performance
		We have executed on our pay for performance philosophy.   •  56% of the target compensation opportunity for our Named Executives was performance-based (on average).   •  50% of the annual cash incentive is determined based onpre-established financial targets, and the other 50% is determined qualitatively based on performance in three weighted performance categories.   •  The metrics for our performance stock awards align with our three reporting segments and customer base and are annually reviewed to ensure they reflect key business developments that drive long-term growth.				•  Our performance stock awards include a relative total shareholder return multiplier to reward significant positive outperformance and align executives’ and shareholders’ long-term interests.   •  At least 70% of target compensation for our Named Executives was equity-based, providing direct alignment with returns to shareholders and incentives to drive long-term business success.   •  For fiscal year 2018, the annual cash incentive awards for our Named Executives ranged from 157.50% to 178.34% of target, consistent with our strong business performance and returns to shareholders, and their effective leadership.
		For more detail, see Part 3 – “Named executive officer compensation”

 

 

Sound program design
		We design our executive officer compensation programs to attract, motivate, and retain the key executives who drive our success and industry leadership while considering individual and Company performance and alignment with thelong-term interests of our shareholders. We achieve our objectives through compensation that:     Provides a competitive total pay opportunity,     Consists primarily of stock-based compensation,     Delivers a majority of pay based on performance,     Enhances retention through multi-year vesting of stock awards, and     Does not encourage unnecessary and excessive risk taking.

 

Best practices in executive compensation
		Our leading practices include:     A strong clawback policy,     An executive stock ownership policy,     A policy prohibiting pledging and hedging ownership of Microsoft stock,     No excessive perquisites (no executive-only club memberships, medical benefits, or taxgross-ups),     No employment contracts or change in control benefits, and     No executive-only retirement programs.

 

2018 PROXY STATEMENT  3

Strong long-term performance

Our total shareholder return and total cash returned to shareholders for the past three years have continued to be strong.

 

Total shareholder return* through June 30, 2018 Total cash returned to shareholders

 

*	Total shareholder return includes reinvestment of dividends.

 

 

Governance and corporate responsibility

 

Governance

Microsoft’s mission to empower every person and every organization on the planet to achieve more is ambitious, and we cannot fulfill it with a narrow, short-term focus. We strongly believe our adoption of leading governance practices fosters our sustained business success over the long term. Strong corporate governance, informed by participation from our shareholders, is essential to achieving our mission.

 

Financial 9 Gender, ethnic, or national 7 diversity Global business 13 Leadership 14 Mergers and 11 acquisitions Sales and 5 marketing Technology 9		Independent Independent Other		Diverse Diverse Other

2018 PROXY STATEMENT  5

2018 PROXY STATEMENT  7

1. Corporate governance at Microsoft

Our Board of Directors believes that effective corporate governance creates the foundation that allows Microsoft to pursue its mission. Corporate governance at Microsoft is designed to promote the long-term interests of our shareholders, maintain internal checks and balances, strengthen management accountability, inspire public trust, and foster responsible decision making and accountability.

Corporate governance

The Board of Directors provides operational and strategic oversight

The Board oversees business affairs and integrity, works with management to determine the Company’s mission and long-term strategy, oversees risk management, performs the annual Chief Executive Officer (“CEO”) evaluation, oversees CEO succession planning, and oversees internal control over financial reporting and external audit. In addition, Board committees focus on the following:

Management drives our strategy and operations

Led by the CEO, the Senior Leadership Team is responsible for achieving our mission, establishing and delivering on our strategy, creating our culture, inspiring and creating innovative products, establishing accountability, and controlling risk. The Senior Leadership Team also aligns our structure, operations, people, policies, and compliance efforts to our mission and strategy. The Senior Leadership Team consists of those leading particular engineering, business, and sales and marketing groups, as well as those leading central functions like finance and legal and compliance. Members of the Senior Leadership Team appear before the Board regularly, with most attending a Board or committee session each quarter, and also interact with the directors outside the boardroom.

In addition, those representing certain core functions also regularly appear before the Board and its committees. Representatives from the Company’s Corporate, External, and Legal Affairs group address public policy, regulatory, government affairs, compliance, legal risk, and other issues. The Company’s Enterprise Risk Management group anticipates, identifies, assesses, and prioritizes risks, and, through regular reporting and discussion, assists our directors with governance of risk. Microsoft’s internal audit function provides objective audit, investigative, and advisory services aimed at providing assurance to senior leadership and the Board that the Company is anticipating, identifying, assessing, and prioritizing risks. Our Tax and Treasury departments report regularly to the Board. Our Corporate Development team, along with others, assists the Board in its governance of strategic acquisitions. Our Board and its committees also work closely with representatives from the Company’s human resources function.

The Company engages with shareholders

The Company maintains an active dialogue with shareholders to ensure that a diversity of perspectives is thoughtfully considered on issues including strategy, business performance, risk, culture and human capital, compensation practices, and corporate social responsibility. Our Offices of Investor Relations and the Corporate Secretary coordinate this engagement, often including a director, and report relevant results to the Board and its committees. Last year, the Office of the Corporate Secretary engaged shareholders representing over 46% of our shares, and our Investor Relations group engaged shareholders representing over 50% of our shares.

8

The Board of Directors

Board structure

We have an independent Chairman of the Board who is appointed annually by the independent members of the Board. The roles of Chairman and CEO have been separate since 2000. Our CEO has primary responsibility for the operational leadership and strategic direction of the Company, while our Independent Chairman facilitates our Board’s independent oversight of management, promotes communication between management and our Board, engages with shareholders, and leads our Board’s consideration of key governance matters. Our Board believes its leadership structure is appropriate because it effectively allocates authority, responsibility, and oversight between management and the independent members of our Board.

2018 PROXY STATEMENT  9

Board composition

Our Board believes that having a diverse mix of directors with complementary qualifications, expertise, and attributes is essential to meeting its oversight responsibility.

10

Board committees

Structure

To support effective corporate governance, the Board delegates certain responsibilities to its committees, who report on their activities to the Board.

In assessing the consultant’s independence, the Compensation Committee considers the nature and amount of work performed for the Committee during the year, the nature of any unrelated services performed for the Company, and the fees paid for those services in relation to the firm’s total revenues. The consultant annually prepares for the Committee an independence letter providing assurances and confirmation of the consultant’s independent status under the standards. The Committee believes that Semler Brossy has been independent during its service for the Committee.

2018 PROXY STATEMENT  11

Responsibilities

12

Membership

2018 PROXY STATEMENT  13

Board oversight

Shareholders elect the Board to oversee management and to serve shareholders’ long-term interests. Management is responsible for achieving our mission, delivering on our strategy, creating our culture, inspiring and creating innovative products, establishing accountability, and controlling risk. The Board and its committees work closely with management to balance and align strategy, risk, corporate social responsibility, and other areas while considering feedback from shareholders. Essential to the Board’s oversight role is a transparent and active dialogue between the Board and its committees, and management. To support that dialogue, the Board and its committees have access to, receive presentations from, and conduct regular meetings with the Senior Leadership Team, other business and function leaders, subject matter experts, the Company’s enterprise risk management and internal audit functions, and external experts and advisors.

The Company’s mission to empower every person and every organization on the planet to achieve more is inherently expansive and long term. It requires Microsoft to offer innovative and transformative technology and to anticipate where technology is heading. It requires Microsoft to invest capital to pursue market opportunities. It requires Microsoft to focus not just on our existing customers, but to extend opportunity more broadly. Through oversight, review, and counsel, our Board works with management to establish and promote business goals, organizational objectives, and a strategy that is mindful of how our business affects and is affected by the broader environment.

Board oversight of strategy

One of the Board’s primary responsibilities is overseeing management’s establishment and execution of the Company’s strategy. As Microsoft continues to transform its business, the Board works with management to respond to a dynamically changing environment. At least quarterly, the CEO, the Senior Leadership Team, and leaders from across Microsoft provide detailed business and strategy updates to the Board. At least annually, the Board conducts an even morein-depth review of the Company’s overall strategy. At all of these reviews, the Board engages with the Senior Leadership Team and other business leaders regarding business objectives, technology updates, the competitive landscape, economic trends, and public policy and regulatory developments. At meetings occurring throughout the year, the Board also assesses mergers and acquisitions, the Company’s budget and capital plan, and performance for alignment to our strategy. The Board looks to the focused expertise of its committees to inform strategic oversight in their areas of focus.

Board oversight of risk

Effective risk management is critical to Microsoft’s ability to achieve its mission. The Board oversees management in exercising its responsibility managing risk, considering our robust framework of policies, procedures, and processes to anticipate, identify, assess, prioritize, and mitigate risks across the Company. On a regular basis, the Board and its committees engage with management on risk as part of broad strategic and operational discussions which encompass interrelated risks, as well as on arisk-by-risk basis. The Board and the Audit Committee also assess whether management has put in place an appropriate framework to manage risks and whether that framework is operating effectively. The Board executes its oversight responsibility directly and through its committees, who regularly report back to the Board. Some examples of risks overseen by committees are:

This approach to risk oversight does not affect the Board’s leadership structure.

14

Spotlight: oversight of human capital management

The Board, the Compensation Committee, and the Regulatory and Public Policy Committee engage with the Senior Leadership Team and human resources executives on a regular basis across a broad range of human capital management issues.Microsoft is focused on creating a respectful, rewarding, diverse, and inclusive work environment that allows our people to build meaningful careers. Key to this environment is cultivating a growth mindset, where our workforce is focused on learning, listening, and growing. The success of these human capital management objectives is essential to the fulfillment of Microsoft’s mission, and the Board works with management to provide oversight on matters including culture, succession planning and development, compensation, benefits, employee recruiting and retention, and diversity and inclusion. Employee feedback is considered in designing talent programs, rewards, benefits, and building the overall employee experience. Additionally, each year, the Compensation and Audit Committees evaluate management’s annual assessment of risk related to our compensation policies and practices. The Compensation Committee also oversees our sales incentive programs through engagement with management’s Sales Incentive Compensation Governance Committee. The Board and the Compensation Committee work with the CEO and our head of Human Resources to review CEO and senior executive succession plans, considering the qualifications and experience of potential leadership candidates.

Spotlight: oversight of cybersecurity risk

The Board, the Audit Committee, and the Regulatory and Public Policy Committee are each involved in oversight of the Company’s management of cybersecurity risk.Cybersecurity protection is vital to maintaining the trust of our customers. Microsoft is committed to building security into its products and cloud services from the ground up. We must also secure our own data and systems from potential breach. Management provides regular updates, including information about cybersecurity governance processes, the status of projects to strengthen internal cybersecurity, security features of the products and services we provide our customers, and the results of security breach simulations. The Board and its committees also discuss recent incidents throughout the industry and the emerging threat landscape, in part identified through Microsoft’s own intelligent security graph. (For more information, seewww.microsoft.com/en-us/security/intelligence-security-api). Microsoft’s commitment to mitigating cybersecurity risk also extends to our global effort to foster the development of laws, international norms, and public/private partnerships addressing cybersecurity risk. The Board and the Regulatory and Public Policy Committee work closely with management to provide oversight for these public policy initiatives and activities.

Spotlight: oversight of strategic acquisitions

The Board provides oversight of Microsoft’s strategic acquisition and integration process, which supports alignment with our strategic objectives, provides accountability across acquisitions, and enables insight for future acquisitions.Our Board includes 11 members with extensive negotiation, acquisition, integration, and other business combination experience. That depth of experience allows the Board to constructively engage with management and effectively evaluate acquisitions for alignment with our strategy, culture, and mission. Microsoft views strategic acquisitions as an important element in delivering long-term shareholder value. While management is charged with identifying potential acquisition targets, executing transactions, and managing integration, our Board’s oversight extends to each phase. Management and the Board regularly discuss potential acquisitions and their role in the Company’s overall business strategy. These discussions include acquisitions in process and potential future acquisitions, focusing on valuation, strategic risk, and potential synergies with Microsoft’s businesses and strategy. When management considers potentially significant acquisitions, the Board receives updates and discusses with management a broad range of matters, including negotiations, due diligence findings, valuation, tax impacts, integration planning, talent retention, communications plans, risk, and regulatory impacts. Throughout the acquisition process, the Board has access to the Senior Leadership Team, appropriate business leaders, subject matter experts, and external advisors. As part of the entire strategic acquisition lifecycle, the Board also receives regular updates and provides feedback on ongoing integration, operational success, and financial performance of our acquisitions, which allows the Board to provide oversight across transactions and over time.

2018 PROXY STATEMENT  15

Shareholder engagement and rights

We actively engage our shareholders. Microsoft believes effective corporate governance includes regular, constructive conversations with our shareholders on topics including operating performance, corporate governance, and environmental and social issues. Shareholders provide valuable insights into emerging issues and feedback on our efforts.

In fiscal year 2018, the Office of the Corporate Secretary engaged shareholders representing over 46% of our shares. Our Independent Chairman of the Board frequently participates in shareholder meetings, and shareholder feedback is provided to relevant committees and the full Board.

In addition to this governance-related outreach, throughout the year, our Investor Relations group extensively engages with our shareholders, frequently along with Mr. Nadella, our CEO, or Ms. Hood, our CFO. In fiscal year 2018, Investor Relations engaged shareholders representing over 50% of our shares.

Spring Microsoft and the Board of Directors update our governance framework, policies, and practices based on shareholder feedback, the Boards self-assessment, governance trends and best practices, and regulatory developments. Summer We speak with our largest shareholders about significant governance changes, environmental and social updates, and other developments at Microsoft. We also solicit input on topics that are important to them. We communicate to the Board feedback received and incorporate those perspectives in what we address in our annual communications to shareholders. Winter We review the results of the annual shareholder meeting. The Board and its committees conduct their annual self-assessment. We continue to communicate with shareholders and follow-up on their input. Fall We publish our annual report, proxy statement, and corporate social responsibility report to shareholders and other stakeholders. We speak again with our largest investors about important topics to be addressed at our annual meeting.

Our director video series provides all stakeholders insight about our Board. We recently released a new installment of our director video series featuring an interview with Teri List-Stoll. The videos provide an informal opportunity for our directors to discuss their own approaches to their roles. The series can be viewed on our website athttps://aka.ms/DirectorVideoSeries.

We regularly communicate publicly about governance and corporate social responsibility topics.We regularly post policy blogs on Microsoft on the Issues, covering topics ranging from the latest in corporate governance and corporate social responsibility to privacy, cybersecurity, online safety, jobs, and education. We broadcast information posted on theMicrosoft on the Issues blog via social media handles, including @MSFTIssues and @MSFTNews. Our Investor Relations website providesin-depth information about our corporate governance and corporate social responsibility initiatives.

16

Key policies ensure Company alignment with shareholder interests   •  Stock ownership requirements – We have stock ownership policies for directors, executive officers, and other senior executives to promote a long-term perspective in managing the enterprise and to help align the interests of our shareholders, executives, and directors.   •  Compensation clawback – We have a strong‘no-fault’ executive compensation recovery policy that applies to executive officers, other senior leaders, and our chief accounting officer.   •  Hedging and pledging prohibited – We prohibit our directors and executive officers from hedging their ownership of Microsoft stock, including by trading in options, puts, calls, or other derivative instruments related to Company stock or debt. Directors and executive officers are prohibited from purchasing Microsoft stock on margin, borrowing against Microsoft stock held in a margin account, or pledging Microsoft stock as collateral for a loan.		Proxy access Holders of at least 3% held by up to 20 shareholders Holding the shares continuously for at least 3 years Can nominate two candidates or 20% of the Board, whichever is greater, for election at an annual shareholders meeting

We have advanced shareholder rights

Continuing excellence

Directors receive orientation and continuing education

Board and committees annually evaluate their effectiveness

Our corporate governance framework

Our governance framework is designed to ensure our Board has the necessary authority and practices in place to review and evaluate our business operations and to make decisions independent of management. Our goal is to align the interests of directors, management, and shareholders, and comply with or exceed the requirements of NASDAQ and applicable law. This framework establishes the practices our Board follows with respect to, among other things, Board composition and member selection, Board meetings and involvement of senior management, director compensation, CEO performance evaluation, management succession planning, and Board committees.

2018 PROXY STATEMENT  17

These documents are available on our website athttps://aka.ms/policiesandguidelines.

How to communicate with our Board

Shareholders may contact the Board about corporate governance or matters related to the Board. Communications about these topics will be received and processed by management before being forwarded to the Board, a committee of the Board, or a director as designated in your message. Communications relating to other topics, including those that are primarily commercial in nature, will not be forwarded.

Concerns about accounting or auditing matters or possible violations of our Standards of Business Conduct should be reported under the procedures outlined in the Microsoft Standards of Business Conduct, which is available on our Microsoft integrity website atwww.microsoft.com/en-us/legal/compliance/integrity.

18

2. Board of Directors

Director selection and qualifications

Shareholders elect all Board members annually   The Governance and Nominating Committee recommends to the Board director candidates for nomination and election at the annual shareholders meeting or for appointment to fill vacancies. The Committee annually reviews with the Board the skills and characteristics required of Board nominees, considering current Board composition and Company circumstances. In making its recommendations to our Board, the Committee considers the qualifications of individual director candidates applying the Board membership criteria described below. The Committee retains any search firm involved in identifying potential candidates and approves their fees.   We consider director candidates’ characteristics, skills, and experience   The Governance and Nominating Committee works with our Board to determine the characteristics, skills, and experience for the Board as a whole and its individual members with the objective of having a board with diverse backgrounds, skills, and experience.		Board membership criteria Independence Integrity Personal & professional ethics Business judgment Ability & willingness to commit sufficient time to the Board

For all directors, we require independence, integrity, personal and professional ethics, business judgment, and ability and willingness to commit sufficient time to the Board. In evaluating the suitability of individual director candidates, our Board considers many factors, including general understanding of global business, sales and marketing, finance, and other disciplines relevant to the success of a large, publicly traded company; understanding of our business and technology; educational and professional background; personal accomplishment; and national, gender, age, and ethnic diversity.

The Board is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected.The Board’s objective is to recommend a group that can best ensure the continuing success of our business and represent shareholder interests through the exercise of sound judgment using its diversity of experience and perspectives.

The Board does not believe that directors should expect to bere-nominated annually. In determining whether to recommend a director forre-election, the Governance and Nominating Committee considers the director’s participation in and contributions to the activities of the Board, the results of the most recent Board evaluation, and past attendance at meetings.

The Governance and Nominating Committee assesses its efforts to maintain an effective and diverse board as part of its regular responsibilities, which include annually:

The Governance and Nominating Committee works with the full Board to regularly evaluate board composition to assess the skills and capabilities that are relevant to the Board’s work and the Company’s strategy, whether directors should be added in view of director departures, and the number of directors needed to fulfill the Board’s responsibilities under the Corporate Governance Guidelines and committee charters.

Shareholders previously elected all current Board members. When we recruit new director candidates, that process typically involves either a search firm or a member of the Committee contacting a prospect to assess interest and availability. A candidate will then meet with members of the Board and Mr. Nadella, and then meet with members of management as appropriate. At the same time, the Committee and the search firm will contact references for the prospect. A background check is completed before a final recommendation is made to the Board to appoint a candidate to the Board.

2018 PROXY STATEMENT  19

Shareholder recommendations and nominations of director candidates

Recommendations

The Governance and Nominating Committee considers shareholder recommendations for candidates for the Board of Directors using the same criteria described above. The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating shareholder’s ownership of Company stock must be sent to the attention of MSC 123/9999, Office of the Corporate Secretary, Microsoft Corporation, One Microsoft Way, Redmond, WA, 98052-6399.

Nominations

Our Bylaws provide for proxy access shareholder nominations of director candidates by eligible shareholders. A shareholder who wishes to formally nominate a candidate must follow the procedures described in Article 1 of our Bylaws. Proxy access candidates will be included in the Company’s proxy statement and ballot.

Director skill matrix

The table below summarizes the key qualifications, skills, and attributes most relevant to the decision to nominate candidates to serve on the Board. A mark indicates a specific area of focus or expertise on which the Board particularly relies. Not having a mark does not mean the director does not possess that qualification or skill. Our director nominees’ biographies describe each director’s background and relevant experience in more detail.

Experience, expertise, or attributes Gates Hoffman Johnston List-Stoll Nadella Noski Panke Peterson Pritzker Scharf Sorenson Stanton Thompson Warrior Financial Gender, ethnic, or national diversity Global business Leadership Mergers and acquisitions Sales and marketing Technology

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Our director nominees

				Age: 62        Director since: 1981        Birthplace: United States

		Experience: Microsoft Corporation (1981-present) •   Technical Advisor to Satya Nadella (CEO) (2014-present) •   Co-founder and Chairman (1981-2014) •   Chief Software Architect (2000-2006) •   Chief Executive Officer (1981-2000)   Microsoft committees: •   None   Other public company directorships: •   Berkshire Hathaway Inc.   Former public company directorships held in the past five years: •   None   Other positions: •   Co-Chair and Trustee, Bill & Melinda Gates Foundation

				Age: 51        Director since: 2017        Birthplace:United States        INDEPENDENT

		Experience: Greylock Partners (2009-present)(venture capital firm) •   Partner (2009-present)   LinkedIn Corporation (2003-2016) •   Co-founder and Chairman (2003-2016) •   Executive Chairman (2009) •   Chief Executive Officer (2003-2007 and 2008-2009) •   President, Products (2007-2008)   PayPal Inc. (2000-2002) •   Executive Vice President (2000-2002)   Microsoft committees: •   None   Other public company directorships: •   None   Former public company directorships held in the past five years: •   LinkedIn Corporation •   Zynga Inc.

2018 PROXY STATEMENT  21

				Age:51        Director since:2014        Birthplace:India

		Experience: Microsoft Corporation (1992-present) •   Chief Executive Officer and Director (2014-present) •   Executive Vice President, Cloud and Enterprise (2013-2014) •   President, Server and Tools (2011-2013) •   Senior Vice President, Online Services Division (2009-2011) •   Senior Vice President, Search, Portal, and Advertising (2008-2009) •   Various positions of increasing authority (1992-2008)   Microsoft committees: •   None   Other public company directorships: •   Starbucks Corporation   Former public company directorships held in the past five years: •   Riverbed Technology, Inc.

				Age: 66        Director since:2003        Birthplace: United States        INDEPENDENT

		Experience: Bank of America Corporation (2010-2012)(banking and financial services company) •   Vice Chairman (2011-2012) •   Executive Vice President and Chief Financial Officer (2010-2011)   Northrop Grumman Corporation (2002-2005) •   Corporate Vice President and Chief Financial Officer (2003-2005) •   Director (2002-2005)   AT&T (1999-2002) •   Vice Chairman of the Board (2002) •   Senior Executive Vice President and Chief Financial Officer (1999-2002)   Hughes Electronics Corporation (1990-1999) •   President, Chief Operating Officer and Director (1997-1999) •   Vice Chairman, Chief Financial Officer and Director (1996-1997)   Microsoft committees: •   Audit (Chair) •   Governance and Nominating   Other public company directorships: •   Booking Holdings Inc. (formerly The Priceline Group Inc.)   Former public company directorships held in the past five years: •   Avery Dennison Corporation •   Avon Products, Inc.   Other positions: •   Chairman of the Board of Trustees, Financial Accounting Foundation •   Past Director, National Association of Corporate Directors •   Past member, Standing Advisory Group of the PCAOB

2018 PROXY STATEMENT  23

				Age: 59       Director since: 2017       Birthplace:United States       INDEPENDENT

		Experience: United States Secretary of Commerce (2013-2017)   PSP Partners, L.L.C. (present)(private investment firm) •  Founder and Chairman (present)   Pritzker Realty Group (present) • Co-founder and Chairman (present)   Artemis Real Estate Partners (2009-2013) • Co-founder and Chairman (2009-2013)   The Parking Spot (1998-2011) •  Co-founder and Chairman (1998-2011)   Vi Senior Living (1987-2011) •  Founder and Chairman (1987-2011)   Microsoft committees: •  Regulatory and Public Policy   Other public company directorships: •  None   Former public company directorships held in the past five years: •  None   Other positions: • Co-founder, Pritzker Traubert Foundation

				Age: 53       Director since: 2014       Birthplace:United States       INDEPENDENT

		Experience: The Bank of New York Mellon Corporation (2017-present)(banking and financial services company) •  Chairman and Chief Executive Officer (2018-present) •  Chief Executive Officer and Director (2017)   Visa Inc. (2012-2016) •  Chief Executive Officer and Director (2012-2016)   JPMorgan Chase & Co. (2004-2012) •  Managing Director, One Equity Partners, private investment arm (2011-2012) •  Chief Executive Officer of Retail Financial Services (2004-2011)   Bank One Corporation (2000-2004) •  Chief Executive Officer of the Retail Division (2002-2004) •  Chief Financial Officer (2000-2002)   Citigroup, Inc. (1999-2000) •  Chief Financial Officer of the Global Corporate and Investment Bank Division (1999-2000)   Microsoft committees: •  Compensation •  Governance and Nominating   Other public company directorships: •  The Bank of New York Mellon Corporation   Former public company directorships held in the past five years:   • Visa Inc.

2018 PROXY STATEMENT  25

		Age: 69       Director since: 2012       Birthplace:United States       INDEPENDENT

		Experience: Microsoft Corporation (2014-present) •  Non-executive Chairman of the Board   Virtual Instruments Corporation(2010-2016)(computing infrastructure performance management solutions provider) •  Chief Executive Officer and Director (2010-2016)   Symantec Corp. (1999-2011) •  Chairman of the Board (1999-2011) •  Chief Executive Officer (1999-2009)   IBM Corporation (1971-1999) •  General Manager, IBM Americas(1996-1999) •  Various positions of increasing authority (1971-1996)   Microsoft committees: •  Governance and Nominating (Chair) •  Regulatory and Public Policy   Other public company directorships: •  Illumina, Inc.   Former public company directorships held in the past five years: •  None   Other positions: •  Partner, Lightspeed Venture Partners

		Age: 57       Director since: 2015       Birthplace:India       INDEPENDENT

		Experience: NIO Inc. (2015-present)(smart, electric, and autonomous automobile manufacturer) • Chief Development Officer (2015-present) • Board member (2015-2018)   NIO USA, Inc. (2015-present) • Chief Executive Officer and Director (2015-present)   Cisco Systems, Inc. (2008-2015) •  Strategic Advisor (2015) •  Chief Technology and Strategy Officer(2012-2015) •  Chief Technology Officer, Senior Vice President, Engineering and General Manager Global Enterprise segment (2010-2012) •  Chief Technology Officer (2008-2010)   Motorola, Inc. (1999-2007) •  Executive Vice President and Chief Technology Officer (1999-2007)   Microsoft committees: •  Compensation   Other public company directorships: •  Spotify Technology S.A.   Former public company directorships held in the past five years: •  Box, Inc.   •  Gap, Inc.

2018 PROXY STATEMENT  27

Director independence

Having an independent board is a core element of our governance philosophy. Our Corporate Governance Guidelines provide that a substantial majority of our directors will be independent. Our Board has adopted director independence guidelines to assist in determining each director’s independence. These guidelines are available on our website athttps://aka.ms/directorindependence. The guidelines either meet or exceed the independence requirements of NASDAQ. The guidelines identify categories of relationships the Board has determined would not affect a director’s independence and therefore are not considered by the Board in determining director independence.

Following the director independence guidelines,each year and before a new director is appointed, the Board must affirmatively determine a director has no relationship that would interfere with the exercise of independent judgment in carrying out his or her responsibilities as a director. Annually, each director completes a detailed questionnaire that provides information about relationships that might affect the determination of independence. Management provides the Governance and Nominating Committee and Board with relevant known facts and circumstances of any relationship bearing on the independence of a director or nominee that is outside the categories permitted under the director independence guidelines. The Committee then completes an assessment of each director considering all known relevant facts and circumstances concerning any relationship bearing on the independence of a director or nominee. This process includes evaluating whether any identified relationship otherwise adversely affects a director’s independence and affirmatively determining that the director has no material relationship with Microsoft, another director, or as a partner, shareholder, or officer of an organization that has a relationship with the Company.

The Governance and Nominating Committee also considers the tenure of a director, and for longer serving directors, whether the duration of service impacts the director’s independence from management, as demonstrated by the director’s relationship with management and the director’s participation in Board and Committee deliberations. The Board seeks to maintain an average tenure of 10 years or less for its independent directors as a group.

Based on the review and recommendation by the Governance and Nominating Committee, the Board analyzed the independence of each director and determined that Mses. List-Stoll, Peterson, Pritzker, and Warrior, Messrs. Hoffman, Johnston, Noski, Scharf, Sorenson, Stanton, and Thompson, and Dr. Panke meet the standards of independence under our Corporate Governance Guidelines, the director independence guidelines, and applicable NASDAQ listing standards, including that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment.

Director attendance

Our Board of Directors holds regularly scheduled quarterly meetings. Committee meetings occur the day before the Board meeting. Once each year, committee and Board meetings occur on a single day so the evening and following day can be devoted to the Board’s annual strategy retreat, which includes presentations and discussions with senior management about Microsoft’s long-term strategy. Besides the quarterly meetings, typically there are two other regularly scheduled meetings and several special meetings each year. At each quarterly Board meeting, time is set aside for the independent directors to meet without management present. Our Board met seven times during fiscal year 2018.

Each director nominee who is a current director attended at least 75% of the aggregate of all fiscal year 2018 meetings of the Board and each committee on which he or she served.

Directors are expected to attend the annual shareholder meeting, if practicable. All directors attended the 2017 Annual Meeting.

Director compensation

The Compensation Committee periodically reviews the regular annual retainer paid tonon-employee directors and makes recommendations for adjustments, as appropriate, to the Board. Our objective is to paynon-employee directors over time at or near the median of the proxy peer group, to award the majority of compensation in equity, and to make meaningful adjustments every few years, rather than smaller adjustments that are more frequent.As a result, we typically make adjustments when we fall below the median, and after such adjustments we exceed the median.There was no change in fiscal year 2017 or 2018. As our CEO, Mr. Nadella does not receive additional pay for serving as a director. Mr. Gates has waived his cash and stock awards.

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The Company reimburses reasonable expenses incurred for Board-related activities. Directors may participate in our corporate matching gift program for charitable donations.

Director retainers are paid quarterly in arrears. Quarterly periods are measured beginning with the annual meeting. At the end of each quarterly period, we pay 25% of the total annual retainer to each director. The number of shares awarded each quarterly period is determined by dividing the dollar value of the stock award by the market price of our common stock as of the last business day of the period. Retainers arepro-rated for directors who join or leave the Board or have a change in Board role during a quarterly period.

Directors may elect to defer and convert to deferred stock awards all or part of their annual cash retainer, and to defer receipt of all or part of their annual stock awards retainer under the Deferred Compensation Plan forNon-Employee Directors. Amounts deferred are maintained in bookkeeping accounts that are deemed invested in Microsoft common stock, and dividends paid on deemed investment are also deemed to be invested in our common stock. We calculate the number of shares credited by dividing the amount deferred by the closing market price of our common stock on the originally scheduled payment date. Accounts in the plan are distributed in shares of Microsoft common stock, with payments either in installments beginning on separation from Board service or in a lump sum paid no later than the fifth anniversary after separation from Board service.

2018 PROXY STATEMENT  29

Fiscal year 2018 director compensation

This table describes the cash and stock award portions of the annual retainer paid to eachnon-employee director who served in fiscal year 2018. Mr. Nadella received no compensation as a director. He is excluded from the table because we fully describe his compensation in Part 3 – “Named executive officer compensation.”