In recent years, the Xbox branch has occupied an increasingly important place within Microsoft. And the company intends to make it more visible since it has just significantly increased Xbox's share among the bonuses that its managers will be able to receive during the new fiscal year.
Microsoft changes its executive compensation rules for 2025
Microsoft's financial documents aren't always the most entertaining, but sometimes you can find interesting information. If we have already mentioned Satya Nadella's remuneration significantly increasing for Microsoft's 2024 fiscal year, we also discovered in the same document a major change for Xbox in 2025.
The details that we discuss and that we have gone through can be found in the section dedicated to Microsoft's fiscal year 2025, with changes made to the incentive plan for the fiscal year in question. In other words, changes in the executive compensation program via the objectives that the company sets.
What you need to know at the outset is that Microsoft's top bosses are paid a fixed salary, but above all in shares. For example, the CEO of Microsoft received $79.1 million in 2024, including $71 million in shares, or 90% of his overall compensation. For Amy E. Hood, the financial director, the 25.8 million reached in 2024 is composed of 81% of stocks. This shows that this variable part matters a lot for managers.
This share-based compensation depends on the achievement of objectives within the various business units from Microsoft, all of which represent a weight in overall compensation. And for fiscal year 2025, Microsoft explains that it has modified the metrics to track in order to better align with its “key long-term strategic priorities”.
We are talking here about PSAs (Performance Stock Awards – remuneration in the form of allocation of shares, editor's note), designed, according to Microsoft, to encourage executives to achieve rigorous KPI targets to drive long-term performance and value creation.
The company has therefore made notable changes for the new fiscal year. We note that Microsoft has moved the “Search and News Advertising Revenue” activity into “Consumer Services Revenue Growth” in order to have the revenues of all consumer sectors (except Xbox) grouped within the same entity. The LinkedIn sessions indicator has been removed because part of LinkedIn's revenue is represented both in Microsoft cloud revenue and in consumer services revenue.
Xbox even more in the spotlight, gaming weighs 50% more in the remuneration of Microsoft bosses
What Microsoft does not comment on, but which is nevertheless represented in the table which details the modifications, is that the weight of the “Xbox Content and Services Revenue Growth” branch has increased significantly. Xbox now accounts for 15% of overall stock-based compensation targets, compared to 10% in 2024, an increase of 50%.
All of this is quite technical and financial, but it simply means that the weight of revenue generated by Xbox now counts much more in the remuneration of Microsoft executives. By being more objective about the growth of Xbox, the big bosses of the company are therefore a little more encouraged to do everything in their power to achieve the hoped-for growth of the Xbox branch.
Ultimately, this is very good news for Xbox since it shows that video games must carry more weight within the company, which generally means more resources.
Microsoft's fiscal year 2025 started in July 2024 and will end on June 30, 2025. This means that the close of the first fiscal quarter ended in September, the results will be reported at the end of October.
Thanks to the acquisition of Activision Blizzard, the branch Xbox content and services has grown by around 61% for three quarters while it has struggled to exceed 10% since 2021. This business unit includes revenue generated by games, content, Xbox Game Pass and the sale of consoles. If Microsoft does not generally detail what is happening there, we know that revenues generated by console sales are down by around 40% and that the branch would only grow 3% without Activision Blizzard. With the number of subscribers increasing and price increases, revenue generated by Xbox Game Pass is certainly driving growth.