Microsoft CEO Satya Nadella sold more than half his shares in the Redmond tech giant last week in a $285 million transaction that some suspect was timed to escape a market downturn and lower Nadella's exposure to a looming capital gains tax in Washington state.
Nadella sold the 838,584 shares on Nov. 22-23, according to company filings with the federal Securities and Exchange Commission. In a statement Tuesday, a Microsoft spokesperson said Nadella sold the shares "for personal financial planning and diversification reasons," and added that Nadella, who is also company chairman, "is committed to the continued success of the company and his holdings significantly exceed the holding requirements set by the Microsoft Board of Directors."
The sale of stock, which appears to be by far the largest by Nadella since being named CEO in 2014, doesn't seem to have been mentioned at Microsoft's annual shareholder meeting on Tuesday, as the company fended off shareholder proposals related to workplace equity and other issues. Shareholders passed a proposal to strengthen policies on sexual harassment put forward after allegations of misconduct were made against Microsoft co-founder Bill Gates
The timing of the sale, first reported Monday by The Wall Street Journal, has raised questions among some analysts.
Nadella may have wanted to minimize his liability under Washington's new 7% capital gains tax, which goes into effect Jan. 1, as well as any new federal taxes now under discussion in Congress, said Ben Silverman, director of research at InsiderScore/Verity.
"Whether that was a motivator or not, I can't speak to that," Silverman said. But "it's worth pointing out that the timing, coming about six weeks before the implementation of that [tax], is curious for a sale of this size."
The sale's timing also seems to have coincided with the most recent peak in Microsoft's share price.
Roughly half the shares were sold Nov. 22, at an average price of $344.84 and a top price of $349.22, according to company filings with the SEC. That's just a few cents shy of the stock's all-time high of $349.67, which came on Nov. 22, Silverman said. Shares closed Tuesday at $330.59.
This isn't the first time Nadella has sold a large number of Microsoft shares. In late August and early September, he sold some 75,000 shares for around $22.9 million, federal filings show.
But those earlier sales typically coincided with large awards of stock under Nadella's compensation plan, and would not have been unusual among high-level executives who are paid in stock and who often arrange in advance to sell some of the shares.
The November sale, by contrast, was unrelated to a compensation award or other prearranged sale, analysts noted.
Nadella's sale is the one of several recent high-profile insider stock sales. Elon Musk, CEO and founder of Telsa, has sold $10.2 billion in Telsa shares since Nov. 8, according to Inside Arbitrage. Amazon founder Jeff Bezos has sold around $3.3 billion in Amazon shares in November.
That has led some analysts to speculate that tech executives with large company holdings may be wary of a downturn in the stock market after months of roaring growth.
"Corporate insiders rang the bell on the market almost three weeks ago with elevated levels of insider selling that has far exceeded anything we have seen in well over a decade of tracking insider transactions," wrote Asif Suria at the finance website, Seeking Alpha.
"I think a sale like this is partially an acknowledgment of stock prices across the market being very high, relative to some of the things going on in the economy," said Silverman, who is based in Seattle.
Investors might not begrudge Nadella some profit-taking. Since he became CEO seven years ago, Microsoft's expansion in cloud computing and the growth of its cloud-based software services have coincided with a near-doubling of annual revenues, to $168 billion as of fiscal year 2021, and an eightfold increase market capitalization, to roughly $2.5 trillion today, analysts note. Microsoft's fiscal year ends June 30.
In fiscal year 2021, Nadella earned $49.9 million, of which $33 million was in the form of stock bonuses, according to company filings. In 2020 and 2019, he was awarded stock bonuses of $30.7 million and $29.7 million, respectively, according to filings.
Still, some investors have pushed for changes to the company as a whole. During Tuesday's annual meeting, shareholders passed a nonbinding resolution requiring Microsoft to reassess its approach to sexual harassment, following reports that Gates behaved inappropriately toward female employees.
The nonbinding resolution asks the company for a report on the effectiveness of sexual-harassment policies. The proposal, introduced by activist investor Arjuna Capital, was opposed by Microsoft. A separate measure calling on the company to disclose median pay gaps across race and gender didn't pass.
"We are concerned about Microsoft's alleged continued culture of workplace sexual harassment and its history of unfulfilled previous commitments to resolve it," Natasha Lamb, Arjuna's managing partner, said during the meeting. Lamb said Microsoft has refused to commit to two key requests in the proposal: "independent investigations and public reporting on the executive-level probe into Mr. Gates."
In response to the vote, Microsoft President and Chief Legal Officer Brad Smith said the company will take new steps to provide more information about sexual-harassment investigations to shareholders. In the most recent fiscal year, which ended June 30, Microsoft had 51 complaints and 47% were substantiated. That's a smaller number of complaints than the year earlier, probably because people were working from home, Smith said.
Smith also said the company will bring in a third party to do an independent assessment of how well it investigates these kinds of claims. He didn't address requests for more information about a probe into Gates's behavior.
Before the meeting, Microsoft reached accords with two other shareholder groups, agreeing to a human rights review on some government deals and to let more repair shops fix its devices. On the issue of pay gaps, Microsoft also said it would provide more data next year.