Satya Nadella's compensation no longer tied to Game Pass growth after missing targets for two straight years
In FY23, Microsoft CEO Satya Nadella’s performance-based pay targets were no longer tied to Game Pass growth, as opposed to the previous three fiscal years. This comes amid uncertainty and a lack of officially disclosed data about the current state of the subscription service.
As spotted by Axios, Microsoft recently filed its 2023 proxy statement with the US Securities and Exchange Commission. For fiscal year 2023 (ended June 30, 2023), Satya Nadella’s performance incentives included the only metric related to the company’s gaming business — “Xbox Content and Services Revenue Growth.”
Xbox’s 12-month content and services revenue growth target was 4.4%, but the division ended up growing just 0.7% year-over-year. It represented 10% of Nadella’s total performance targets, behind Teams’ MAU growth (20%), Microsoft Cloud’s subscribers growth (20%), and Microsoft Cloud’s revenue (30%).
Overall, Nadella’s cash and stock compensation for FY23 was $48.5 million, down from $54.9 million in 2022.
Core metric performance and payout percentages (FY23)
What’s interesting here is that for the previous three years, one of his performance targets was “Xbox Game Pass Subscribers Growth” (via 2022’s SEC filing):
- In FY20 (ended June 30, 2020), the number of subscribers grew 85.75% year-over-year, above the 71% target;
- In FY21 (ended June 30, 2021), the target was 47.8%, but Game Pass subscribers grew only 37.5% from the previous year;
- In FY22 (ended June 30, 2022), Game Pass also missed its 72.88% target, growing only 28% year-over-year.
Core metric performance and payout percentages (FY20-FY22)
So Game Pass subscriber growth fell short of Nadella’s pay target in two of those three fiscal years, leading to a shift to a new metric tied to the Xbox division as a whole in FY23. This doesn’t mean that Microsoft itself is 100% disappointed with the performance of its subscription service, as the company may have different internal goals. However, these numbers don’t usually come out of thin air, leaving room for speculation that Game Pass may be growing slower than expected.
The last time Microsoft officially disclosed the number of subscribers was in January 2022 (Q3 FY22), when Game Pass surpassed 25 million users. This was up 38.8% from the 18 million milestone reported in January 2021.
In October 2022, Sony told the UK’s Competition and Markets Authority that the service had 29 million users and was expected to “grow substantially in the future,” but Xbox still insists that the 25 million milestone should be referred to as the “official tally.”
It is hard to believe that Game Pass subscriber numbers haven’t changed in 21 months (since January 2022). Microsoft may have its own reasons for not providing any official updates, and one of them could be the lack of significant growth. Another question here is, how many users did the company plan to reach by 2023? 25 million seems unlikely.
Perhaps, we can expect Microsoft to share new numbers in 2024, when it finally starts adding Activision Blizzard titles to Game Pass.
