Microsoft's Best Paid? It's COO Herbold

The man in charge of pinching pennies at Microsoft is also the company's highest-paid executive, earning more than double the pay and bonus of Chairman Bill Gates.

Robert Herbold, who was hired away from retail giant Procter & Gamble in 1994, made $536,127 in salary in the year ended June 30 and $673,096 in bonus, according to Microsoft's latest proxy, filed Friday with the U.S. Securities and Exchange Commission.

Gates, who founded Microsoft 22 years ago, made $349,992 in salary and $241,360 in bonus. Of course, Gates doesn't need much in the way of annual pay. He owns 22.3 percent of Microsoft stock, worth more than $35 billion - enough to make him the world's richest businessman.

The high pay of Chief Operating Officer Herbold is due largely to the fact that Microsoft had to work to lure him from Procter & Gamble three years ago.

His deal, according to the proxy, included a $250,000 signing bonus, plus additional bonuses of $250,000 a year for three years. In addition, he received stock options for 650,000 shares, a $650,000 whole life insurance policy, and a $1.35 million term life insurance policy.

Herbold apparently has been accomplishing his mission at Microsoft. He was brought in partly to help the company reduce costs and maximize profits. In the past several months, Microsoft has touted Herbold's cost-cutting measures, which have included controversial steps to outsource company functions such as receptionist jobs and real-estate management. That outsourcing has cost some Microsoft employees their jobs.

Herbold also has spearheaded the company's efforts to take advantage of CD-ROM production, which is cheaper than producing floppy disks. CDs hold much more information than floppies, meaning fewer of them are needed to contain each Microsoft software program.

By one measure, the company has cut its costs nearly in half in the past four years. The amount Microsoft spends to achieve each dollar in sales has dropped from about 17 cents in 1993 to 9.5 cents this year. That number - called cost of goods, or COGS - doesn't include all the company's expenses. It's just one category of costs, such as manufacturing and distribution, but it's a key measure of a company's efficiency.

Microsoft will hold its 1997 annual meeting at 8 a.m. Nov. 14 at the Washington State Convention and Trade Center.

Microsoft is proposing to reduce the size of its board from eight to seven members. Robert O'Brien, the retired chairman of Paccar, is retiring from Microsoft's board. O'Brien, 83, has served on Microsoft's board since 1986, the year the company began selling stock to the public. Michele Matassa Flores' phone message number is 206-464-8343. Her e-mail address is: