Activision CEO Kotick could reap $520 million on the Microsoft deal.

Activision CEO Kotick could reap $520 million on the Microsoft deal.

Kotick owns 4.3 million shares and has the option to buy another 2.2 million through the exercise of options, for a total value of $520 million at Microsoft's current share price of $95 per share.

After Microsoft Corp. completes its purchase of Activision Blizzard Inc., Chief Executive Officer Bobby Kotick stands to profit by more than $500 million. Activision said in a securities filing on Friday that if Kotick, 59, is terminated or leaves under various circumstances within a year of a change of control at the company, he will receive $14.4 million in severance.

Kotick owns 4.3 million shares and has the option to buy another 2.2 million through the exercise of options, for a total value of $520 million at Microsoft's current share price of $95 per share. According to the proxy filing, Kotick, who has been CEO for nearly 30 years, received $826,549 in total compensation in 2021.

For a leader whose recent tenure has been marked by employee complaints of sexism, a hostile work culture, and mismanagement of assault claims, the payout is striking. Employee walkouts and petitions demanding Kotick's removal erupted in November after reports that he failed to notify the company's board of directors about allegations of rape and other serious misconduct.

Kotick's pay has been linked to the company's performance, according to Activision.

The company said in a statement that "the majority of Mr. Kotick's compensation was earned by exceeding ambitious pre-established goals, including doubling the market cap for two consecutive periods." "Mr. Kotick has transformed the company, reshaped the video game industry, and created value for shareholders in the tens of billions of dollars."

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Microsoft expects to complete the acquisition by the end of its fiscal year in June 2023, pending regulatory approval. Even before the California Department of Fair Employment and Housing sued the video game publisher in July, detailing a retaliatory "frat boy" culture, Kotick's pay was divisive. In response to criticism that Kotick's pay package was excessively lavish when compared to peers, the company announced it would halve his salary and bonus for 2021.

Kotick will receive $155 million in total compensation in 2020. The majority of it came in the form of moonshot stock awards granted by the board in 2016. According to a person familiar with the transaction, Kotick will stay on as CEO only until the deal closes, which was announced in January.

"Bobby Kotick will continue to serve as CEO of Activision Blizzard, and he and his team will maintain their focus on driving efforts to further strengthen the company's culture and accelerate business growth," the release says before moving on to a different subject in the next sentence to describe who will report to Microsoft once the deal is finalized. "The Activision Blizzard business will report to Phil Spencer, CEO of Microsoft Gaming, once the deal is completed."

Even if Kotick leaves the company amid the controversy, his employment agreement contains a clause for a change of control, implying that he will still receive the $150 million in stock that was agreed upon last year.

The most recent employment agreement Kotick signed includes language that allows for a payout of the long-term stock agreement if the company's control changes while he is CEO and he is fired without cause or for "good reason" within a year of the change.

If Microsoft tries to fire Kotick for cause, "he can actually hold on to the options, exercise them, or give them back and get the cash equivalent immediately," accounting professor and journalist Francine McKenna told MarketWatch.

Regardless of what happens to those shares, Kotick will still have over 4 million shares that he has already received, and those will be his unless Microsoft or Activision try to recoup any compensation. If the parties reach a severance agreement, he could get even more.