Why Larry Ellison’s Paycheck Should Be Zero

Some Oracle (ORCL) shareholders are getting after Larry Ellison about his ridiculously excessive pay – about $77 million in the most recently completed fiscal year – again. As the Wall Street Journal reports, one of the shareholders, CtW Investment Group, has some very specific ideas on how Oracle ought to award stock options to Ellison and others.

CtW’s heart is in the right place, but its proposal is decidedly small ball. Larry Ellison, whose fortune, largely from Oracle shares, is estimated by Forbes at $41 billion, by any rational and logical thinking about executive compensation, doesn’t need to be paid at all. As we’ve pointed out in the past, with his fortune tied up in Oracle stock, he needs no other incentive to get out of bed and go to work in the morning.

Ellison showed up near the top of a list, compiled by Bloomberg, of CEOs ranked by the multiple of their pay to that of an average worker at their company. As we wrote, that’s not a very useful metric, and one doesn’t need to see Ellison near the top of that list to know he’s overpaid.

The Oracle proxy is a document worth spending some time with. Goals of the compensation plan, we learn, are to attract and retain highly talented and productive executives; to provide incentives for superior performance; and to align the interests of the executives with those of shareholders. With Ellison’s 1.15 billion Oracle shares, we’d say to those three criteria: Check. Check. And check.

It’s easy to retain him as his fortune is at stake. He has an enormous incentive to perform well. And, goodness, is he ever aligned. All that, and a decent parking space, ought to be enough.

On Ellison’s massive holdings: 215 million of those shares are pledged as collateral for personal borrowings. At today’s stock price, that’s collateral of about $7 billion. All those houses. The Hawaiian island. The sailing stuff. It’s costly.

ORCL Chart

ORCL data by YCharts

In the most recent fiscal year, Ellison got options on 7 million Oracle shares, valued at $76.9 million. Add in the other four top executives, and in all 23 million options were handed out, valued at about $207 million.

For Ellison, 2013 was a typical year. Fiscal 2012 his compensation was $92.2 million; fiscal 2011 $77.6 million. He exercised options last fiscal year and realized a gain of about $150 million.

Credit where credit is due: the compensation committee of Oracle’s board includes Bruce Chizen, chair, and a former CEO of Adobe (ADBE); George Conrades, former CEO of Akamai; and Naomi Seligman, a senior partner at Osriker von Simson, a tech research firm. Their compensation as directors for the last fiscal year was about $903,000, $487,000 and $463,000, respectively. Compensia is the compensation consultant.

Ellison, by the way, gets a token $1 annual salary and has at times declined a cash bonus. What a guy.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.

Read more articles about: Company Analysis  executive compensation   tech stocks   

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