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Oracle investors want say on pay

Shareholders criticize CEO Larry Ellison's $72-million package. He sought and was granted a 38% increase.

August 29, 2008|From Bloomberg News

Oracle Corp. co-founder Larry Ellison, the fourth-richest man in America, is drawing criticism from some shareholders for a $72-million pay package that is 12 times bigger than the median pay of chief executives in the technology industry.

Ellison, who proposed the 38% raise and won approval from a committee of board members, is now the second-best-paid CEO of a public company in the U.S. He received about $1.7 million less than Merrill Lynch & Co. chief John Thain did in 2007. Oracle's market value is almost three times Merrill's.

Shareholders are pressing for a say on compensation at Redwood City, Calif.-based Oracle, the second-largest computer software maker, whose 29% profit growth last fiscal year trailed Ellison's pay increase. The proposal, by the religious group Marianist Province of the U.S., is winning support from activist shareholders such as the American Federation of State, County and Municipal Employees and the California Public Employees' Retirement System, or CalPERS.

"Ellison's compensation was already sky-high and didn't need to go higher," said Scott Adams, the American Federation's pension and investment analyst in Oakland.

The "say on pay" plan, which goes before investors at an Oct. 10 meeting, could get at least a third of the votes, Adams said. Even though that would fall short of the majority needed to pass, it still would show shareholder concern about Ellison's pay, he said. The American Federation's fund held 73,000 shares of Oracle as of May 15.

Groups filed similar proposals at 92 companies this year, up from 54 in 2007, Adams said. The insurance provider Aflac Inc. and phone carrier Verizon Communications Inc. are among the companies now adding such advisory votes.

The pay for Ellison, 64, doesn't include the $544 million he made last year by exercising stock options. His package was examined and ranked in a study by Graef Crystal, a former executive compensation consultant who is now a columnist for Bloomberg.

Crystal included Ellison's $1-million salary and $10.8-million bonus, plus $1.45 million in "other pay" to cover the cost of items such as his home security system and air travel. The study valued Ellison's options granted during the year at $58.8 million, a more conservative estimate than Oracle's figure, $71.4 million.

Oracle did not respond to requests for comment. In the Aug. 20 filing outlining Ellison's compensation, the software company said he had requested the pay increase, which was approved by compensation committee members Jeffrey S. Berg, Hector Garcia-Molina and Naomi O. Seligman. They cited an "objective of providing incentives for superior performance."

Forbes magazine estimated Ellison's worth at $26 billion in September, putting him behind Bill Gates, Warren E. Buffett and Sheldon Adelson, chief of Las Vegas Sands Corp.

Ellison's stake in the company he co-founded in 1977 accounted for most of that wealth. Gates is chairman of Microsoft Corp., the world's biggest software producer; Buffett is chairman and CEO of Berkshire Hathaway Inc.

Ellison held 1.15 billion Oracle shares as of Feb. 15, more than 22% of the stock outstanding, according to data compiled by Bloomberg. Oracle awarded Ellison an additional 7 million options in fiscal 2008, filings show.

"That kind of package becomes a red flag for investors," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

"Would he leave if they didn't give him that much?" Elson asked. Would he work less hard?"

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