Oracle
is facing a potential shareholder revolt against a compensation formula
that has consistently made its billionaire co-founder, Larry Ellison,
one of the best-paid CEOs in the world.
The
business software maker staunchly defended Ellison's pay in a letter
sent to shareholder activist firm CtW Investment Group in an effort to
rally support for its board of directors before the 11 members stand for
re-election at Oracle's annual meeting on October 31.
The
letter released in a Wednesday regulatory filing came in response to a
scathing attack that CtW launched last week against the compensation
that Ellison has been receiving from the Redwood Shores, California,
company for years.
CtW doesn't own any Oracle
shares directly, but the Washington DC group is paid to fight for
shareholder causes. It is vowing to organize the pension funds of labor
groups that are stockholders unless the company changes its ways.
Oracle's letter gave no indication that the company is going to relent,
setting the stage for an attempt to oust at least three of Oracle's
directors at the annual meeting.
"It seems
pretty clear that they aren't willing to listen to the concerns of
shareholders," said Rich Clayton, a research director at CtW. A truce
could still be reached during a meeting with an Oracle representative
that Clayton said is scheduled for Thursday morning in Washington.
Shareholders
expressed their displeasure with Oracle's compensation practices at the
company's annual meeting last year. About 59 percent of the
shareholders voted against a "say-on-pay" proposal seeking an
endorsement of the board's compensation policies. That vote was
non-binding, and Oracle's compensation committee decided that no
significant changes to its practices were needed, according to the
company's proxy statement for the upcoming annual meeting.
Oracle
awarded Ellison a pay package valued at $78.4 million in its last
fiscal year ending in May, down from $96.2 million in the previous
year.
Ellison, 69, could have made even more
last year if he hadn't turned down a $1.2 million bonus. He also limited
his salary to $1 annually, a symbolic measure that has been embraced by
several other Silicon Valley CEOs who are already billionaires,
including Google's Larry Page and Hewlett Packard's Meg Whitman.
Oracle
has primarily paid Ellison through stock options and other long-term
incentives designed to prompt him to boost the company's market value
and enrich shareholders. Ellison's pay packages have included an award
of 7 million stock options in each of the last six years. Those awards
are the main reason Ellison has ranked among the top-paid CEOs in each
of those years.
The ultimate value of
Ellison's stock options hinge on how Oracle's stock fares. In its
response to CtW, Oracle pointed out that some of the stock options
issued in Ellison in past years haven't made him any money because the
cost of exercising them was higher than the price of the company's
stock.
Millions of other stock options have
yielded windfalls that have helped Ellison build upon a fortune
estimated at $41 billion by Forbes magazine. Since the end of Oracle's
fiscal 2007, Ellison has realized gains totaling $851 million by
exercising 55.4 million stock options, according to the company's
regulatory filings. More than $151 million of those gains came in
Oracle's most recent fiscal year.
If Oracle
refuses to change its policies CtW plans to wage a campaign aimed at
persuading its labor union allies and other major Oracle shareholders to
oppose the re-election of the three directors on the company's
compensation committee.
Those directors are:
Bruce Chizen, a former CEO of Adobe Systems Inc. who has chaired the
compensation committee for nearly three years; venture capitalist George
Conrades, who is also chairman of Akamai Technologies; and Naomi
Seligman, a partner at technology consultant Ostriker von Simson.
Earlier
this year, CtW led shareholder protests against Hewlett-Packard's
board. Although the directors were re-elected, the opposition was strong
enough to culminate in former Oracle executive Ray Lane's resignation
as HP's chairman and the departure of HP's two longest-serving
directors.
In its letter, Oracle accused CtW
of trying to orchestrate a misleading campaign against the company's
board and hailed Ellison as "its most critical strategic visionary, a
role that he has served and continues to serve our shareholders
extremely well."
With Ellison in charge,
Oracle said it has returned nearly $40 billion to shareholders during
the past decade. The company's stock rose by 28 percent in its last
fiscal year, outperforming the 24 percent increase in the Standard &
Poor's 500 over the same period.
Even without
options, Ellison benefits more than any other Oracle shareholder when
the stock rises because he owns a 25% stake in the company.
Ellison
has used his wealth to buy luxurious estates around the world, as well
as his own Hawaiian island, Lanai. He also bankrolled two victories in
the America's Cup, with the most recent triumph in sailing's most
prestigious event coming last week in San Francisco. Oracle's brand was
featured prominently in the competition.
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