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Oracle Shareholders Vote Against Ellison's Compensation Package (Again)
angry tapir writes "A majority of Oracle shareholders have once again voted against the company's executive pay practices, including for CEO Larry Ellison. The vote at Oracle's annual shareholder meeting is nonbinding, and follows complaints from some large shareholders and their representatives who say Ellison is overpaid compared to his peers. Ellison is paid US$1 in salary, receiving the rest of his pay in stock options. In Oracle's past fiscal year, that totaled $76.9 million. Shareholders voted against Oracle's executive pay practices at last year's meeting as well."
They know they don't have any power, so they choose to "vote" in a non-binding resolution. Larry must be really scared now!
The guy built that company up from a two-bit hole in the wall operation into one of the largest computer empires known to man. He could fairly ask for a billion bucks a year as a salary and he would deserve it all!
I don't like Oracle and think their products are suck-ass bloatware, but Larry Ellison made that company. He should be able to profit from it to his heart's content! Plus he likes to play with toys all the time. Wouldn't you just say "fuck all" and go sailing for a while if you had billions of dollars in net worth?
While TFA provides a good summary of the vote, it does a terrible reason of explaining why the shareholders voted as they did.
So why are the shareholders against Larry's compensation package? The use of stock options means that Larry only gets paid if the company is doing well; or rather more specifically if the company's shares are doing well, which is all the shareholders are going to care about in the first place. At 4.6B shares the company is big enough that Larry's compensation isn't going to meaningfully dilute the value of shares. And switching to traditional compensation packages would eat into Oracle's profits.
What am I missing here? For a company that's doing well, this seems like the perfect way to pay Larry. What is it the shareholders would rather do, and why would it be any better?
I've always wondered why Oracle has two presidents as well. Having worked for the Big-O I can atest that it is two companies in one. Sales is just an enabler for the real money maker: support and services. So even though Oracle has two presidents (Mark Hurd - sales, Safra Catz - services), there's only one big dog on the porch and believe me it's Safra...
Karma: Bad
If they had a binding referendum, people might get the idea that shareholders own the company or something. We can't have that. They might want to do stuff that billionaires don't like.
Maybe /. has grown up, or is it just me, but...
Not even a single joke about shareholders shocked by the size of Larry's packgage? How come?
Maybe. But it depends on the "discount" the options are given. If I get 2 million shares, currently priced at $33, for $3 a piece, I can nearly bankrupt the company and walk away with a salary that in one year outranks any member of the middle-class's lifetime earnings. Furthermore, your one year holding scheme only means that I now take my stock-option, wait around a year, then pump up the 5th quarter, dump my options, and still make a pretty penny after the stock crashes and I exercise my options on the flailing stock the next year.
This is where you're falling short. The problem is not paying a CEO purely in stock options. The problem is that the CEO's have restructured it so that there's no longer an incentive to build a long term, stable plan for a company. Also, here in the US, stock options are an exceptionally clever way to get at minimum an awesome discount on your taxes and at best no taxes at all should you structure the transactions correctly under the right circumstances.
Because I'm sure we'll differ on the opinion of taxes and the "value of labor" for a CEO, I'll skip that and just focus on where we seem to both be red-blooded American-style Capitalists: fiscally incentivizing your CEO to do an exceptional job. In case you decide to go off on a tangent, the amounts here are merely for demonstration. Feel free to sub in $10 million or whatever amount you feel is necessary. I'm not arguing scale here, just mechanics.
I'm all for stock options. Oh look you, you're a CEO. I narrowly discount some shares of stock and effectively say, "You get $500,000 a year in 10% discounted stock options. The price is locked in at 10% off the price at the beginning of the fiscal year. At the end of the year, the option is exercised and you get actual shares of stock."
This has a two fold effect. In essence, if your CEO for whatever reason doesn't have a stash of cash to make it until he has actual stock to sale, he can use the options as collateral and get a line of credit. So you've sort-of paid up front and a fiscally responsible adult (is your CEO fiscally responsible?) will know how to make those options work for her in the interim.
This provides the incentive. If the stock tanks, they get substantially less money than $500,000 that year. If the stock soars, you get a good net-gain and an even larger discount in absolute terms (hence an even larger net-gain) for the next year.
You've paid in stock so the government is no longer interested in closing your tax loopholes and exempting your options from your cushy cap-gains rate because they realize a more steady stream of revenue this way. If the CEO pumps up your company and sells out at the end of the year, your board of investors should do a better job finding a CEO who is going to stick around for a while. Meanwhile, you're probably in a better position to attract a better CEO who can get the ship righted before the raze-and-burn tactics of the previous CEO festers.
I don't like Oracle and think their products are suck-ass bloatware, but Larry Ellison made that company.
And then he sold that company to the shareholders. His profit is the money he got for the shares.
Finally, someone who understands!
And it's sad that the above comments turned it into a Capitalist/Socialist thing.
What we're seeing is your typical corporate CEO strategy - outlandish pay for mediocre performance. And I think that's the REAL issue here.
And folks, remember stock options DO NOT GET TAXED LIKE REGULAR INCOME. So, he's paying close to zero tax on this and differing gains - maybe forever by moving them offshore. This billionaire is getting a sweet sweet deal on the middle class' back.
Go look at your pay stubs or at at that check you send to the IRS every quarter my fellow small businessmen and ask yourself, "Why am I not getting that same deal?"
Pff! I wouldn't get out of bed for that. No wonder they're complaining it's not enough ;-)