Corporate Eye

Larry Ellison’s $72 million Pay Package

Larry Ellison, founder of the technology company Oracle, is worth an estimated $25 billion (USD) and is one of the top 5 wealthiest men in the USA. Seems he wants to be the wealthiest. On August 28th, the news carried the story about his pay and its largess —

Aug. 28 (Bloomberg) — Oracle Corp. founder, Larry Ellison, the fourth-richest man in America, is drawing criticism from some shareholders for a $72 million pay package that’s 12 times bigger than the median pay of CEOs in the technology industry.

This is a subject that is not new. I remember a television broadcast in the mid-1990s (WCBS (US) 60 Minutes), that covered CEO pay in light of many employees losing their jobs. One commentator compared the ratio of CEO pay to the average worker. It went something like this — the ratio of the average CEO’s pay to that of the average worker is similar to what existed in 1789 France, when Louis XVI was king . You know what happened to Louis XVI, and by the way, they got his wife, too. Seems that nothing but the ratio has changed.  John C. Bogle in his article “Reflections On CEO Compensation”, Academy of Management Perspectives May 2008 displays this table —

By this measure the ratio increased from 42 in 1980 to 281 in 2004. There is continuing debate on just what is appropriate CEO compensation. This may be a topic for a future post. For now I will use Forbe’s Magazine CEO Compensation Efficiency Rank —

Methodology: Compensation rank is based on total compensation for latest fiscal year. Total compensation for each chief executive includes the following: salary and bonuses; other compensation, such as vested restricted stock grants, LTIP payouts and perks; and stock gains, the value realized by exercising stock options. Efficiency rank is based on our chief executive’s performance/pay score. Ranks are given only to chief executives who have a six-year tenure and six-year compensation history. The most efficient rank is 1 and least efficient is 175. Compensation rank is based on total compensation for latest fiscal year.

Where’s Larry? Here he is. Seems he got a poor Efficiency rating.

There are also Corporate Governance issues here. Ellison recommended his compensation to his Board’s Compensation Committee. In addition, some large shareholders are expressing their opposition to Ellison’s compensation. The “say on pay” plan, which goes before investors at an Oct. 10 meeting, could get at least a third of the votes, says Scott Adams of the American Federation of State, County and Municipal Employees and the California Public Employees’ Retirement System. Even though that would fall short of the majority needed to pass, it still would show shareholder concern about Ellison’s pay. Once again the Court of Public Opinion might trump any regulations or laws.

What Larry Could Have Done

Oracle is not on Fortune’s best places to work index. It has 84,233 employees.  Let’s say he announced that even though the board awarded him the $72 million, he would give half of it to all employees. This would be only 0.14% of his $25 billion treasure chest. Each employee would get an surprise $500 bonus. Might not be much, but can you imagine the positive effect on employee morale and public opinion?

I expect more developments on CEO Compensation since some practice experts believe this issue will be key in the evolution of Corporate Governance.

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.