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MercuryNews.com

 

June 7, 2008

 

By Chris O'Brien

 

 

O'Brien: Oracle's Larry Ellison doesn't need any more stock

 

 

To absolutely no one's surprise, Oracle founder and Chief Executive Larry Ellison ranked as the highest-paid CEO in Silicon Valley in 2007.

 

When it comes to amassing huge piles of cash, Ellison remains a thoroughbred who left the rest of the valley several furlongs behind. Ellison piled up $61.2 million in pay in Oracle's 2007 fiscal year, which included $11.1 million in salary and bonus, and $50.1 million in profit from stock sales.

 

Runner-up in the CEO derby was Hewlett-Packard Chief Executive Mark Hurd with a mere $26.0 million in total compensation. Really, Mark, try a little harder next year, OK? At least make it a race.

 

Now, it would be all too easy to devote this column to a rant about overpaid CEOs. But what's the point? The fact is, no one deserves to make that much money. Sorry, not even the Google guys. Unless, maybe, they cure cancer.

 

But that's not an argument Silicon Valley wants to hear. To the victor go the spoils, right?

 

So I won't question Ellison's right to make more money than most of us can fathom. He did, after all, start a powerhouse of a company whose database software has grown dominant and whose business applications have become competitive thanks to a string of acquisitions.

 

However, I do have a beef with Ellison's compensation that should get a sympathetic ear from Oracle's shareholders: Why is the company doling out more stock to a man who already owns 22.3 percent of the company?

 

Over just the past two fiscal years (the last one ending in May 2007), Oracle has awarded Ellison an additional 13 million options. On one level, it's barely a rounding error for a man who holds 1.15 billion - yeah, that's with a "b" - shares in the Redwood City software company.

 

At the same time, that still amounts to a use of the company's assets that makes no sense. First, there is an opportunity cost. Giving stock to Ellison means that it can't be used for some other purpose. Second, any additional stock issued dilutes the holdings of shareholders. Oracle is concerned enough with this to spend at least $4 billion buying its stock back.

 

It's not as if Ellison needs the money. During the past three decades, he has sold $4.69 billion worth of Oracle stock. His remaining shares are worth $26.6 billion on paper.

 

And that doesn't include millions of dollars more in salary and bonus. And it doesn't include the $1.7 million in security costs the company paid to protect Ellison. And it doesn't even include the $3 million property-tax refund he's going to get from San Mateo County after persuading the county assessor to cut the valuation of his Japanese-style estate by more than half this spring. Heck, it doesn't even include the value of his stake in NetSuite, the start-up he backed that went public last year.

 

I don't begrudge him that money, most of which came from the shares he received as a founder of the company in 1977. But no one can argue that the company owes him more stock, no matter how vital his leadership.

 

Of course, I can't imagine why Ellison would accept the shares, either. I could say something snide here about Ellison possibly needing more to fund a lifestyle so lavish that his accountant claimed a couple of years ago the billionaire was bumping up against his $1 billion ceiling in personal debt. I could say something about him needing money to fund his son's movie career.

 

I could, but I won't. Instead, let's just look at Oracle's rationale. According to Oracle's proxy filings with the Securities and Exchange Commission, the company awards options to executives for three reasons:

 

• "Aligning executive interests with stockholder interests by creating a direct link between compensation and stockholder return."

 

• "Giving executives a significant, long-term interest in our success."

 

• "Helping retain key executives in a competitive market for talent."

 

Do I think Ellison's 1.15 billion remaining shares aren't enough to align his interests? Do I think he doesn't have a long-term interest in Oracle's success? And do I think there's much chance that Ellison might bolt, for say, Facebook?

 

No, no and no.

 

But don't take my word for it. Instead, let me simply point to an alternative source of good governance up the road a bit: Microsoft. Yes, our good friends way on up Interstate 5 have got it right on this issue.

 

Microsoft hasn't awarded any additional stock or options to Bill Gates or Steve Ballmer for at least 15 years. The two men respectively own 9.3 percent and 4.3 percent of the company's stock.

 

Here's what Microsoft's most recent proxy said on the matter:

 

"Mr. Ballmer has for many years been a significant shareholder of Microsoft. Because his interests are already closely aligned with shareholders' interests, the Compensation Committee and Mr. Ballmer agree that he should not receive equity compensation."

 

In Microsoft's most recent fiscal year, Ballmer received $1.28 million in cash and bonus.

 

That's not chump change to most of us. But compared to the ultra-competitive Ellison's need to keep squeezing his company and its shareholders for more, it makes the folks in Redmond look downright reasonable.