Oracle Corp. wants to pay its founder and CEO Larry Ellison a pay package worth $78.4 million, but its shareholders have just voted “no” by an overwhelming margin. In fact, it appears that 80 percent voted against the package, if you strip out the 25 percent of company shares owned by Ellison, writes exec-comp observer Steven M. Davidoff, a professor at Ohio State’s Moritz College of Law.
That’s not to say Ellison won’t end up getting the enormous package anyway — after all, the Dodd-Frank provision granting shareholders a say-on-pay vote on executive compensation is nonbinding. But the Oracle vote is striking nonetheless, Davidoff writes, because in most cases shareholders nearly always vote to approve CEO pay packages. In fact, as of August 99 percent of Fortune 500 companies had their pay packages approved by shareholders, according to Towers Watson.
In Oracle’s case, shareholders were encouraged to vote no by Change to Win, a union-affiliated organization that seeks to draw attention to what it says is outrageously exorbitant CEO pay that is not sufficiently tied to company performance. Ellison’s pay far exceeded that for executives at peer companies such as Google and Microsoft, Change to Win noted. Ellison’s compensation was not based on incentives that require Oracle to outperform its competitors, Davidoff writes. Instead, it is linked to Oracle’s stock price — unlike at other companies, which grant incentives in the form of restricted stock to ensure pay is less affected by gyrations in the stock market that may have nothing to do with a company’s actual performance, he writes.
Say-on-pay has tripped up other companies. One of our recent HR Honor Roll winners, Paul McKinnon, had to deal with a negative vote from Citigroup shareholders last year on the pay package for former CEO Vikram Pandit. McKinnon helped lead an outreach to shareholders, who this year granted a 91-percent favorable vote for Citi’s exec-comp package. Although say-on-pay votes aren’t binding here in the States, that’s not the case in some European countries. And, experts warn, it may take only a few more examples of egregious CEO misconduct or another economic downturn to make it binding here, as well.