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The Wind Is Turning For Oracle's CEO

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Following five straight days of losses, U.S. stocks opened strong this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.62% and up 0.67%, respectively, as of 10:05 a.m. EDT. Initial jobless claims coming in near a six-year low will not have hurt investor sentiment this morning.

As Oracle (NYSE: ORCL  ) CEO Larry Ellison celebrates the come-from-behind yachting victory of his Team Oracle in the America's Cup, a storm may be quietly brewing on another front that is close to the software mogul's heart -- or to his pocket, at least.

With Mr. Ellison declining to address the crowd at the Oracle OpenWorld conference on Tuesday in order to follow the yacht race, some investors are increasingly questioning whether his compensation is in line with his commitment and contribution to the business.

These are a couple of the facts, as reported in a Wall Street Journal article published yesterday evening:

  • Mr. Ellison received a total compensation package valued at $76.9 million for the fiscal year ended in May.
  • In a proxy statement filed last week, the Oracle board indicated it was disappointed that shareholders chose to reject its pay practices in a nonbinding "say-on-pay" vote last year, and yet it concluded, "Significant changes to our executive compensation program were not warranted"!

As the Journal remarks:

It is unusual for companies with say-on-pay defeats to dodge substantive fixes in their executive-pay practices. While the votes aren't binding, they can be embarrassing, and companies from Hewlett-Packard Co. to Walt Disney Co. and General Electric Co. have made adjustments to pay in the wake of a loss or in order to head one off.

Oracle's refusal to change its compensation structure has not gone unnoticed. Yesterday, CtW Investment Group, which invests on behalf of the Change to Win labor federation, sent a letter to Bruce Chizen, Oracle's compensation committee chairman, requesting that Oracle set limits on its option awards and appoint an independent director to the compensation committee, failing which it will vote against the firm's compensation practices and could push for a reshuffle of the committee.

Oracle would do well to heed CtW's letter, as activist investors have shown themselves increasingly willing to take on megacap technology companies. Carl Icahn recently took a position in Apple and has begun discussions with CEO Tim Cook regarding capital allocation. Another example that ought to give Mr. Ellison pause is that of ValueAct Capital Management, which owns a 0.8% stake in Microsoft (NASDAQ: MSFT  ) . With ValueAct's involvement heating up, Microsoft recently announced that longtime CEO Steve Ballmer would step down within a 12-month timeframe.

The Two Words Larry Ellison Doesn't Want You to Hear
Forget activist investors; this radical technology shift could force Mr. Ellison into a premature retirement. Meanwhile, early in-the-know investors are already getting filthy rich off of it by quietly investing in the three companies that control its fortune-making future. You've likely heard of one of them, but you're probably never heard of the other two. To find out what they are, click here to watch this shocking video presentation!

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