Will Oracle Continue to Shrug Off Shareholders?

Larry Ellison

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On October 31, Oracle Corp. (NYSE: ORCL) will hold its annual shareholder meeting. The company is involved in several aspects of the software industry, including development and marketing. But according to a growing number of industry watchers, it is not involved enough in one area: performance. They claim the company does not preform strongly enough to merit the high pay its executives receive.

As the meeting date draws nearer, more groups and organizations are making their opinions known. In September, CtW Investment Group sent a letter to Oracle’s investors, asking them to vote down executive pay packages and vote against the re-election of board members. CtW, like others, was piqued by the pay Oracle founder and CEO Larry Ellison had received when the company was not producing strong results.

Institutional Shareholder Services, the U.S.’s largest proxy adviser, is echoing CtW’s call to investors. Bloomberg highlighted this from the ISS report, released Monday: the organization “recommends that shareholders withhold votes from the Chairman and nonemployee members of the board for failing to provide effective oversight of management on behalf of shareholders, as evidenced by the board’s non-responsiveness to shareholder concerns regarding executive compensation, persistent pay-for-performance misalignment, and tolerance of substantial pledging of shares by the CEO.”

Differing slightly but still taking a hardline view of the executive pay matter is another proxy adviser: Glass, Lewis & Co. The firm prefers to see only five members voted down, rather than the entire board, according to The Wall Street Journal.

The vote takes place as part of a provision in the Dodd-Frank Act called say-on-pay; the U.S. Securities and Exchange Commission implemented the practice in 2011. The frequency of votes must be determined by the shareholders, the SEC explains, and the shareholders are to be provided with information regarding executive compensation.

Votes by Oracle shareholders are non-binding, and The Wall Street Journal reports that when Oracle shareholders rejected the company’s pay practices in their votes last year, Oracle’s response was to say, “significant changes to our executive compensation program were not warranted.” Oracle has also noted that Ellison declined a bonus of $1.2 million because of stagnant sales. Even with turning down the bonus, The Wall Street Journal notes Ellison took home $76.9 million for the fiscal year ending in May. He also owns 25 percent of the company.

It is not unusual for companies to change practices based on non-binding votes by shareholders, especially when they are particularly embarrassing and display a lack of support for the company. Oracle may have dusted off criticism before, but with pressure mounting ahead of October 31, it is unlikely the company can continue to remain successful at ignoring its shareholders’ wishes much longer.

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