A Bunch Of High-Powered Shareholders Are Not Happy With Oracle's New Co-CEO Pay

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larry ellison

Stephen Lam/Reuters

Larry Ellison.

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Five bigwig institutional shareholders want to force Oracle to make radical changes to the way it pays it top three executives: executive chairman and CTO Larry Ellison and co-CEOs Safra Catz and Mark Hurd.

They are concerned that Oracle's board of directors isn't independent enough from management and "insufficient board accountability and poorly designed compensation programs create significant risks for shareholders."

Of Oracle's 11 directors, three of them still earn their living at Oracle (Ellison, Catz, and Hurd), and one of them is the company's former CFO and chairman.

"We equate the recent announcement on changes to Oracle's leadership structure as simply a rearrangement of the deck chairs which serves to further empower executive management," according to a letter sent to shareholders. "The CEO has stepped down - in title only - to become an Executive Chairman of the Board and Chief Technology Officer. ... It is clear who remains in charge of the Board and why independent director representation is needed more than ever at Oracle."

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The shareholders behind this proposal are California State Teachers' Retirement System; The Nathan Cummings Foundation (the charitable foundation formed by Sara Lee founder Nathan Cummings); PGGM Investments, a Dutch pension fund service provider that manages EUR 178 billion; the RPMI Railpen Investments, a UK pension fund service provider; and the retirement fund for U.S. autoworkers, UAW Retiree Medical Benefits Trust.

They want to be able to elect independent board members from the shareholders at large.

This is not an attempt for activist shareholders to take over the board and the company, they say, because their proposal requires the new board member to have owned 3% of the company for at least three years.

These types of shareholder proposals almost never pass if the standing board of directors don't get behind them. And in Oracle's case, a shareholder uprising is next to impossible, since Larry Ellison holds a 26% stake of the company.

But given the names involved, this proposal and letter will almost certainly get Oracle's attention, and maybe get the board to agree to these terms without an uprising. Oracle did actually agree to changes in how it pays these execs the last time shareholders rattled their sabres about it. It reduced the number of shares granted as stock options and made some of them into "performance stock units" earned as bonuses.

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Even so, these three executives remains some of the highest paid in the land.

We've reached out to two of the organizations that signed the letter and to Oracle for comment and will update when we hear back.

Here's the full letter:

Dear Oracle Shareholder:

We write to you as long-term shareholders in Oracle Corporation and as co-sponsors of the proxy access proposal that your fund will be asked to vote on at the upcoming annual meeting of Oracle Corporation on November 5, 2014.

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We urge you to vote FOR Proposal No. 7.

We believe the case for proxy access is particularly compelling at Oracle Corporation, where insufficient board accountability and poorly designed compensation programs create significant risks for shareholders.

We equate the recent announcement on changes to Oracle's leadership structure as simply a rearrangement of the deck chairs which serves to further empower executive management. The CEO has stepped down - in title only - to become an Executive Chairman of the Board and Chief Technology Officer. In his place the Company appointed two CEOs from the executive suite to serve coextensively - an unsustainable model that further consolidates the former CEO's control. It is clear who remains in charge of the Board and why independent director representation is needed more than ever at Oracle.

BOARD GOVERNANCE CONCERNS

Independent Directors Needed. We have long held concerns as to whose interests the Board of Oracle is serving and proxy access will allow long-term shareholders a mechanism to nominate independent candidates who can better represent broader shareholder interests and instil a culture of accountability.

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Captive Board of Directors. All three Compensation Committee members received withhold votes of 60% or more from non-insider shareholders at Oracle's 2013 annual meeting. Given the number of shares held by Mr. Ellison, the Compensation Committee has, in effect, been elected only because Mr. Ellison presumably cast his vote in support of their re-elections. We believe Board members are being insulated from the preferences of non-insider shareholders.

Unresponsive Board. The failed say-on-pay votes at two consecutive meetings should have resulted in measurable changes to Oracle's compensation quantum and structure, but in our view, the structure remains largely the same. The lack of response from the Board to these votes raises broader concerns around board governance and accountability to non-insider shareholders.

PROXY ACCESS

Our proposal provides a reasonable mechanism to nominate director candidates, including an ownership requirement of 3% for 3 years. Director candidates would be elected upon approval from a majority of all shareholders, thus access could not be used by a shareholder seeking to obtain control of the Board. We believe that the need for proxy access is clearly evident at Oracle Corporation given the significant risks to shareholders from insufficient board accountability and poorly designed compensation programs.

We therefore urge you to vote FOR our resolution to give shareholders access to the proxy and the ability to improve board accountability at Oracle Corporation.

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This is NOT a solicitation of authority to vote your proxy. Please DO NOT SEND us your proxy card but return it to the proxy-voting agent in the envelope that was or will be provided to you by the Company. The Nathan Cummings Foundation, CalSTRS, PGGM, RPMI Railpen, and UAW Retiree Medical Benefits Trust are not able to vote your proxies, and this communication does not contemplate such an event. This communication is meant to inform you about The Nathan Cummings Foundation's, CalSTRS', PGGM's, RPMI Railpen's, and UAW Retiree Medical Benefits Trust's opinion and to give you valuable decision-making information when you review your shareholder proxy for the 2014 annual shareholders' meeting of Oracle Corporation.

Sincerely,

Anne Sheehan
Director of Corporate Governance
California State Teachers' Retirement System

William Dempsey
Chief Financial Officer
The Nathan Cummings Foundation

Catherine Jackson
Senior Advisor, Responsible Investment
PGGM Investments

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Deborah Gilshan
Corporate Governance Counsel
RPMI Railpen Investments

Meredith Miller
Chief Corporate Governance Officer
UAW Retiree Medical Benefits Trust