Corporate Governance

The Director Compensation Project: Oracle

By Mark Dunn

This post is part of an ongoing series that is examining stock exchange rules and director independence. We are including a mix of companies from the Fortune 100 list for 2007 and using the information disclosed in each company’s 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges have each adopted their own standards for director independence. Meeting stock exchange requirements is mandatory for most listed companies.

NASDAQ Rule 4350(c)(1) requires that the boards of all listed companies be comprised of a majority of independent directors. The definition of “independent director,” found in Rule 4200(a)(15) , leaves the decision on whether a director is independent up to the discretion of the board. The Rule does, however, provide a number of factors that automatically disqualify a director from being deemed independent; one of which is any compensation from the company over $100,000 during any one-year period in the last three years, excluding director’s fees. It is worth mentioning that this is a comewhat stricter standard than what is required by NYSE Rule 303A.02(b)(ii) , which only considers direct compensation.  Members of the audit committee are restricted further in their compensation by Rule 4350(d) .

One can see some of the effects of these rules when looking at the director compensation table from Oracle’s (ORCL-NASDAQ) 2008 proxy statement. According to the proxy statement, directors were paid the following amounts:

Director Compensation. Oracle’s board met ten times last year. Board members are required to attend at least seventy-five percent of the total number of board meetings. Directors Bingham, Boskin and Lucas, who each made more than $200,000 in cash fees, are all members of the board’s Finance and Audit Committee. That committee met twenty times in 2007, twice as many times as any other board committee.  On average, the non-employee directors received $349,811 in total compensation for their services. As the above table indicates, much of the non-employee directors’ compensation came in the form of option awards; five directors received more in option awards than fees paid in cash. Six of the seven non-employee directors received more than $100,000 in cash. Three received more than $200,000 in fees paid in cash.

Director Tenure. Three of the non-employee directors have served on the board for seven years or less. Donald L. Lucas, a former Chairman of the Board, has the longest tenure at twenty-eight years. All of the directors attended at least seventy-five percent of the total number of board meetings. Many of the directors also sit on other boards; collectively, the seven directors sit on the boards of eleven other companies.

CEO Compensation. The total compensation paid in 2007 to the CEO, Larry Ellison, was $61,180,524, only $1,000,000 of which came in the form of cash. This included $1,724,424 in "other compensation," of which, $1,708,763 came from security-related costs and expenses for his residences. Oracle did not include Mr. Ellison’s corporate jet use towards "other compensation" but did disclose that such expenses amounted to only $44,460.  Fourteen percent ($8,369,000) of his compensation was tied to performance incentives. Option awards ($50,087,100) made up the remaining compensation which value is dependent upon company performance.

Full post as published by The Race to the Bottom on May 01, 2008 (boomark / email).