Oracle's Ellison grabs top spot on best-paid list

[August 22, 2008]  SAN FRANCISCO (AP) -- Oracle Corp. founder Larry Ellison, a longtime fixture on the list of the world's richest people, is now ensconced atop The Associated Press' rankings of the top-paid chief executives in the United States.

Never shy about flaunting his estimated $25 billion fortune, Ellison established himself as the best-paid CEO among major U.S. companies by persuading Oracle to award him a fiscal 2008 pay package valued at $84.6 million under the AP's calculations.

The total compensation, disclosed late Wednesday in a Securities and Exchange Commission filing, catapulted Ellison to the top of the AP's annual analysis of CEO pay.

With a pay package valued at $83.1 million, Merrill Lynch CEO John Thain held that distinction in June when the AP released its 2008 analysis of executive compensation at more than 400 large companies.

The details about Ellison's compensation weren't available at that time because Oracle operates on an unusual fiscal year ending in May. The anomaly lets Oracle wait until late summer to make the SEC-mandated disclosures about Ellison's pay.

The AP's rankings cover disclosures made within the same calendar year, meaning Ellison could be surpassed if an SEC filing during the next four months reveals another CEO received an even bigger pay package.

For now, there are only two changes in the AP's list of the 10 best-paid executives. With Ellison taking over the No. 1 spot, Occidental Petroleum Corp. CEO Ray Irani fell out of the top 10.

In another revision lower on the pay ladder, News Corp. CEO Rupert Murdoch now occupies the 14th spot on the AP's list, with a compensation package valued at $30.1 million. News Corp., which operates on a fiscal year ending in June, also disclosed Murdoch's awards this week.

The AP's calculations of total pay include executives' salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. The formula often produces a figure that differs from the numbers listed by companies in their proxy statements.

Most of Ellison's fiscal 2008 compensation consisted of 7 million stock options designed to give him an incentive to increase Oracle's future market value. The options, valued at $71.2 million, vest during the next four years and expire in July 2017. Just how much Ellison makes will depend on how much higher Oracle's stock goes beyond the options' exercise price of $20.49. Oracle shares closed Thursday at $22.30.

The AP's analysis doesn't factor in windfalls that the executives generate by exercising stock options awarded in previous years.

Ellison stood out in this category too, raking in nearly $544 million by cashing in 36 million stock options during Oracle's last fiscal year.

Excluding those stock option gains, Ellison's latest pay package represented a 38 percent raise from fiscal 2007, when his compensation was valued at $61.2 million. That ranked Ellison as the second-best paid CEO, behind Yahoo's then-CEO, Terry Semel, who got a package valued at $71.7 million.

While Semel resigned as Yahoo's CEO 14 months ago under shareholder pressure, Ellison, 64, hasn't given any indication that he plans to end his 31-year reign at Oracle any time soon.

And Oracle's board seems eager to retain him.

Ellison recommended the size of his fiscal 2008 pay package and Oracle's compensation committee approved it in a vote taken outside the CEO's presence, according to the company's SEC filing.

Oracle's three-member compensation committee consists of talent agent Jeffrey Berg, Stanford University professor Hector Garcia-Molina and Naomi Seligman, a partner at a technology research firm.

The committee reasoned Ellison deserved to be richly compensated because the company's fiscal 2008 profit climbed 29 percent to a record $5.5 billion, while its stock price rose 18 percent to create about $19 billion in shareholder wealth.

Ellison's pay package is far larger than other prominent billionaires who got rich by starting some of Silicon Valley's best-known companies.

For instance, both Yahoo Inc. CEO Jerry Yang and Apple Inc. CEO Steve Jobs -- Ellison's best friend -- limited their compensation to $1.

But Ellison isn't the first founding CEO to be lavishly awarded either, said Steven Hall, managing director of executive compensation consultants Steven Hall & Partners.

"When it comes to founders, we know we are usually going to see something odd," Hall said. "In some cases, they are exorbitantly paid and in others they are paid miserly."

Although Ellison has been a billionaire for two decades, most of his wealth remains tied up in Oracle stock. He is the Redwood Shores, Calif.-based company's largest shareholder, at 22.6 percent, and can't easily liquidate his holdings without hurting Oracle's stock price.

Besides selling a big chunk of his stock options during Oracle's past fiscal year, Ellison pledged 442 million shares of his stock -- currently worth about $10 billion -- to secure various lines of credit, according to Wednesday's SEC filing.

The documents didn't specify how much Ellison has borrowed, but he has spent hundreds of millions of dollars in the past decade to acquire and build huge estates in California.

In a revealing snapshot that emerged in a lawsuit against Ellison several years ago, his accountant estimated Ellison's annual "lifestyle" expenses at $20 million.

[Associated Press; By MICHAEL LIEDTKE]

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