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America’s highest paid CEO took home $78.4 million last year. That translates into $1.5 million per week.
That CEO is Larry Ellison of Oracle (NYSE: ORCL). And his 2013 compensation – including cash and stock options – equaled $37,692 per hour. To put this in context, Ellison earns nearly the same amount in one hour as the average America earns in one year.
Liberal commentators will argue that excessive executive compensation is what’s wrong in America. They’ll point to the fact that top execs like Ellison earn more than 500 – 1,000-times the salary of the average American. And it’s easy to use this as the case study for income inequality.
But I’m not here to make that argument. You can pickup last Sunday’s edition of the New York Times to read their business section headline article, The Invasion of the Supersalaries.
It’s easy to argue that Larry Ellison doesn’t need the big compensation package. After all, he owns 24% of Oracle and has a net worth of $48.2 billion. That’s enough to make him the fifth richest person in the world.
As an entrepreneur and free market advocate, who am I to criticize Ellison’s compensation package? In my mind, that is something for Oracle shareholders to consider. And since I’m not an Oracle shareholder, it isn’t my concern.
Yet I know that Oracle is one of the biggest American companies. It’s #80 on the Fortune 500 list, with annual revenues of $37.1 billion in 2013. And with a profit of $10 billion last year, Oracle is the 18th most profitable company. Given the company’s size, I know it’s a popular investment for many Daily Profit readers.
For Oracle shareholders, it’s worth considering their CEO’s compensation relative to other top execs. Last year, Robert Iger of Walt Disney (NYSE: DIS) was the second highest paid CEO. He took home $34.3 million. And News Corp. (NYSE: NWS) CEO Rupert Murdoch was number three, earning a generous $26.1 million.
It’s easy to see that Ellison’s 2013 compensation was more than double that of Disney’s CEO. Unfortunately, that generous compensation package didn’t result in profits for Oracle shareholders. Last year, Oracle stock rose just 14.8%. That was below the 30% return for the S&P 500 (NYSE: SPY) and far inferior to Disney’s 53.4% gain.
Unfortunately for Oracle shareholders, 2013 wasn’t an unusual year. Over the last five years, Oracle shares have lagged behind the Nasdaq Composite. And the stock’s performance has been similar to the S&P 500.
Oracle Stock Compared with S&P 500 & Nasdaq
After a poor showing for Oracle in 2013, Ellison got a smaller bonus and fewer stock options. As a result, his total compensation fell 18%.
As a shareholder, I don’t mind paying big bucks for a CEO who delivers. But my goal as an investor is to maximize my total return through capital gains and dividends.
Larry Ellison’s Oracle pays just a 1.3% yield and has been an average performer over the last five years. After such performance, it’s worth asking, “What am I getting for $78.4 million per year?”
The answer is “not much.”
Oracle shareholders have also been voicing their concern. At the last shareholder vote, 85% of votes cast by non-execs (including Ellison) voted against the CEO’s compensation plan. This was the second year in a row that shareholders voted against Ellison’s compensation. But the proxy vote was non-binding, which means that the board doesn’t have to act on the shareholder vote.
Larry Ellison is a stark contrast to other billionaire founders who serve as CEO. Consider that Berkshire Hathaway (NYSE: BRK-B) CEO Warren Buffett earns $486,000 and Google (Nasdaq: GOOG) CEO Larry Page earns $1 per year. Despite earning less than 1% of Ellison’s generous compensation package, these CEOs and their stocks delivered far superior returns in 2013.
I’m all for generous compensation packages for CEOs that deliver great returns to investors. But subpar performance deserves far more reasonable compensation. Given Oracle’s stock performance, it’s clear that Ellison’s compensation package isn’t appropriately aligned with shareholders.
Feel free to share your thoughts on CEO compensation and income inequality in the comment section below. Do you think most CEOs are overpaid? Who are the most overpaid CEOs? Do you own Oracle stock? Is Ellison overpaid? I want to hear your thoughts.
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