It's Never Enough.

Oracle Boss Larry Ellison Seems Obsessed With Surpassing Bill Gates in the Personal Wealth Department

"Row harder, row harder!"

That's the chant echoing from Oracle Corp. headquarters as Chief Executive Larry Ellison exhorts his shareholder galley slaves to close that last gap in his race with Bill Gates for the title of world's richest humanoid.

Ellison is never one to sit back and let the combination of his excellent performance and immense holdings carry him forward. He's always looking for something extra from shareholders to give him more momentum.

Contrast him with his rival Gates. Although both share a desire to be unconscionably rich, they couldn't be more different when it comes to pay.

Gates, who topped the latest Forbes 400 ranking of billionaires with a fortune estimated at $63 billion, has always been self-effacing in his pay package. For the year ended June 30, the Microsoft Corp. chairman earned a mere $639,000.

What is more, Gates has never received a stock option grant. He puts himself in that class of billionaires, which includes Berkshire Hathaway Inc.'s Warren Buffett, who implicitly recognize that there comes a point when they already have enough of the pie.

Not so Ellison, who was No. 2 on the Forbes list with wealth of $58 billion. Despite controlling almost a quarter of Oracle's stock, he still needs something more each year to inspire him to give his all for the database software company.

In past years, Ellison was royally paid. For example, in the fiscal year ended May 31, 1999, he earned a base salary of $1 million and a bonus of $2.75 million. At the end of that year he was holding 33.4 million unexercised option shares and had taken out $38 million in realized option gains.

But all that seemed not to satisfy this person whose greed glands would stun even the most jaded of anatomists.

Doing the math

For when the company's latest proxy statement was released Sept. 11, there appeared the news that Ellison had, in a single year, been granted an option on 20 million shares of Oracle.

That option contained a luscious strike price of $13.75 a share, the price of Oracle shares when the option was granted. Given a recent price of around $75, that single option, in not 16 months, has generated a paper profit for Ellison of $1.3 billion.

Add in the rest of Ellison's 52 million unexercised option shares, and you'll find he is sitting on $3.8 billion of paper profits and has already carted away $113 million in option gains.

Ellison's compensation committee gamely tries to put the best face on this latest eruption of porcine behavior. In return for the option, Ellison promised to take no further option grants for four years. He also agreed to cut his salary and bonus to zero. So Ellison looks like a real risk-taker, giving up a sure salary and an almost sure bonus for highly risky stock options.

But are the options that risky? On June 4, 1999, when the option was granted, the 10-year Treasury strip rate was 6.21 percent. If Ellison does nothing over the next 10 years but deliver a return to his shareholders equal to what they could have received by taking no risk whatsoever, he will still earn $227 million from his 1999 grant. That's not a bad trade-off for giving up a salary and bonus that, even in his best year, was worth only $3.8 million.

Presiding over the distribution of all this largesse is Michael Boskin, a Stanford economics professor, who chairs Oracle's board compensation committee.

Boskin calculated in the compensation committee's report that Ellison's latest option grant had a present value of $191. million, as determined by the Black-Scholes option pricing model.

Uneven trade

Boskin, more than almost anyone else, would know, of course, that the $191 million present value already reflects the greater risk that an option contains.

So it seems puzzling to me that he would see an option worth $191 million, or $47.5 million a year during the four years that Ellison will receive no other option grant, as an equal trade against a give-up of salary and bonus worth $3.8 million a year, along with normal-sized, annual option grants.

More than that, the $47.5 million a year figure assumes Ellison will deliver just average performance, not spectacular performance of the type he has been delivering.

To offer someone a pay package of $47.5 million a year for average performance is totally off the wall. I have to wonder what survey sources Boskin consulted that told him that was the going rate for an average-performing CEO.

Maybe the good professor needs to sign up for some continuing education units in economics.

It's a pity that Ellison is letting his insatiable appetite for money get in the way of a performance record that is a work of wonder.

Oracle went public on March 12, 1986, at a split-adjusted price of just 9 cents a share. A shareholder who bought $1,000 of stock that day would be sitting on an investment worth about $850,000. That is 2.7 times what you'd have if you put the same $1,000 into Microsoft on the same day.

Ellison needs to unshackle his shareholders and let them put away their oars. If he wants to pass Bill Gates not only in wealth but in fair play, he should consider, first, letting his salary and bonus remain at zero indefinitely, and, second, promising his shareholders that he won't ever take even one more option share.

Graef Crystal is a columnist for Bloomberg News.