Our
directors play a critical role in guiding our strategic direction and overseeing the management of Oracle. Ongoing developments in corporate governance and financial reporting have resulted in an increased demand for highly qualified and productive
public company directors. Further, Oracles active acquisition program, our expansion into new lines of business and rapid changes in the technology industry demand substantial time commitments from our directors.
These considerable time commitments and the many responsibilities and risks of being a director of a public company of Oracles size, complexity
and profile require that we provide adequate incentives for our directors continued performance by paying compensation commensurate with our directors significant workload. Our non-employee directors are compensated based upon their
respective levels of Board participation and responsibilities, including service on Board committees. Several of our directors serve on more than one committee. Our non-employee directors display a high level of commitment and flexibility in their
service to Oracle. In addition to engaging with our senior management, our directors also personally attend important customer-related events such as Oracle OpenWorld and Oracle President Council forums and meet with our stockholders throughout the
year to better understand their perspectives. Annual cash retainers and formula equity award grants to our non-employee directors are intended to correlate to the responsibilities and time commitments of each such director.
Our employee directors, Mr. Ellison, Ms. Catz, Mr. Hurd and Mr. Henley, receive no separate compensation for serving as directors of Oracle.
While we believe our non-employee directors have been properly compensated in prior years, certain of our stockholders and their advisors expressed
concern last year regarding our director compensation practices. We value stockholder feedback, and we do not want our director compensation to create even the appearance of an independence issue. Consequently, and in direct response to this
stockholder feedback, our Board approved significant reductions to our non-employee director compensation structure effective as of April 29, 2016, including:
During fiscal 2016, each of our non-employee directors received (1) an annual cash retainer of $52,500 for serving as a director of Oracle
(prorated for directors who did not serve on the Board for the full year) and (2) each of the applicable retainers and fees set forth below for serving as a chair or as a member of one or more of the committees of the Board (with retainers
prorated for directors who served as chairs or committee members for less than a full year). As noted above, the F&A Committee Vice Chair annual retainer of $25,000 was eliminated effective as of April 29, 2016, and the F&A Committee Vice
Chair fiscal 2016 retainer was prorated accordingly.
Non-employee directors also participate in our Amended and Restated 1993 Directors Stock Plan (the Directors Stock Plan), which
sets forth stockholder-approved limits on annual equity awards for Board and committee chair service. As described above, the Board approved significant reductions to our non-employee director compensation for fiscal 2016, including reductions in
equity compensation. Below is a summary of the stockholder-approved limits on annual equity awards set forth in the Directors Stock Plan and the number of RSUs actually granted to directors on May 31, 2016.
The
Directors Stock Plan provides that non-employee directors may receive grants of stock options or RSUs of an equivalent value, as determined on any reasonable basis by the Board, in lieu of all or some of the stock option limits set forth in
the plan. The Board determined that a ratio of four stock options to one RSU should be used, consistent with its approach for equity awards granted to Oracle employees. As noted above, effective as of April 29, 2016, the Board determined that all
non-employee director equity awards will be delivered in the form of RSUs that vest on the first anniversary of the date of grant.
The Directors Stock Plan also provides for an initial equity grant of not more than 45,000 stock options (or 11,250 RSUs) for
new non-employee directors, prorated based upon the number of full calendar months remaining in the fiscal year. Any new director appointed subsequent to April 29, 2016 will receive an initial grant of 8,438 RSUs (constituting a 25% reduction from
the stockholder-approved limit in the Directors Stock Plan), prorated based upon the number of full calendar months remaining in the fiscal year.
Ms. James, who was appointed prior to the director compensation changes effective April 29, 2016, received an initial grant on December 16, 2015
consisting of a combination of stock options to purchase 9,375 shares of our common stock and 2,343 RSUs, in each case vesting 25% per year over four years on each anniversary of the date of grant. Ms. James award was prorated based
upon the number of full calendar months remaining in the fiscal year.
We regularly monitor developments in corporate
governance and review our processes and procedures in light of such developments. As part of those efforts, we review federal laws affecting corporate governance, as well as rules adopted by the SEC and NYSE. We believe we have in place corporate
governance procedures and practices that are designed to enhance our stockholders interests.
Corporate Governance Guidelines
The Board has approved Corporate Governance Guidelines for Oracle (the Guidelines). The Guidelines address the following matters:
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director
qualifications;
director majority voting policy;
director responsibilities,
including risk oversight;
executive sessions and leadership roles;
conflicts of interest;
Board committees;
director access to officers and
employees;
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director
compensation;
director orientation and continuing education;
director and executive officer
stock ownership;
CEO evaluation;
stockholder communications with
the Board; and
performance evaluation of the Board and its committees.
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The Guidelines require that all members of the F&A, Compensation, Governance and Independence Committees must be
independent, each in accordance with or as defined in the rules adopted by the SEC and NYSE. The Independence Committee and the Board make this determination annually for all non-employee directors.
The Board and each committee have the power to hire legal, accounting, financial or other outside advisors as they deem necessary in their best
judgment without the need to obtain the prior approval of any officer of Oracle. Directors have full and free access to officers and employees of Oracle and may ask questions and conduct investigations as they deem appropriate to fulfill their
duties.
Conflict of interest expectations for our non-employee directors are addressed in our Guidelines and provide that each non-employee
director must:
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annually disclose to our General Counsel all of his or her executive, employment, board of directors, advisory board
or equivalent positions in other organizations;
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disclose any such proposed positions with a public company before they become effective and any such positions with a
private company promptly following his or her appointment to such entity; and
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disclose any potential conflicts of interest that may arise from time to time with respect to matters under
consideration of the Board.
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The General Counsel must report all such disclosures to the Independence Committee, and the Board
must consider such disclosures and other available information and take such actions as it considers appropriate. All directors are expected to comply with Oracles Code of Ethics and Business Conduct, except that for our non-employee
directors, the provisions regarding conflicts of interest in the Guidelines supersede these same provisions in the Code of Ethics and Business Conduct.
The Guidelines provide for regular executive sessions to be held by non-employee directors. The Guidelines also provide that the Board or Oracle will
establish or
provide access to appropriate orientation programs or materials for the benefit of newly elected directors
, including presentations from senior
management and visits to Oracles facilities.
Under the Guidelines, the Board periodically evaluates the appropriate size of the Board
and may make any changes it deems appropriate. The Compensation Committee is required under the Guidelines to conduct an annual review of our CEOs performance and compensation, and the Board reviews the Compensation Committees report to
ensure the CEOs are providing the best leadership for Oracle in the short and long term.
The Guidelines are posted on, and we intend to disclose
any future amendments to the Guidelines on, our website at
www.oracle.com/goto/corpgov
.
2016 Annual Meeting of
Stockholders
19
Proxy Access and Director Nominations
In June 2016, our Board adopted amendments to our Bylaws to implement proxy access. Under the proxy access provisions in our Bylaws, a stockholder (or
a group of up to 20 stockholders) continuously owning at least 3% of Oracles outstanding shares for at least three years may nominate and include in Oracles proxy materials for an annual meeting director nominees constituting up to the
greater of two individuals or 20% of the Board, provided that the stockholders and the nominees satisfy the requirements specified in our Bylaws.
The Governance Committee and the Board spent significant time evaluating the adoption of proxy access bylaw provisions. Among other things, the
Governance Committee and the Board considered our stockholders approval of a stockholder proxy access proposal at our 2015 annual meeting of stockholders, as well as a variety of views on proxy access, including the Council of Institutional
Investors Proxy Access Best Practices and the insight gained through extensive discussions with our stockholders and independent advisors with expertise in corporate governance. A number of our stockholders have expressed support for proxy
access provisions limiting the number of stockholders in a nominating group to 20 and limiting the number of proxy access nominees to up to the greater of two individuals or 20% of the Board, and the Board believes those limitations are in the best
interest of all stockholders.
See Stockholder Proposals for the 2017 Annual Meeting on page 62 for information on the requirements for
stockholders who wish to submit a director nomination for inclusion in our 2017 proxy statement or submit a director nomination to be presented at our 2017 annual meeting of stockholders (but not for inclusion in our proxy statement).
Majority Voting Policy
The
Guidelines set forth our majority voting policy for directors, which states that, in an uncontested election, if any director nominee receives an equal or greater number of votes WITHHELD from his or her election as compared to votes
FOR such election (a Majority Withheld Vote) and no successor has been elected at such meeting, the director nominee must tender his or her resignation following certification of the stockholder vote.
The Governance Committee must promptly consider the resignation offer and a range of possible responses based on the circumstances that led to the
Majority Withheld Vote, if known, and make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Governance Committee in making its recommendation, and the Board in
making its decision, may each consider any factors or other information that it considers appropriate and relevant, including, but not limited to:
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the stated reasons, if any, why stockholders withheld their votes;
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possible alternatives for curing the underlying cause of the withheld votes;
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the directors qualifications;
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the directors past and expected future contributions to Oracle; and
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the overall composition of the Board.
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The Board will act on the Governance Committees recommendation within 90 days following certification of the stockholder vote. Thereafter,
the Board will promptly publicly disclose in a report furnished to the SEC its decision regarding the tendered resignation, including its rationale for accepting or rejecting the tendered resignation. The Board may accept a directors
resignation or reject the resignation. If the Board accepts a directors resignation, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board, in its sole discretion, may fill any resulting
vacancy or may decrease the size of the Board, in each case pursuant to our Bylaws. If a directors resignation is not accepted by the Board, such director will continue to serve until the next annual meeting and until his or her successor is
duly elected, or his or her earlier resignation or removal.
Any director who tenders his or her resignation pursuant to this policy may not
participate in the Governance Committee recommendation or Board action regarding whether to accept the resignation offer. However, if a majority of the members of the Governance Committee received a Majority Withheld Vote at the same election, then
the independent directors who did not receive a Majority Withheld Vote must appoint a committee among themselves to consider any resignation offers and recommend to the Board whether to accept such resignation offers.
20
2016 Annual Meeting of Stockholders
Through this policy, the Board seeks to be accountable to all stockholders and respects the rights of
stockholders to express their views through their votes for directors. However, the Board also deems it important to preserve sufficient flexibility to make sound evaluations based on the relevant circumstances in the event of a greater than or
equal to 50% WITHHELD vote against a specific director. For example, the Board may wish to assess whether the sudden resignations of one or more directors would materially impair the effective functioning of the Board. The Boards
policy is intended to allow the Board to react to situations that could arise if the resignation of multiple directors would prevent a key committee from achieving a quorum. The policy also would allow the Board to assess whether a director was
targeted for reasons unrelated to his or her Board performance at Oracle. The policy imposes a short time frame for the Board to consider a director nominees resignation.
Board and Committee Performance Evaluations
The Board and each of its committees conduct annual self-evaluations to determine whether they are functioning effectively and whether any changes are
necessary to improve their performance.
Every year, the Chair of the Governance Committee interviews each director and certain members of management to obtain his or her assessment of the
effectiveness of the Board and the committees, director performance and Board dynamics.
The Chair of the Governance Committee then reports the results of these interviews at meetings of the Governance
Committee and the Board, where the results are discussed. In addition, the chair of each committee guides an annual committee self-evaluation discussion among the committee members. The results of the committee self-evaluations are also reported to
the Board for review and discussion.
Stock Ownership Guidelines for Directors and Senior Officers
Board members and senior officers are required to own shares of Oracle common stock. The Governance Committee sets and periodically reviews and makes
changes to these ownership requirements, which we refer to as the Stock Ownership Guidelines. The current Stock Ownership Guidelines were adopted in July 2011 and amended in April 2015.
Under the Stock Ownership Guidelines, our directors and senior officers must own the following number of shares of Oracle common stock within five
years from the date such person became a director or senior officer:
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Title
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Minimum Number of Shares
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Chief Executive Officers
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250,000
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Chairman and Chief Technology Officer
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250,000
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Presidents
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100,000
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Executive Vice Presidents who are Section 16 Officers
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50,000
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All other Executive Vice Presidents
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25,000
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All other Section 16 Officers
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10,000
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Non-employee directors
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10,000
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Each person promoted from within the senior officer positions has one year from the date of his or her promotion to
comply with any increased ownership requirement. Shares of Oracle common stock counted toward the Stock Ownership Guidelines include any shares held directly or through a trust or broker; shares held by a spouse; shares held through our 401(k) Plan
and our Oracle Corporation Employee Stock Purchase Plan (the ESPP); and shares underlying vested but unexercised stock options, with 50% of the in-the-money value of such options being used for this calculation. Full-value
awards, including RSUs and PSUs, do not count toward the Stock Ownership Guidelines until they vest.
We believe all of our Board members and NEOs
are currently in compliance with the Stock Ownership Guidelines.
Share Pledging and Our Prohibition on Speculative Transactions
Our insider trading policy prohibits all of our employees, including our executive officers, and our non-employee directors from purchasing
financial instruments (including prepaid variable forward contracts, equity swaps, short sales, puts, collars, straddles and exchange funds) or otherwise engaging in transactions that are designed to or have the effect of hedging or offsetting any
decrease in the market value of Oracle securities.
The Board, the Governance Committee and the Compensation Committee regularly review the extent
to which any executive officer or non-employee director has pledged shares of Oracle common stock as collateral to secure any personal or other indebtedness, with a focus on any potential risk to Oracle stockholders. As set forth under
Security Ownership of Certain Beneficial Owners and Management, on page 26, as of September 19, 2016, Mr. Ellison, our Chairman, CTO, founder and largest stockholder, had pledged 315,000,000 shares of Oracle common stock as
collateral to secure certain personal indebtedness. Mr. Ellisons pledged shares secure personal term loans only; none of his shares are pledged as collateral for margin accounts. The pledged shares are not used to shift or hedge any economic
risk in owning Oracle common stock. Currently, no other executive officer or director holds shares of Oracle common stock that have been pledged to secure any personal or other indebtedness.
2016 Annual Meeting of
Stockholders
21
Every fiscal quarter, the Governance Committee and the
Compensation Committee review Mr. Ellisons pledging arrangements from a risk management perspective and provide a report to the Board on the arrangements.
In reviewing Mr. Ellisons pledging
arrangements, the Board and the committees consider:
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historical information and trends regarding Mr. Ellisons pledging arrangements;
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the key terms of the loans under which shares of Oracle common stock have been pledged as collateral;
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the magnitude of the aggregate number of shares of Oracle common stock that are pledged in relation to:
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the
total number of shares of Oracle common stock outstanding; and
the total number of shares of Oracle common stock owned by Mr. Ellison;
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the market value of Oracle common stock;
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Mr. Ellisons independent ability to repay any loans without recourse to the pledged shares; and
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any other relevant factors.
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Board Leadership Structure
The
roles of Chairman of the Board and CEO are currently filled by separate individuals. Since September 2014, Mr. Ellison has served as our Chairman, and Ms. Catz and Mr. Hurd have served as our CEOs. Previously, Mr. Henley served
as Chairman and Mr. Ellison served as CEO.
The Board believes that the separation of the offices of the Chairman and CEOs is appropriate at
this time because it allows our CEOs to focus primarily on Oracles business strategy, operations and corporate vision. However, as described in further detail in our Guidelines, the Board does not have a policy mandating the separation of the
roles of Chairman and CEO. Our Board elects our Chairman and our CEOs, and each of these positions may be held by the same person or by different people. We believe it is important that the Board retain flexibility to determine whether these roles
should be separate or combined based upon the Boards assessment of the companys needs and Oracles leadership at a given point in time.
We believe that independent and effective oversight of Oracles business and affairs is maintained through the composition of our Board, the
leadership of our independent directors and Board committees and our governance structures and processes already in place. The Board consists of a substantial majority of independent directors, and the Boards Compensation, F&A, Governance
and Independence Committees are composed solely of independent directors.
While we currently do not have a policy mandating an independent lead
director, the Board believes that a number of non-employee directors fulfill the lead independent director role at various times, including during executive sessions, depending upon the particular issues involved. As set forth in our Guidelines,
on an annual rotating basis, the chairs of the F&A Committee, the Governance Committee and the Compensation Committee serve as the lead independent director at executive sessions of the Board
. The lead independent director serves as a liaison between our independent directors and our executive directors and performs such additional duties as our Board determines.
Currently, Mr. Chizen serves as the lead independent director.
Boards Role in Risk Oversight
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While management is responsible for assessing and managing risks to Oracle, our Board is responsible for overseeing
managements efforts to assess and manage risk. The Boards risk oversight areas include, but are not limited to:
leadership
structure and succession planning for management and the Board;
strategic and
operational planning, including with respect to significant acquisitions, the evaluation of our capital structure and long-term debt financing, and Oracles long-term growth;
information technology and cybersecurity; and
legal and
regulatory compliance.
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Cybersecurity Risk Oversight
Cybersecurity risk oversight is a top priority for our Board. Oracles head of Global Information Security and its Chief Privacy Officer regularly brief the
F&A Committee on the companys information security program and its related priorities and controls. In turn, the F&A Committee reports to the full Board regarding the committees cybersecurity risk oversight activities.
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22
2016 Annual Meeting of Stockholders
While the Board has the ultimate oversight responsibility for Oracles risk management policies and
processes, various committees of the Board also have the following responsibilities for risk oversight:
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the
F&A Committee
oversees risks associated with our financial statements and financial reporting, mergers
and acquisitions, credit and liquidity, information technology and cybersecurity, litigation and Code of Ethics and Business Conduct compliance;
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the
Compensation Committee
considers the risks associated with our compensation policies and practices, with
respect to both executive compensation and employee compensation generally;
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the
Governance Committee
oversees risks associated with our overall governance practices and the leadership
structure of the Board; and
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the
Independence Committee
reviews risks arising from transactions with related persons and director
independence issues.
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Both the Compensation Committee and the Governance Committee review risks associated with the pledging of
Oracle securities by Mr. Ellison, as described above in Share Pledging and Our Prohibition on Speculative Transactions on page 21.
Our
Board is kept informed of each committees risk oversight and other activities via regular reports of the committee chairs to the full Board. For example, with respect to acquisitions and depending on the size of the acquisition meeting a
threshold figure, the F&A Committee performs the initial review of the proposed transactiontaking into consideration any risks associated with the transactionand determines whether to recommend that the Board approve the transaction.
The F&A Committee also reviews completed acquisitions on a quarterly basis to determine whether the acquired companies have performed as expected.
In addition, the Board plays an active oversight and risk mitigation role through its
regular review
of Oracles strategic direction
. While management is responsible for setting Oracles strategic direction, the directors review Oracles strategy at every regular meeting of the Board. One
Board meeting each year is held off-site and is exclusively dedicated to strategy. The Board engages in candid discussions with management with respect to Oracles strategic direction. We believe this Board oversight helps identify and mitigate
risks associated with our overall business strategy.
The Board has also assessed the risks associated with Oracles current leadership
structure (consisting, in part, of two CEOs who serve on the Board and a founder and significant stockholder who serves as Chairman and CTO). The Board believes that each executive has distinct strengths, and this leadership structure functions
well. In addition, the executives are subject to the independent oversight of our majority independent Board and fully independent committees, which, the Board believes, provides an effective counterbalance to the current leadership structure.
Board of Directors and Director Independence
Each of our directors stands for election every year.
We do not have a classified or staggered
board
. If the director nominees are elected at the Annual Meeting, the Board will continue to be composed of four employee directors (Mr. Ellison, Ms. Catz, Mr. Hurd and Mr. Henley) and nine non-employee
directors. Upon the recommendation of the Independence Committee, the Board determined that each of the following nine current directors is independent (as defined by applicable NYSE listing standards and our Corporate Governance Guidelines): Mr.
Berg, Mr. Bingham, Dr. Boskin, Mr. Chizen, Mr. Conrades, Mr. Garcia-Molina, Ms. James, Secretary Panetta and Ms. Seligman. Therefore, all directors who served during fiscal 2016 on the Compensation, F&A, Governance and Independence Committees
were independent under the applicable NYSE listing standards. The Board also determined, upon recommendation of the Independence Committee, that all directors who served during fiscal 2016 on the Compensation and F&A Committees satisfied the
applicable NYSE and SEC heightened independence standards for members of compensation and audit committees.
In making the independence
determinations, the following relationships and factors were considered:
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Dr. Boskin and Mr. Garcia-Molina are both employed by Stanford University, which has received donations from
both Oracle and various Board members. In addition, certain Board members serve on advisory or oversight boards at Stanford University or are otherwise employed part-time by Stanford University.
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The total amount Oracle donated to Stanford University constituted less than 0.01% of Oracles total revenues in
fiscal 2016. Based on a review of publicly available data, we believe the donation represented less than 0.03% of Stanford Universitys total revenues in its last fiscal year. Oracles donation was contributed directly to Stanford Hospital
and Clinics to support the development of a new hospital. None of the funds were donated to the departments or schools in which Dr. Boskin or Mr. Garcia-Molina teach at Stanford. The donation falls within NYSE prescribed limits and guidelines.
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The independent members of our Board held an executive session following each of the regularly scheduled Board meetings, for a
total of four meetings in fiscal 2016.
2016 Annual Meeting of
Stockholders
23
The F&A Committee has adopted a requirement that if an F&A Committee member wishes to serve on
more than three audit committees of public companies, the member must obtain the approval of the F&A Committee, which will determine whether the directors proposed service on the other audit committee(s) will detract from his/her
performance on our F&A Committee.
Director Tenure and Board Refreshment
We believe it is desirable to maintain a mix of longer-tenured, experienced directors and newer directors with fresh perspectives. In furtherance of
this objective, the Board elected Ms. James and Secretary Panetta as directors in December 2015 and January 2015, respectively. However, we do not impose director tenure limits or a mandatory retirement age. The Board has considered the concerns
raised by some stockholders regarding longer-tenured directors, but believes that longer-serving directors with experience and institutional knowledge bring critical skills to the boardroom. In particular, the Board believes that given the large
size of our company, the breadth of our product offerings and the international scope of our organization, longer-tenured directors are a significant strength of the Board. The Board also believes that longer-tenured directors have a better
understanding of the challenges Oracle is facing and are more comfortable speaking out and challenging management. Accordingly, while director tenure is taken into consideration when making nomination decisions, the Board believes that imposing
limits on director tenure would arbitrarily deprive it of the valuable contributions of its most experienced members.
Stockholder
Outreach
We have long maintained an active stockholder engagement program to solicit our stockholders views on corporate governance,
executive compensation and other issues. In fiscal 2016, members of our Board (including both independent and executive directors) conducted in-person or telephonic meetings with stockholders representing approximately 24% of Oracles
outstanding unaffiliated shares. Since the beginning of fiscal 2017, independent directors, including members of the Compensation and Governance Committees, have held in-person meetings with eight of our large institutional stockholders,
representing approximately 18% of Oracles outstanding unaffiliated shares, and offered to meet with stockholders representing an additional 4% of Oracles outstanding unaffiliated shares. (Percentages calculated based on data available as
of June 30, 2016.)
The feedback received from our stockholder outreach efforts is communicated to and considered by the Board, and, when
appropriate, the Board implements changes in response to stockholder feedback. See Proxy Statement SummaryStockholder Outreach and Board Responsiveness on page 3 for a summary of the recent feedback we have received from our
stockholders and our Boards response to this feedback.
Communications with the Board
Any person wishing to communicate with any of our directors, including our independent directors, regarding Oracle may write to the director,
c/o the Secretary of Oracle at 500 Oracle Parkway, Mailstop 5op7, Redwood City, California 94065, or may send an email to
Corporate_Secretary@oracle.com
. The Secretary will forward these communications directly to the director(s) specified or, if none is specified, to the Chairman of the Board. In addition, we present all such communications, as well as draft responses,
at meetings of our Governance Committee. These communications and draft responses are also provided to the appropriate committee or group of directors based on the subject matter of the communication; for example, communications regarding executive
compensation are provided to our Compensation Committee, in addition to our Governance Committee.
Employee Matters
Code of Conduct.
In 1995, we adopted and have since continually maintained a Code of Ethics and Business Conduct (the Code of
Conduct). We require all employees, including our senior officers and our employee directors, to read and to adhere to the Code of Conduct in discharging their work-related responsibilities. Our Compliance and Ethics Program involves the
administration of training regarding and enforcement of the Code of Conduct and is under the direction of our Chief Compliance and Ethics Officer. We have also appointed Regional Compliance and Ethics Officers to oversee the application of the
Code of Conduct in each of our geographic regions. We provide mandatory web-based general training with respect to the Code of Conduct, and we also provide additional live and web-based training on specific aspects of the Code of Conduct from time
to time to certain employees. Employees are expected to report any conduct they believe in good faith to be a violation of the Code of Conduct. The Code of Conduct is posted on, and we intend to disclose any future amendments to or waivers granted
to our executive officers from a provision to the Code of Conduct on, our website at
www.oracle.com/goto/corpgov
.
Compliance and Ethics Reports.
With oversight from the F&A Committee, we have established several different reporting channels
employees may use to seek guidance or submit reports concerning compliance and ethics matters, including accounting, internal controls and auditing matters. These reporting channels include Oracles Integrity Helpline, which may be accessed
either over the phone or by way of a secure Internet site. Employees may contact the helpline 24 hours a day, seven days a week. Interpreters are provided to helpline callers who want to communicate in languages other than English, and
employees using the online system may file a report in the language of their choice. Employees who contact the helpline, whether over the phone or
24
2016 Annual Meeting of Stockholders
online, generally may choose to remain anonymous. Certain countries other than the United States, however, limit or prohibit anonymous reporting; employees who identify themselves as being from
an affected country are alerted if special reporting rules apply to them.
Supplemental Conflict of Interest Policy for Senior
Officers.
Our Supplemental Conflict of Interest Policy for Senior Officers (the Conflict of Interest Policy), which supplements the Code of Conduct, addresses potential conflict of interest issues and requires prompt and
annual disclosure to an executive, an executive committee or the Independence Committee, as applicable, of actual or potential conflicts of interest with respect to financial interests and corporate opportunities involving senior officers and their
related persons. A financial interest involves (1) an existing or potential significant investment in any entity with which we have, or are negotiating, a material transaction or arrangement and (2) any existing or potential compensation
arrangement or right with such entity.
Each person subject to the policy must report any actual or potential conflict of interest that he or she
believes has gone unreported. The executive or committee to whom any such disclosure is made will decide if the disclosed facts constitute an actual conflict of interest. If such person or committee determines that a conflict of interest exists,
such person or committee can determine whether we will enter into the transaction or arrangement in issue or, in the case of a corporate opportunity, the transaction or arrangement will remain available for us to pursue. Each senior officer must
annually confirm in writing that such person has read this policy and is in compliance with it.
The Conflict of Interest Policy is posted on,
and we intend to disclose any future amendments to or waivers granted to our executive officers from a provision of the Conflict of Interest Policy on, our website at
www.oracle.com/goto/corpgov
.
2016 Annual Meeting of
Stockholders
25
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information, as
of September 19, 2016, the record date of the Annual Meeting, with respect to the beneficial ownership of Oracle common stock by: (1) each stockholder known by us to be the beneficial owner of more than 5% of our common stock; (2) each
director or nominee; (3) each executive officer named in the Summary Compensation Table; and (4) all current executive officers and directors as a group.
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Name of Beneficial Owner
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Amount and Nature of
Beneficial Ownership (1)
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Percent
of Class
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Lawrence J. Ellison (2)
500 Oracle Parkway, Redwood City, CA 94065
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1,166,041,236
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28
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%
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Jeffrey S. Berg (3)
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547,674
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*
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H. Raymond Bingham (4)
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422,656
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*
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Michael J. Boskin (5)
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506,562
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*
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Safra A. Catz (6)
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31,149,360
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*
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|
Bruce R. Chizen (7)
|
|
|
|
337,812
|
|
|
|
|
*
|
|
George H. Conrades (8)
|
|
|
|
129,531
|
|
|
|
|
*
|
|
John F. Fowler (9)
|
|
|
|
5,811,028
|
|
|
|
|
*
|
|
Hector Garcia-Molina (10)
|
|
|
|
300,781
|
|
|
|
|
*
|
|
Jeffrey O. Henley (11)
|
|
|
|
4,934,516
|
|
|
|
|
*
|
|
Mark V. Hurd (12)
|
|
|
|
19,291,391
|
|
|
|
|
*
|
|
Renée J. James (13)
|
|
|
|
7,000
|
|
|
|
|
*
|
|
Thomas Kurian (14)
|
|
|
|
9,293,882
|
|
|
|
|
*
|
|
Leon E. Panetta (15)
|
|
|
|
10,781
|
|
|
|
|
*
|
|
Naomi O. Seligman (16)
|
|
|
|
301,926
|
|
|
|
|
*
|
|
All current executive officers and directors as a
group (17 persons) (17)
|
|
|
|
1,241,148,939
|
|
|
|
|
29
|
%
|
(1)
|
Unless otherwise indicated below, each stockholder listed had sole voting and sole investment power with respect to
all shares beneficially owned, subject to community property laws, if applicable.
|
(2)
|
Includes 48,937,500 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date and 315,000,000 shares pledged as collateral to secure certain personal indebtedness, including various lines of credit. See Corporate GovernanceShare Pledging and Our Prohibition on Speculative
Transactions on page 21 for more information on Board and committee oversight of Mr. Ellisons pledging arrangements.
|
(3)
|
Includes 5,000 shares owned by Mr. Bergs spouse, 78,666 held in a trust for the benefit of Mr. Berg and his
family, 34,633 held in a grantor retained annuity trust for the benefit of Mr. Berg and his family and 429,375 shares subject to currently exercisable stock options or stock options exercisable within 60 days of the record date.
|
(4)
|
Includes 419,375 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
(5)
|
Includes 498,750 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
(6)
|
Includes 30,687,500 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
(7)
|
Includes 5,000 shares held in a trust for the benefit of Mr. Chizen and his spouse and 330,000 shares
subject to currently exercisable stock options or stock options exercisable within 60 days of the record date.
|
(8)
|
Includes 118,125 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
26
2016 Annual Meeting of Stockholders
(9)
|
Includes 5,728,395 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date and 62,988 earned PSUs (including accrued dividend equivalents) for which Mr. Fowler elected to defer settlement.
|
(10)
|
Includes 294,375 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
(11)
|
Includes 1,800,569 shares held in a trust for the benefit of Mr. Henley and his spouse, 31,000 shares held in a
trust for the benefit of Mr. Henleys children, 102,947 held by the J&J Family Foundation and 3,000,000 shares subject to currently exercisable stock options or stock options exercisable within 60 days of the record date.
|
(12)
|
Includes 19,087,500 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date.
|
(13)
|
Ms. James joined the Board on December 16, 2015. None of the RSUs granted to her will vest within 60 days of the
record date, and none of her stock options are exercisable within 60 days of the record date.
|
(14)
|
Includes 8,845,700 shares subject to currently exercisable stock options or stock options exercisable within
60 days of the record date and 414,649 earned PSUs (including accrued dividend equivalents) for which Mr. Kurian elected to defer settlement.
|
(15)
|
Includes 9,375 shares subject to currently exercisable stock options or stock options exercisable within 60 days
of the record date.
|
(16)
|
Includes 7,397 shares owned by Ms. Seligmans spouse of which she disclaims beneficial ownership and 286,875
shares subject to currently exercisable stock options or stock options exercisable within 60 days of the record date.
|
(17)
|
Includes all shares described in the notes above. Also includes (a) 69,053 additional shares of Oracle common stock,
(b) 1,981,250 shares subject to currently exercisable stock options or stock options exercisable within 60 days of the record date and (c) 12,500 RSUs that will vest within 60 days of the record date, in each case held by executive
officers who are not named in the table.
|
2016 Annual Meeting of
Stockholders
27
EXECUTIVE COMPENSATION
Compensation Discussion and
Analysis
This section provides information on our executive compensation program and our compensation philosophy for our named executive
officers (NEOs), who in fiscal 2016 were:
|
|
|
Lawrence J. Ellison, Chairman of the Board and Chief Technology Officer
|
|
|
|
Safra A. Catz, Chief Executive Officer
|
|
|
|
Mark V. Hurd, Chief Executive Officer
|
|
|
|
Thomas Kurian, President, Product Development
|
|
|
|
John F. Fowler, Executive Vice President, Systems
|
Fiscal 2016 began on June 1, 2015 and ended on May 31, 2016.
Compensation Highlights
Business Overview
|
|
|
|
|
|
|
|
|
Oracle provides products and services that address all aspects of corporate information technology (IT)
environmentsapplication, platform and infrastructure. Our Oracle Cloud offerings provide a comprehensive and fully integrated stack of application, platform, compute and storage services in all three primary layers of the cloud: Software as a
Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). Our on-premise offerings include Oracle database and middleware software, application software, hardware (Oracle Engineered
Systems, servers, storage, networking and industry-specific products) and related support and services.
|
|
|
|
|
|
Oracle in
Fiscal 2016
$37 billion
total U.S. GAAP revenue in FY16
100%
of the Fortune 100 are customers
420,000+
customers in
145+
countries
Invested
$5.8 billion
in R&D in FY16
$55
billion
of capital returned to stockholders in the last five fiscal years
Approximately
136,000
employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition to the Oracle Cloud
Oracle customers are increasingly electing to run their IT environments using our suite of Oracle Cloud offerings. As customers deploy with the Oracle
Cloud, many are adopting a hybrid IT model, whereby certain of their IT resources are deployed and managed through the Oracle Cloud, while other of their IT resources are deployed and managed on-premise, and both sets of resources can be managed as
one. We are aggressively pursuing the opportunities presented by this shift in customer preferences, and we have delivered a 70% compound annual growth rate in revenue from our SaaS and PaaS offerings over the last six years. Revenue from our IaaS
offerings has also continued to grow. We believe we are executing well against our strategy to maintain leadership in our on-premise offerings while continuing to grow cloud-based revenue.
|
Linking Executive Compensation to Our Business Objectives
Each element of our executive compensation program is linked to our business objectives (see page 33). In fiscal 2016,
the Compensation Committee sought to align key elements of our executive compensation with our transition to the Oracle Cloud:
|
|
|
Stock options granted to our Chairman and Chief Technology Officer (CTO) and our Chief Executive Officers
(CEOs) will expire after five years, rather than ten years, while maintaining a four-year vesting schedule, to closely align the term of these awards with Oracles goal of accelerating growth in cloud-based revenue over the next
five years.
|
|
|
|
|
Consistent with our results-aligned compensation philosophy, the Compensation Committee maintained
year-over-year growth in our non-GAAP pre-tax profits as the financial performance metric for determining our top four NEOs annual cash bonuses under our Executive Bonus Plan, even though this metric was projected to result in no bonus
payments because Oracles non-GAAP profits were not projected to grow in fiscal 2016 due to Oracles transition to cloud-based product offerings.
|
|
28
2016 Annual Meeting of Stockholders
Compensation Changes in Response to Stockholder Feedback
|
|
|
|
|
|
|
The Compensation Committee engages in rigorous discussions and deliberations both internally and
with its independent compensation consultant about our compensation philosophy and design alternatives for our executive compensation program. In addition, members of our Board regularly seek feedback from our principal unaffiliated stockholders
regarding executive compensation and related governance matters.
|
|
|
|
|
|
12
Compensation Committee meetings in fiscal 2016
|
|
|
|
|
|
|
|
|
|
In fiscal 2016, members of our Board (including both independent and executive directors) conducted in-person or
telephonic meetings with stockholders representing approximately 24% of Oracles outstanding unaffiliated shares.
|
|
|
|
|
Since the beginning of fiscal 2017, independent directors, including members of the Compensation and Governance
Committees, have held in-person meetings with eight of our large institutional stockholders, representing approximately 18% of Oracles outstanding unaffiliated shares, and offered to meet with stockholders representing an additional 4% of
Oracles outstanding unaffiliated shares. (Percentages calculated based on data available as of June 30, 2016.)
|
|
Below is a summary of recent feedback we have received from our stockholders
regarding executive compensation and our Boards response to this feedback.
|
|
|
|
|
|
|
|
|
|
|
What We Heard
|
|
|
|
Our Boards Response
|
|
|
|
|
Concerns regarding the compensation of our top three NEOs
|
|
è
|
|
Year-over-Year Decreases in Compensation.
The aggregate reported compensation of our Chairman and CTO decreased 57% from fiscal 2012 through fiscal 2016 (with compensation decreasing every year during that period). The aggregate reported compensation of our CEOs
decreased 23% from fiscal 2015 through fiscal 2016 and decreased 20% from fiscal 2012 through fiscal 2016. See page 30 for details.
|
|
|
|
|
|
|
è
|
|
Introduction of Performance Stock Units.
Since fiscal 2015, approximately half of our NEOs equity compensation opportunities have been delivered in the form of performance stock units (PSUs) that may be earned only upon the attainment of
multiple pre-established, specified and quantifiable performance criteria. See page 33 for details.
|
|
|
|
|
|
|
è
|
|
Reduction in Term of Stock Options.
Stock options granted to our Chairman and CTO and CEOs in fiscal 2016 will expire after five years instead of ten years, while maintaining a four-year vesting schedule, to closely align the term of these
awards with Oracles goal of accelerating growth in cloud-based revenue over a five-year period. The reduction in term also reduced the grant date fair values of the awards.
|
|
|
|
|
Outcome of our 2015 say-on-pay vote
|
|
è
|
|
Rotation of Compensation Committee Members and Compensation Consultant Principal
Partner; Continued Stockholder Engagement.
At our 2015 annual meeting of stockholders, our say-on-pay proposal received the support of 48% of the votes cast. In fiscal 2016, our Board changed the
composition of the Compensation Committee, and the Compensation Committee rotated the principal partner from its independent compensation consultant in order to gain a fresh perspective on compensation matters. Ray Bingham is now Chair, Naomi
Seligman is Vice Chair and Renée James (our newest director) joined the committee. The Compensation Committee continues to engage in substantive discussions with our stockholders regarding executive compensation matters and continues to
evaluate and refine the design of our executive compensation program. See page 42 for details.
|
|
|
|
|
Concerns regarding compensation practices for independent directors
|
|
è
|
|
Reductions in Director Compensation.
In April 2016, our Board approved significant changes to our non-employee director compensation levels, which contributed to an average reduction of 24% in the total value of our non-employee
directors compensation in fiscal 2016 compared to fiscal 2015. See page 15 for details.
|
|
|
2016 Annual
Meeting of Stockholders
29
Decreases in Compensation of Senior Executives
The aggregate compensation of our Chairman and CTO (as reported in our Summary Compensation Table) decreased 57% from
fiscal 2012 through fiscal 2016. The aggregate reported compensation of our CEOs decreased 23% from fiscal 2015 through fiscal 2016 and 20% from fiscal 2012 through fiscal 2016.
Year-over-Year % Decreases in Compensation Compared to 2012
|
(1)
|
The Compensation Committee reduced Mr. Ellisons target fiscal 2015 PSU award by 187,500 PSUs and cancelled
750,000 shares of his fiscal 2015 stock option grant after he became our Chairman and CTO in September 2014.
|
|
|
(2)
|
In fiscal 2015, Ms. Catz and Mr. Hurd each received a one-time special equity award of 125,000 PSUs and a stock option
grant for 500,000 shares. The Compensation Committee determined these awards were appropriate because Ms. Catz and Mr. Hurd assumed new responsibilities as our CEOs.
|
|
Emphasis on Variable, At-Risk Compensation
Our executive compensation program in fiscal 2016 consisted of three principal elements (see page 33 for more information):
|
|
|
|
|
|
|
|
|
|
|
Compensation Element
|
|
Designed to Reward
|
|
At-Risk?
|
|
|
|
|
Long-Term Incentive CompensationPSUs and Stock Options
|
|
Success in achieving sustainable long-term
results
|
|
PSUs may be earned only upon the attainment of multiple pre-established, specified and quantifiable performance criteria
NEOs realize value from stock options only when our stock price increases and they remain employed beyond the date their stock options vest
|
|
|
|
|
Annual Performance-Based Cash Bonus
|
|
Success in achieving annual operating results
|
|
Bonuses are paid only when annual operating performance targets are achieved or exceeded
|
|
|
|
|
Base Salary
|
|
Experience, knowledge of the industry, duties and
scope of responsibility
|
|
|
|
|
In fiscal 2016, an average of
97%
of our NEOs total compensation (as
reported in the Summary Compensation Table on page 44) was at-risk, as shown in the chart below. Annual performance-based cash bonuses were zero ($0) in fiscal 2016 for all of our NEOs and therefore do not appear in the chart.
Fiscal 2016 NEO Compensation Mix
30
2016 Annual Meeting of Stockholders
Pay-for-Performance Compensation Philosophy
Reflecting our compensation philosophy, our executive compensation program is designed to be
results-aligned. The Compensation Committee believes that when Oracle achieves a higher level of financial performance and a higher stock price over a sustained period of time, our NEOs should be well compensated. As a result, when our
stockholders are rewarded, our NEOs are also rewarded. Similarly, when Oracle does not achieve its desired results, the Compensation Committee believes that our NEOs should realize less value from their incentive compensation and, correspondingly,
lower pay.
Fiscal 2016 Pay Outcomes Are Aligned with Performance
Our fiscal 2016 incentive compensation outcomes, which we believe are consistent with our results-aligned
compensation philosophy, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Element
|
|
Executive
|
|
Fiscal 2016 Outcome
|
|
Reason
|
|
|
|
|
PSUs
(see page 34 for details)
|
|
Lawrence J. Ellison
Safra A. Catz
Mark V. Hurd
|
|
2016 PSUs (first tranche) and
2015 PSUs (second tranche) earned at
100% of target
(out of a maximum possible payment of 150% of target)
|
|
Oracles revenue and
operating cash flow growth were better than the weighted average revenue and operating cash flow growth of the PSU Comparator Companies (as defined below).
However, Oracles revenue
and operating cash flow growth were negative and, consequently, payment was capped at the target level.
|
|
|
|
|
Thomas Kurian
|
|
2016 PSUs (first tranche) and
2015 PSUs (second tranche) earned at
110% of target
(the maximum possible payment)
|
|
Our cloud SaaS and PaaS
offerings experienced strong year-over-year revenue growth.
|
|
|
|
|
John F. Fowler
|
|
2016 PSUs (first tranche) and
2015 PSUs (second tranche) earned at
50% of target
(out of a maximum possible payment of 110% of target)
|
|
Year-over-year revenue declined
for our Oracle Engineered Systems and storage products.
|
|
|
|
|
Stock Options
(see page 35 for details)
|
|
Lawrence J. Ellison
Safra A. Catz
Mark V. Hurd
Thomas Kurian
John F. Fowler
|
|
Fiscal 2016 stock options had
an intrinsic value of zero ($0) at fiscal 2016 year end
|
|
Fiscal 2016 stock options were
granted at an exercise price that was higher than our stock price at the end of fiscal 2016.
|
|
|
|
|
Annual Performance-Based Cash Bonus
(see page 35 for details)
|
|
Lawrence J. Ellison
Safra A. Catz
Mark V. Hurd
Thomas Kurian
|
|
No annual performance-based
cash bonuses paid
|
|
Oracles non-GAAP pre-tax
profits did not grow in fiscal 2016.
|
|
|
|
|
John F. Fowler
|
|
No annual performance-based
cash bonus paid
|
|
Oracles hardware products
business did not meet profit expectations in fiscal 2016.
|
|
|
2016 Annual
Meeting of Stockholders
31
Other Compensation Policies and Practices
|
|
|
What We Do
|
Low Dilution Rates from Equity Awards.
We recognize that employee equity awards
dilute the holdings of our stockholders. Both the Compensation and F&A Committees regularly review our long-term incentive compensation program to ensure that we balance our employee compensation objectives with our stockholders interest
in limiting dilution from equity awards. As of May 31, 2016, our cumulative potential dilution since June 1, 2013 has been a weighted average annualized rate of 1.6% per year, which is significantly lower than the rates of the
companies in our compensation peer group and was calculated prior to considering the effects of our stock repurchase program. See page 34 for details.
|
Compensation Recovery (Clawback) Policy.
We have adopted a clawback policy
for our executive officers providing that if Oracle restates its reported financial results, we will seek to recover or cancel any cash bonuses paid that were awarded as a result of achieving financial performance goals that are not met under the
restated financial results. When the SEC adopts final clawback policy rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will revise our policy to comply appropriately.
|
Robust Stock Ownership Guidelines.
We endeavor to closely align the interests
of our senior executives with the interests of our stockholders during good and bad economic times through our robust Stock Ownership Guidelines, which specify the number of shares of Oracle common stock that our senior executives must own. See page
42 for details.
|
Regular Board Oversight of Share Pledging.
On a quarterly basis, the Board and the Governance
and Compensation Committees review the extent to which any executive officer or director has pledged shares of Oracle common stock as collateral to secure indebtedness. Mr. Ellisons pledging arrangements are reviewed at least once every fiscal
quarter, and no other NEO has pledged shares of Oracle common stock. See page 21 for details.
|
Independent Compensation Committee and Compensation Consultant.
The
Compensation Committee, which is composed entirely of independent directors, recognizes that it is essential to receive objective advice from its external advisors. Consequently, the Compensation Committee is solely responsible for retaining and
terminating its current compensation consultant, Compensia, which reports directly to the Compensation Committee and did not provide any other services to Oracle during fiscal 2016. See page 40 for details.
|
What We Dont Do
|
No Change-in-Control or Severance Agreements.
Each of our NEOs is employed at will. None of our employment offer letters or any other
agreements with our NEOs provides for termination, severance or change-in-control payments or benefits (other than potential double-trigger acceleration of vesting of outstanding and unvested equity awards under our broad-based equity
plan, which is a benefit provided to all employees who participate in the plan).
|
No Repricing of Underwater Stock Options.
We do not reprice or exchange
underwater stock options, and our equity plan requires stockholder approval to reprice stock options.
|
Prohibition on Speculative Transactions.
We prohibit all of our employees, including our executive
officers, and our non-employee directors from purchasing financial instruments (including prepaid variable forward contracts, equity swaps, short sales, puts, collars, straddles and exchange funds) or otherwise engaging in transactions that are
designed to or have the effect of hedging or offsetting any decrease in the market value of Oracle securities.
|
No Discretionary Bonuses for NEOs.
When performance-based bonuses result in zero ($0)
payment under our Executive Bonus Plan, we do not pay our NEOs discretionary bonuses.
|
No Minimum Guaranteed Number of PSUs.
Our PSU awards do not guarantee a minimum number
of PSUs that will be earned. The number of PSUs that can be earned ranges from 0% to 150% of the target award for our top three NEOs, and 0% to 110% of the target award for our other NEOs.
|
No Tax Gross-Ups for NEOs.
We do not provide any tax reimbursement gross-up payments
to our NEOs.
|
32
2016 Annual Meeting of Stockholders
Objectives of Our Executive Compensation Program
The objectives of our executive compensation
program are to:
|
|
|
attract and retain highly talented and productive executive officers;
|
|
|
|
provide incentives for their superior performance; and
|
|
|
|
align the interests of our executive officers with those of our stockholders.
|
The Compensation Committee believes we employ some of the most talented senior executives in our industry. Our senior executives are routinely
recruited as candidates to lead other large, sophisticated technology companies. Given the strength of our NEO group, the Compensation Committee believes it is critical they receive total compensation opportunities that reflect their individual
skills and experiences and are commensurate with the management of an organization of Oracles size, scope and complexity. Further, the Compensation Committee believes that our NEOs compensation levels must be appropriate to retain and
properly motivate them. At the same time, however, our NEOs pay is closely aligned with the investment gains or losses of Oracles stockholders. While our NEOs total incentive compensation
opportunities
may be among the
highest in our industry,
the amounts they ultimately
realize
are contingent on their ability to achieve our primary business objectives and create sustainable long-term value for our
stockholders.
Within Oracle, executive compensation is weighted most heavily toward our most
senior executive officers because they have the greatest impact on our business and financial results.
Elements of Our Executive Compensation Program
Each Element of the Program is Closely
Linked to Our Business Objectives
Our executive compensation program consists of the three principal elements described in the table below. We
weight our NEOs compensation mix to encourage appropriate decisions that are consistent with our business strategy of constantly improving our performance and building sustainable long-term stockholder value.
|
|
|
|
|
|
|
Compensation Element
|
|
Designed to Reward
|
|
Relationship to Business Objectives
|
|
At-Risk
|
1.
Long-Term Incentive CompensationPSUs and Stock Options
(see page 33)
|
|
Success in achieving sustainable long-term
results
|
|
Align our NEOs interests with long-term
stockholder interests to increase overall stockholder value
Motivate and reward our NEOs for achieving
financial performance goals that contribute to sustainable long-term results
Retain our NEOs in an increasingly competitive
market for talent
|
|
ü
|
2.
Annual Performance-Based Cash Bonus (see page 35)
|
|
Success in achieving annual operating
results
|
|
Motivate and reward our NEOs for achieving or
exceeding annual financial performance goals
Share incremental profits earned by Oracle equitably between our NEOs and our stockholders
|
|
ü
|
3.
Base Salary
(see
page 37)
|
|
Experience, knowledge of the industry, duties and
scope of responsibility
|
|
Provide a minimum, fixed level of cash
compensation to attract and retain talented NEOs who can successfully design and execute our business strategy
|
|
|
1.
Long-Term Incentive Compensation
Our philosophy with regard to granting long-term incentive compensation is to:
|
|
|
be sensitive to the overall number and value of shares of Oracle common stock underlying the equity awards granted;
|
|
|
|
grant equity awards to a relatively small number of employees, with a focus on our engineers, developers and senior
executives, and provide the largest awards to our top performers and individuals with the greatest responsibilities because they have the potential and ability to contribute the most to the success of our business and the creation of long-term
stockholder value; and
|
|
|
|
effectively manage the overall net dilution resulting from our use of equity as a compensation tool.
|
2016 Annual Meeting of
Stockholders
33
As of May 31, 2016, our cumulative potential dilution since June 1, 2013 has been a weighted
average annualized rate of 1.6% per year, which is significantly lower than the dilution at the companies in our compensation peer group. Our cumulative potential dilution is calculated as the average annualized new RSUs, PSUs and stock options
granted and assumed, net of RSUs, PSUs and stock options forfeited by employees leaving the company, divided by the weighted average outstanding shares during the calculation period and excludes the effects of our stock repurchase program.
Fiscal 2016 Equity Awards
Consistent with our
results-aligned compensation philosophy, beginning in fiscal 2015, the Compensation Committee made significant changes to the long-term incentive compensation program for our NEOs, providing that their annual equity awards would consist
of both PSUs and stock options. The Compensation Committee believes that our annual equity awardswhich are designed to reward outstanding performance as measured against our long-term financial resultswill provide our NEOs with
incentives to achieve our business objectives and drive increases in the market price of Oracle common stock, thus benefiting our stockholders as well as our NEOs.
PSU Award Design
The Compensation Committee engaged in a
thoughtful and rigorous deliberation process to design the PSU awards. When the Compensation Committee initially considered the adoption of PSUs, it evaluated a number of alternative performance award designs over the course of numerous meetings,
including special meetings called only for that purpose, with the assistance of Compensia, its compensation consultant, and solicited stockholder feedback. The Compensation Committee followed a similarly rigorous process for the design of the 2016
PSU awards. The Compensation Committee tailored the performance objectives of the 2016 PSU awards to the specific roles and responsibilities of each of our NEOs, as described below.
Fiscal 2016 PSUsMr. Ellison, Ms. Catz and Mr. Hurd
For Mr. Ellison, Ms. Catz and Mr. Hurd, the 2016 PSUs are measured using two performance metrics:
|
|
|
50% of the number of target PSUs is tied to relative growth in total consolidated revenues measured on a U.S. GAAP
basis; and
|
|
|
|
50% of the number of target PSUs is tied to relative growth in total consolidated net cash flows from operating
activities measured on a U.S. GAAP basis.
|
|
|
|
|
|
These metrics were selected because management analyzes revenue growth and operating cash flows as proxies for the creation of
long-term stockholder value, and Mr. Ellison, Ms. Catz and Mr. Hurd are ultimately responsible for the continued success of Oracle as a whole. The 2016 PSU awards are divided into four equal annual tranches, each of which is eligible to be
earned based on Oracles performance with respect to these two metrics as compared against the weighted average performance of the same metrics of seven companies, which we believe represent some of our primary competitors as well as companies
to which our stockholders most often compare us (collectively, the PSU Comparator Companies, listed in the chart at right).
|
|
|
|
PSU Comparator Companies
Cisco Systems
EMC
Hewlett Packard
Enterprise
IBM
salesforce.com
SAP
Workday
|
The key features of the 2016 PSUs for Mr. Ellison, Ms. Catz and Mr. Hurd are:
|
|
|
25% of the PSUs are eligible to be earned each year, so the target PSUs granted are distributed over four years (see
chart below);
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there is no minimum guaranteed number of PSUs that may be earned in any one year (the NEOs may earn 0% of the target
number of PSUs);
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the number of PSUs that may be earned is capped at a maximum of 150% of the target number of PSUs, so the upside is
limited;
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if Oracles growth exceeds the weighted average growth of the PSU Comparator Companies for either metric but is a
negative number, the maximum number of PSUs that may be earned with respect to that metric is 100% of the target number of PSUs allocated to that year; and
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if Oracles growth is one of the two lowest percentage growth amounts among the PSU Comparator Companies with
each companys growth measured separately and ranked from largest to smallest, none (0%) of the number of PSUs allocated to that year will be earned with respect to that metric.
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34
2016 Annual Meeting of Stockholders
One-fourth of the 2016 PSUs are eligible to be earned at the end of each of four separate, varying
performance periods, as follows:
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Tranche
Vesting Fiscal Year
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% of PSU
Award
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Performance Metric
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2016
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25%
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Fiscal 2016 weighted average
comparator performance
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2017
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25%
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Fiscal 2016 and 2017 weighted
average comparator performance
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2018
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25%
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Fiscal 2016, 2017 and 2018
weighted average comparator performance
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2019
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25%
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Fiscal 2017, 2018 and 2019 weighted average
comparator performance
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Earned PSUs vest upon the Compensation Committees certification of achievement against the pre-established,
specified and quantifiable target levels for each performance metric. Upon vesting, each PSU is converted into one share of Oracle common stock.
Fiscal 2016
PSUsOther NEOs
For Mr. Kurian and Mr. Fowler, the 2016 PSUs are to be earned based on a revenue growth metric linked to certain
strategic lines of business for which they have responsibility and oversight.
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Mr. Kurians 2016 PSUs are to be earned based on year-over-year growth in Oracles total revenues for
its cloud SaaS and PaaS offerings measured on a U.S. generally accepted accounting principles (U.S. GAAP) basis.
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Mr. Fowlers 2016 PSUs are to be earned based on year-over-year growth in Oracles total revenues for
its Oracle Engineered Systems and storage products measured on a U.S. GAAP basis.
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25% of the 2016 PSUs are eligible to be earned each year over a four-year period. For both Mr. Kurian and Mr. Fowler,
the number of PSUs that may be earned is capped at 110% of the target number of PSUs awarded.
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Fiscal 2016 Stock Options
In fiscal 2016, a portion of our NEOs long-term incentive compensation also consisted of time-vesting options to purchase shares of Oracle common
stock. The Compensation Committee believes stock options provide effective performance incentives because our NEOs derive value from these awards only if our stock price increases (which benefits all stockholders) and the NEO remains employed beyond
the date his or her stock options vest. Stock options give the recipients the right to purchase at a specified price (the market price of Oracle common stock on the date when the stock option was granted) a specified number of shares of Oracle
common stock for a specified period of time (five years with respect to the 2016 stock options granted to our top three NEOs, and ten years with respect to the 2016 stock options granted to our other NEOs). An NEO can exercise this right for the
remainder of this specified period of time as the stock options vest (become exercisable) over four years.
2.
Annual Performance-Based Cash Bonus under the Executive Bonus Plan
Our
stockholder-approved Executive Bonus Plan is intended to motivate our NEOs by rewarding them when our annual financial performance objectives are met or exceeded. Under the Executive Bonus Plan, the Compensation Committee assigns each participant a
target cash bonus opportunity and establishes the financial performance metric or metrics and related target levels that must be achieved before an award actually will be paid to the participant for that year.
NEOs Cash Bonus Opportunities
Consistent with
fiscal 2015, the Compensation Committee selected year-over-year growth in our non-GAAP pre-tax profits as the financial performance metric for determining our NEOs annual cash bonuses for fiscal 2016 (other than Mr. Fowler, whose bonus
arrangement is described below). In fiscal 2016, the target bonus opportunity under the Executive Bonus Plan was zero ($0) for each NEO (other than Mr. Fowler) because the Compensation Committee established the performance target at the beginning of
fiscal 2016 based on projected growth in our non-GAAP pre-tax profits, and our non-GAAP pre-tax profits were not projected to grow over the preceding fiscal year. This result was consistent with managements expectation that Oracles
transition to cloud-based product offerings would result in a decline in Oracles total profits in fiscal 2016.
The Compensation Committee
determined it was appropriate to maintain year-over-year growth in our non-GAAP pre-tax profits as the performance metric for the Executive Bonus Plan, even though it was projected to result in an annual bonus of zero ($0) for fiscal 2016, because
of our results-aligned compensation philosophy. The Compensation Committee believes that when Oracle achieves a higher level of financial performance and stockholder value increases, our NEOs should be well compensated. If Oracles
non-GAAP pre-tax profits had grown in fiscal 2016, notwithstanding expectations, our NEOs would have received a bonus
2016 Annual Meeting of
Stockholders
35
under the Executive Bonus Plan. However, between fiscal 2015 and fiscal 2016, our non-GAAP pre-tax profits did not grow. Consequently and consistent with our philosophy, Mr. Ellison, Ms. Catz,
Mr. Hurd and Mr. Kurian did not earn a cash bonus for fiscal 2016.
The bonus formula for each NEO, other than Mr. Fowler, was calculated as
follows and was subject to an individual bonus cap:
The individual bonus percentages were determined at the beginning of fiscal 2016 and were the same as the
percentages in fiscal 2015, as follows: 0.325% for Mr. Ellison and 0.200% for each of Ms. Catz, Mr. Hurd and Mr. Kurian.
For purposes of the
Executive Bonus Plan, non-GAAP pre-tax profit is defined as:
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Oracles U.S. GAAP income before provision for income taxes;
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Minus
stock-based compensation expenses, acquisition-related and other expenses, restructuring expenses and
amortization of intangible assets; and
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Plus
an adjustment to increase our U.S. GAAP income before provision for income taxes for the full amount of
cloud SaaS and PaaS revenues, software license updates and software and hardware support revenues recognized from contracts assumed in acquisitions as if the acquired companies had remained independent entities during the applicable fiscal year.
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The Compensation Committee believes that growth in non-GAAP pre-tax profit is the most appropriate metric for the Executive
Bonus Plan because management regularly uses this metric internally to understand, manage and evaluate our business performance and make operating decisions with a view to the creation of stockholder value. In addition, as a measure of profit, this
metric requires our NEOs to manage multiple variables (
i.e.,
revenues and operating expenses) in achieving the goal of growing our non-GAAP pre-tax profit, which the Board believes to be an important measure of Oracles financial
performance and value creation for our stockholders.
Under the bonus formula, if Oracles non-GAAP pre-tax profits do not grow
year-over-year, then our NEOs will not receive any bonuses under the Executive Bonus Plan even if Oracle has been profitable. Further, even where Oracles non-GAAP pre-tax profits grow year-over-year, if we do not meet our own internal
profitability expectations for the fiscal year, the bonuses paid to our NEOs are typically below their target cash bonus opportunities. The Compensation Committee has discretion to reduce or eliminate but not increase the award determined by the
bonus formula. In addition, the Executive Bonus Plan limits actual awards to a maximum of $15 million per person in any one year performance period, even if the formula otherwise indicates a larger award.
Mr. Fowlers Cash Bonus Opportunity
Mr. Fowler is directly responsible for our hardware products business. Consistent with our results-aligned compensation philosophy,
the Compensation Committee structured his target cash bonus opportunity to be contingent on the operating results of the portion of the business that he manages. We believe the most important factor by which to measure his performance is the
year-over-year improvement in hardware revenues relative to his ability to manage effectively the growth in expenses of our hardware products development organization that he oversees. Mr. Fowlers target cash bonus opportunity was based
on a percentage of the amount by which hardware revenues growth between fiscal 2015 and fiscal 2016 exceeded the expense growth of the hardware products development organization between fiscal 2015 and fiscal 2016. Should the growth in this
profitability metric increase, Mr. Fowlers bonus payment would increase.
In fiscal 2016, while our hardware business was profitable,
the profitability of this business as we internally measure it did not grow from the prior fiscal year. Thus, for fiscal 2016, Mr. Fowler did not earn a cash bonus.
We have not disclosed the specific formula or performance target level for Mr. Fowlers target cash bonus opportunity. Mr. Fowlers
bonus formula includes, among other things, expense amounts for our hardware products development organization. We do not publicly disclose this information, as we believe it would provide insights into our operational strengths and weaknesses that
would result in competitive harm to us.
36
2016 Annual Meeting of Stockholders
3.
Base Salary
Base salary represents the only fixed component of the three principal elements of our executive compensation program and is intended to provide a
baseline amount of annual compensation for our NEOs. When setting base salary levels, the Compensation Committee considers the base salaries paid to NEOs in comparable positions at the companies in our compensation peer group, Oracles
performance and the individual NEOs performance. Mr. Ellisons base salary is set at $1 consistent with the Compensation Committees view that his entire total direct compensation opportunity should be at-risk.
Perquisites and Other Personal Benefits
In fiscal
2016, we provided our NEOs with certain limited perquisites and other personal benefits as described below, each of which the Compensation Committee believes are reasonable and in the best interests of Oracle and its stockholders. The amounts of all
perquisites and other personal benefits provided to our NEOs are reported in the All Other Compensation column of the Summary Compensation Table below.
Residential Security
The Board has established a
residential security program for the protection of our most senior executives. We require these security measures for Oracles benefit because of the importance of these executives to Oracle, and we believe these security costs are necessary
and appropriate business expenses. The Compensation Committee reviews and approves the residential security budget each year, which includes a review of the actual and credible threats made against one or more of our senior executives during the
last completed fiscal year. For Mr. Ellison, Oracle pays for the annual costs of security personnel at his primary residence. Mr. Ellison paid for the initial procurement and installation of security equipment for his primary residence, and he
pays for ongoing maintenance and upgrade fees for such equipment. Mr. Ellison also pays for all security costs for his other residences. For Mr. Hurd, Oracle paid for the cost of the installation of a technical security system at his primary
residence and pays the related annual service costs. Ms. Catz was offered a security system paid for by Oracle but opted instead to maintain the existing security system at her residence, which she pays for directly.
Although we view the security services provided for our senior executives as necessary and appropriate business expenses, because they may be viewed as
conveying a personal benefit to these individuals, we have reported the aggregate incremental costs to Oracle of these services in the All Other Compensation column of the Summary Compensation Table below.
Aircraft Use
We allowed certain of our NEOs to be
accompanied by guests during business trips on private aircraft owned by us or leased by us from a company owned by Mr. Ellison on terms advantageous to Oracle (as described in Transactions with Related Persons on page 51). When we
lease an aircraft, we lease the entire aircraft for business travel and are not charged for use of the aircraft based on the number of passengers. Similarly, our owned aircraft are only used for business travel. Therefore, we believe there is no
aggregate incremental cost to Oracle as a result of NEOs being accompanied by guests when traveling on Oracle business. However, a portion of the aircraft costs attributable to non-business passengers cannot be deducted by Oracle for corporate
income tax purposes. We have disclosed the amount of these incremental forgone tax deductions for fiscal 2016 in the footnotes accompanying the Summary Compensation Table below.
Pension Benefits or Supplemental Retirement Benefits
During fiscal 2016, other than the 401(k) Plan and our deferred compensation programs, we did not provide any pension or retirement benefits to our
NEOs and do not believe that these types of benefits are necessary to further the objectives of our executive compensation program.
We offer the
1993 Deferred Compensation Plan (the Cash Deferred Compensation Plan) to certain employees, including eligible NEOs, under which participants may elect to defer a portion of their base salary and annual performance-based cash bonus. We
also offer certain employees, including eligible NEOs, the ability to defer the settlement of their earned and vested RSUs and PSUs under the terms of the Oracle Corporation Stock Unit Award Deferred Compensation Plan (the RSU Deferred
Compensation Plan). We offer these plans because we believe they are competitive elements of compensation for our NEOs. For a description of our Cash Deferred Compensation Plan and RSU Deferred Compensation Plan, see Fiscal 2016
Non-Qualified Deferred Compensation on page 48.
Severance and Change-in-Control Benefits
Each of our NEOs is employed at will. None of our NEOs has an employment agreement with Oracle that provides for payments or benefits in
the event of a termination of employment or in connection with a change-in-control of Oracle.
2016 Annual Meeting of
Stockholders
37
If Oracle is acquired, equity awards held by all of our employees, including our NEOs, under our Amended
and Restated 2000 Long-Term Equity Incentive Plan (the Long-Term Equity Incentive Plan) will become fully vested only if the equity awards are not assumed or if the equity awards are assumed and the holders employment is terminated
without cause within 12 months after the acquisition (a so-called double trigger arrangement). This vesting acceleration provision is provided to all employees who participate in the plan and is not subject to any other material
conditions or obligations.
Determination of Executive Compensation Amounts for Fiscal 2016
Factors Considered in Setting Fiscal 2016
Compensation for Our NEOs
The Compensation Committee approved our NEOs fiscal 2016 compensation and determined that the fiscal 2016
compensation levels were appropriate and necessary to reward, retain and motivate our NEOs based on, among other factors, our executive compensation philosophy and the Compensation Committees subjective evaluations of:
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the potential future contributions each NEO can make to our success and each NEOs critical role in executing our
business and acquisition strategies;
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our desired future financial performance in each NEOs principal areas of responsibility and the degree to which
we wish to provide incentives for him or her;
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the NEOs past performance;
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the NEOs experience and level of responsibility;
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the retention objectives for the NEO;
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the Compensation Committees belief that any one of the NEOs could lead another company and the goal of
protecting against recruiting efforts by other companies;
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the growing complexity of our business resulting in increased workloads and responsibilities for our NEOs,
particularly in light of Oracles transition to cloud-based product offerings;
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the NEOs expected progress toward goals within his or her areas of responsibility; and
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the appropriate mix of compensation (
i.e.
, short-term versus long-term, fixed versus variable) for the NEO.
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The Compensation Committee determined each NEOs target equity award opportunity (and, thus, the size of his or her stock
option and PSU awards) based on:
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our executive compensation philosophy;
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its goal of providing an overall competitive equity award level; and
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its subjective evaluation of the factors described above.
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The Compensation Committee does not have a set formula by which it determines which of these factors is more or less important, and the specific
factors used and their weighting may vary among individual NEOs. When determining the size of the stock option and PSU awards, the Compensation Committee considers both the overall size of the awards and the potential value of the awards.
Compensation Decision-Making Process and the Role of Executive Officers
The Compensation Committee deliberates on, determines and approves the executive compensation of our NEOs based on the collective subjective judgment
of its members, which is guided by their significant collective business experience. See Board of DirectorsNominees for DirectorsDirector Qualifications on page 6 for a discussion of the expertise and skills of each of our
Compensation Committee members. None of our NEOs determine their own compensation, and none of our NEOs were present when the Compensation Committee deliberated on and approved its fiscal 2016 compensation decisions for him or her.
38
2016 Annual Meeting of Stockholders
Fiscal 2016 Compensation for Mr. Ellison, Chairman and CTO
For fiscal 2016, the Compensation Committee approved the following compensation for Mr. Ellison:
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PSUs
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A target award of 562,500 PSUs granted on July 2, 2015, 25% of which are eligible to be
earned each year over a four-year period based Oracles performance as measured against a relative revenue growth metric and a relative operating cash flow metric.
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Stock Options
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A stock option award to purchase 2,250,000 shares of Oracle common stock granted on July 2, 2015, with an exercise price of
$40.36 per share, vesting 25% each year over a four-year period, and with a five-year term.
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Performance-Based Cash Bonus
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A cash bonus opportunity under the Executive Bonus Plan based on 0.325% multiplied by the growth in our non-GAAP pre-tax profits
over the preceding fiscal year. Because Oracles non-GAAP pre-tax profits did not grow in fiscal 2016, Mr. Ellison received no bonus payment ($0) in fiscal 2016.
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Annual Base Salary
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$1 (unchanged since fiscal 2011)
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In addition to the factors described above, the Compensation Committee approved this compensation package based on
Mr. Ellisons overall responsibility for business strategy, operations and corporate vision, with an emphasis on the objectives of retaining Mr. Ellisons services and providing meaningful incentives for superior performance and
engagement. The Compensation Committee believes that Mr. Ellison, as Oracles founder who has guided the company for nearly 40 years, is invaluable. Although Mr. Ellison has a significant equity interest in Oracle, the Compensation
Committee believes his annual compensation package is necessary to maintain the focus of his visionary drive and his active role in our operations, technology, strategy and growth. The Compensation Committee believes that Mr. Ellisons role as
an executive at Oracle is distinct from his roles as a director and significant stockholder.
Fiscal 2016 Compensation for Ms. Catz, CEO
For fiscal 2016, the Compensation Committee approved the following compensation for Ms. Catz:
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PSUs
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A target award of 562,500 PSUs granted on July 2, 2015, 25% of which are eligible to be
earned each year over a four-year period based Oracles performance as measured against a relative revenue growth metric and a relative operating cash flow metric.
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Stock Options
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A stock option award to purchase 2,250,000 shares of Oracle common stock granted on July 2, 2015, with an exercise price of
$40.36 per share, vesting 25% each year over a four-year period, and with a five-year term.
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Performance-Based Cash Bonus
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A cash bonus opportunity under the Executive Bonus Plan based on 0.200% multiplied by the growth in our non-GAAP pre-tax profits
over the preceding fiscal year. Because Oracles non-GAAP pre-tax profits did not grow in fiscal 2016, Ms. Catz received no bonus payment ($0) for fiscal 2016.
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Annual Base Salary
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$950,000 (unchanged since fiscal 2012)
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In addition to the factors described above, the Compensation Committee approved this compensation package based on
Ms. Catzs significant role and responsibilities with Oracle. As one of our CEOs, Ms. Catz sets our overall business and acquisition strategy and executes that strategy, and she has oversight and responsibility for the accuracy and
integrity of our financial results and management of our legal affairs, among other responsibilities.
Fiscal 2016 Compensation for
Mr. Hurd, CEO
For fiscal 2016, the Compensation Committee approved the following compensation for Mr. Hurd:
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PSUs
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A target award of 562,500 PSUs granted on July 2, 2015, 25% of which are eligible to be
earned each year over a four-year period based Oracles performance as measured against a relative revenue growth metric and a relative operating cash flow metric.
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Stock Options
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A stock option award to purchase 2,250,000 shares of Oracle common stock granted on July 2, 2015, with an exercise price of
$40.36 per share, vesting 25% each year over a four-year period, and with a five-year term.
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Performance-Based Cash Bonus
|
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A cash bonus opportunity under the Executive Bonus Plan based on 0.200% multiplied by the growth in our non-GAAP pre-tax profits
over the preceding fiscal year. Because Oracles non-GAAP pre-tax profits did not grow in fiscal 2016, Mr. Hurd received no bonus payment ($0) for fiscal 2016.
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Annual Base Salary
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$950,000 (unchanged since fiscal 2012)
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2016 Annual Meeting of
Stockholders
39
In addition to the factors described above, the Compensation Committee approved this compensation package
based on Mr. Hurds significant role and responsibilities with Oracle. As one of our CEOs, Mr. Hurd is responsible for worldwide sales and marketing, consulting, support and Oracles industry-specific global business units, and
he acts as a primary contact for our customers, among other responsibilities.
Fiscal 2016 Compensation for Mr. Kurian, President, Product
Development
For fiscal 2016, the Compensation Committee approved the following compensation for Mr. Kurian:
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PSUs
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A target award of 500,000 PSUs granted on July 2, 2015, 25% of which are eligible to be
earned each year over a four-year period based on the level of year-over-year growth in Oracles total revenues for its Cloud SaaS and PaaS offerings on a U.S. GAAP basis.
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Stock Options
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A stock option award to purchase 2,000,000 shares of Oracle common stock granted on July 2, 2015, with an exercise price of
$40.36 per share, vesting 25% each year over a four-year period, and with a ten-year term.
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Performance-Based Cash Bonus
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A cash bonus opportunity under the Executive Bonus Plan based on 0.200% multiplied by the growth in our non-GAAP pre-tax profits
over the preceding fiscal year. Because Oracles non-GAAP pre-tax profits did not grow in fiscal 2016, Mr. Kurian received no bonus payment ($0) for fiscal 2016.
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Annual Base Salary
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$800,000 (unchanged since fiscal 2011)
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In addition to the factors described above, the Compensation Committee approved this compensation package based on its
determination that Mr. Kurian makes significant contributions to Oracles overall software development and strategy, especially those related to our Oracle Cloud and Fusion products and services.
Fiscal 2016 Compensation for Mr. Fowler, Executive Vice President, Systems
For fiscal 2016, the Compensation Committee approved the following compensation for Mr. Fowler:
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PSUs
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A target award of 187,500 PSUs granted on July 2, 2015, 25% of which are eligible to be
earned each year over a four-year period based on the level of year-over-year growth in Oracles total revenues for its Oracle Engineered Systems and storage products on a U.S. GAAP basis.
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Stock Options
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A stock option award to purchase 750,000 shares of Oracle common stock granted on July 2, 2015, with an exercise price of $40.36
per share, vesting 25% each year over a four-year period, and with a ten-year term.
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Performance-Based Cash Bonus
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A cash bonus opportunity under the Executive Bonus Plan based on the profitability of our hardware business. In fiscal 2016,
while our hardware business was profitable, the profitability of this business as we measure it internally did not grow from the prior fiscal year. Therefore, Mr. Fowler received no bonus payment ($0) for fiscal 2016.
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Annual Base Salary
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$700,000 (unchanged since Mr. Fowler became an NEO in fiscal 2012)
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In addition to the factors described above, the Compensation Committee approved this compensation package based on its
determination that Mr. Fowler makes significant contributions to Oracles overall hardware product development and strategy, including our Oracle Engineered Systems products.
Other Factors in Setting Executive Compensation
Compensation Consultant
The Compensation
Committee selected and directly engaged Compensia, Inc., a national compensation consulting firm, as its compensation advisor for fiscal 2016 to provide analysis and market data on executive and director compensation matters, both generally and
within our industry. Compensia also assisted the Compensation Committee with the ongoing design of the PSU program, with a comparison of our executive compensation policies and practices against a group of peer companies (as determined and
identified below) and with reviewing the annual risk assessment of our compensation policies and practices applicable to our NEOs and other employees. Compensia did not determine or recommend any amounts or levels of our executive compensation for
fiscal 2016.
The Compensation Committee recognizes that it is essential to receive objective advice from its external advisors. Consequently, the
Compensation Committee is solely responsible for retaining and terminating Compensia, Compensia reports directly to the
40
2016 Annual Meeting of Stockholders
Compensation Committee, and Compensia did not provide any other services to Oracle during fiscal 2016. Neither of our CEOs nor the Chairman of the Board met independently with representatives of
Compensia nor did they consult with managements outside compensation consultant on any of these executive compensation matters for fiscal 2016. The Compensation Committee has determined that the work resulting from Compensias engagement
did not raise any conflicts of interest.
Peer Company Executive Compensation Comparison
The Compensation Committee, in consultation with Compensia, annually establishes a group of peer companies, which are generally in the technology
sector, for comparative purposes based on a number of factors, including:
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their size and complexity;
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their market capitalization;
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their competition with us for talent;
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the nature of their businesses;
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the industries and regions in which they operate; and
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the structure of their executive compensation programs (including the extent to which they rely on bonuses and other
variable, performance-based compensation) and the availability of information about these programs.
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For fiscal 2016, the
companies comprising the compensation peer group consisted of:
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Accenture plc
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eBay Inc.
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Microsoft Corporation
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Alphabet Inc.
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EMC Corporation
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QUALCOMM Incorporated
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Amazon.com, Inc.
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Hewlett-Packard Company*
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salesforce.com, inc.
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Apple Inc.
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Intel Corporation
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SAP SE
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Cisco Systems, Inc.
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International Business Machines
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Texas Instruments Incorporated
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*
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Following the separation of Hewlett-Packard Company into two publicly traded companies, the Compensation Committee
replaced Hewlett-Packard Company with Hewlett Packard Enterprise Company.
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Although the Compensation Committee considered
executive pay information drawn from this group of peer companies and from the Radford 2015 Executive Compensation Survey for comparative purposes when setting executive compensation levels at Oracle during fiscal 2016, it did not target total
compensation or any individual compensation element at a specific level or attempt to attain a specified target percentile within the data drawn from the compensation peer group to determine executive compensation. While the Compensation Committee
set overall target compensation significantly above the average compensation level of our peer group, achieving the target compensation levels requires successful performance by our NEOs, both collectively and individually.
Risk Assessment of Our Compensation Policies and Practices
As part of its annual compensation-related risk review, the Compensation Committee considered, among others, the following factors which mitigate
incentives for our executive officers to take inappropriate risks:
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PSUs granted to our NEOs, to the extent earned, vest over a four-year period. Stock options vest 25% each year over a
period of four years. Consequently, our NEOs only realize value from their equity awards through sustained long-term appreciation of our stock price, which mitigates excessive short-term risk taking.
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All annual performance-based cash bonuses are subject to a specified dollar cap which limits the maximum amount
payable to an NEO and may be decreased in the Compensation Committees sole discretion, which protects against an NEO receiving a windfall or disproportionately large bonus relative to the Compensation Committees assessment of our actual
financial performance.
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The financial metric used in the Executive Bonus Plan for each of our NEOs, other than Mr. Fowler, is
year-over-year growth in Oracles non-GAAP pre-tax profits. Our management regularly uses this metric to understand, manage and evaluate our business and make operating decisions. Using this metric for the annual performance-based cash bonus
opportunities further aligns our NEOs interests with our business goals.
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We have adopted a clawback policy that allows us to recover or cancel any cash bonuses paid that are awarded as a
result of achieving financial performance goals that are not met under any restated financial results.
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2016 Annual Meeting of
Stockholders
41
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Each of our senior officers is subject to robust stock ownership requirements as described in Other Compensation
PoliciesStock Ownership Guidelines below. Our senior officers would experience significant lost value in their holdings of Oracle common stock and potentially all of the value of their Oracle stock options and other equity awards if our
stock price suffered an extended decline due to inappropriate or unnecessary risk taking.
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Tax and Accounting Considerations
In evaluating potential compensation alternatives, the Compensation Committee considers the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the Code). Section 162(m) of the Code places a limit of $1 million on the amount of compensation that we may deduct as a business expense in any year with respect to certain of our
most highly paid executive officers unless, among other things, such compensation is performance-based and has been approved by stockholders. Generally, we design our executive compensation program to permit our Compensation Committee to be able to
grant compensation intended to be eligible for deductibility to the extent permitted by Section 162(m) of the Code and the relevant income tax regulations. We may from time to time, however, pay compensation to our NEOs that may not be
deductible if the Compensation Committee believes that doing so is in the best interests of Oracle and our stockholders.
Accounting considerations
also play a role in the design of our executive compensation program. Accounting rules require us to expense the grant date fair values of our equity awards (that is, the value of our equity awards based on U.S. GAAP), which reduces the amount of
our reported profits under U.S. GAAP. Because of this stock-based expensing and the impact of dilution to our stockholders, we closely monitor the number, share amounts and the fair values of the equity awards that are granted each year.
2015 Stockholder Advisory Vote on Executive Compensation
At our 2015 annual meeting of stockholders, we
conducted our annual advisory vote on the fiscal 2015 compensation of our NEOs (commonly known as a say-on-pay vote). The compensation of our NEOs received support from approximately 48% of the votes cast on the say-on-pay proposal. Our
Board and Compensation Committee were disappointed with this result. The Compensation Committee continues to engage in substantive discussions with our major unaffiliated stockholders to better understand their concerns and views on our executive
compensation program and continues to evaluate and refine the design of our executive compensation program.
In fiscal 2016, our Board changed the
composition of the Compensation Committee, and the Compensation Committee rotated the principal partner from its independent compensation consultant in order to gain a fresh perspective on compensation matters. Ray Bingham is now Chair, Naomi
Seligman is Vice Chair and Renée James (our newest director) joined the committee. In addition, our Board has made a number of changes to our executive and non-employee director compensation programs in response to stockholder feedback, as
described on page 29, including significant changes to our non-employee director compensation levels, which contributed to an average reduction of 24% in the total value of our non-employee directors compensation in fiscal 2016 compared to
fiscal 2015.
Other Compensation Policies
Stock Ownership Guidelines
As discussed
in greater detail in Corporate GovernanceStock Ownership Guidelines for Directors and Senior Officers on page 21, our senior officers are required to own and hold a specified number of shares of Oracle common stock. Under the
Stock Ownership Guidelines, our NEOs must own the number of shares of Oracle common stock indicated below within five years from the date such person became a senior officer. Each person promoted from within the senior officer positions has one year
from the date of his or her promotion to comply with any increased ownership requirement.
|
|
|
Title
|
|
Minimum Number of
Shares
|
Chairman and Chief Technology Officer
|
|
250,000
|
Chief Executive Officers
|
|
250,000
|
Presidents
|
|
100,000
|
Executive Vice Presidents who are Section 16 Officers
|
|
50,000
|
All other Executive Vice Presidents
|
|
25,000
|
All other Section 16 Officers
|
|
10,000
|
The purpose of the Stock Ownership Guidelines is to closely align the interests of our executive officers with the
interests of our other stockholders through good and bad economic times. In addition, the Stock Ownership Guidelines are designed to strengthen the link between our long-term performance and executive compensation. We believe all of our NEOs are
currently in compliance with the Stock Ownership Guidelines.
42
2016 Annual Meeting of Stockholders
Equity Awards and Grant Administration
Our Board has designated the Compensation Committee as the administrator of the Long-Term Equity Incentive Plan and the Directors Stock
Plan. The Compensation Committee, among other things, selects award recipients under the Long-Term Equity Incentive Plan, approves the form of grant agreements, determines the terms and restrictions applicable to the equity awards and adopts
sub-plans for particular subsidiaries or locations.
We have a policy of generally granting equity awards on pre-established dates. The
Compensation Committee holds regular meetings on a scheduled date each month to consider and approve equity award grants (other than the annual grants described below), including grants to new hires and promoted employees. The Board has also
delegated to an executive officer committee the authority to approve grants of stock options to acquire up to 100,000 shares of Oracle common stock (or RSUs of equivalent value) to non-executive officers and employees. Equity awards approved by
either the Compensation Committee or the executive officer committee during a calendar month are typically batched together and granted on a pre-established day of the following month.
The Compensation Committee and F&A Committee also monitor the dilution and overhang effects of our outstanding equity awards in
relation to the total number of outstanding shares of Oracle common stock. We do not grant equity awards in anticipation of the release of material nonpublic information, and we do not time the release of material nonpublic information based on
equity award grant dates.
Because we believe equity awards are an important part of our compensation program, we also grant equity awards on an
annual basis to key employees, including our executive officers. The Compensation Committee generally approves these annual equity award grants during the ten business-day period following the second trading day after the announcement of our fiscal
year-end earnings in an effort to make our annual grants during the time when potential material information regarding our financial performance is most likely to be available to our stockholders and the market.