At Oracle, the people who read the balance sheet chose the shares

Posted on: 28 September 2026

A little basic finance first. A share option is the right to buy a share at a price fixed today, for a set number of years. If the share rises above that price the difference is profit, and if it stays below, the option is worthless but costs nothing to the person holding it. Larry Ellison, who founded Oracle in 1977, received options last October valued at $117.8 million with an exercise price of $280. Clay Magouyrk and Mike Sicilia, promoted to co-chief executives in September 2025 in place of Safra Catz, received theirs a few days after their appointment at $308, valued at $621.7 million and $248.7 million. On Friday the share closed at $137, down 53 per cent in twelve months. The two co-CEOs need the price to more than double before their options are worth anything at all.

The board has told shareholders that this is exactly what shows the plan is working, since options are tied to results and nobody has stepped in to make good the loss. On the first point it is right. The option, though, is an instrument with a specific history, that of Silicon Valley in the 1990s, when software companies paid their people in the promise of a rising share price, and among large American listed companies it has almost disappeared. British readers will know the replacement well, because FTSE boards largely moved their top executives away from options years ago in favour of long-term incentive plans. In its place come restricted shares, which the company hands to the executive a tranche at a time over several years and which keep some value even when the price falls, or shares that vest only if targets set in advance are met.

The part I want to talk about is a novelty introduced this year. It is called the Equity Choice Program and it works like a menu, because for the portion of pay linked to staying with the company each executive chooses whether to take it all in options, all in restricted shares or half and half. Anyone choosing options receives four for every share they would otherwise have been given, on the reasoning that an option only pays if the share rises and so has to be compensated with quantity.

On the value of those options the document published on Friday gives two figures. In the United States it is called a proxy statement, proxy meaning the authority to vote on someone else's behalf. Every listed company has to file one with the SEC, the American market regulator, before its annual meeting, so that shareholders know what they are voting on and can hand their vote to someone else without turning up, which is why the law requires executive pay to be set out line by line. It does the job of the directors' remuneration report in a British annual report, with one difference that matters here: in London the pay policy goes to a binding shareholder vote at least every three years, whereas the American say on pay is advisory. The compensation committee had approved those options at $400 million in total, while the accounting rules required them to be booked at $988 million. Oracle itself explains that the gap comes mainly from the share's volatility as fed into the valuation model, so the more the price swings the more an option is worth on paper, which when you think about it is half of this story already.

Ellison and the two co-chief executives were not offered the menu, since their options were set by the board. Five other executives were. Safra Catz, who ran the company until September 2025 and is now executive vice chair, took everything in restricted shares. So did the chief legal officer Stuart Levey, and so did Douglas Kehring, head of operations, who between September and April also served as interim finance chief. Hilary Maxson, who arrived on 6 April as chief financial officer with an equity package of $26 million, split the part she could choose down the middle and put $10.4 million into restricted shares, with the rest in options at an exercise price of $185 that are also below the market price today. Mark Hura, who runs the sales organisation worldwide, took everything in options, $30 million of them.

The individual reasons are open to debate, because a choice like this also depends on tax and on how much wealth someone already has. Yet the pay menu remains the most honest survey a company can run on what its own executives expect, since whoever answers pays out of their own pocket if they get it wrong. In this survey the people who spend their days on the accounts and the contracts asked for protection while the person who sells asked for leverage. Maxson bet half and the cautious half saved her something, because her restricted shares were worth $12.7 million at the end of May and $7.7 million at Friday's close. The options are worth nothing.

To see what the finance office sees, a simple sum is enough. In the last financial year, while racing to build data centres for artificial intelligence, Oracle spent $55.7 billion on investment and ended with negative free cash flow of $23.7 billion. In plain terms, once operations and investment had been paid for, almost $24 billion more left the till than came into it. The gap was covered by lenders, with $43 billion of new bonds, and then over the summer by investors who bought $20 billion of new shares at $141 each. On Friday the share was four dollars below that price.

This is not a company whose sales are in trouble. Cloud revenue grew 39 per cent to $34 billion and contracts signed but not yet delivered rose in a year from $138 billion to $638 billion. The problem is timing, because contracts like these usually turn into cash as capacity is delivered, which means after the data centres have been built and paid for. This week Oracle invoked force majeure on a site in New Mexico, declaring that it cannot meet certain commitments for reasons beyond its control. According to Bloomberg, the cost of insuring against the risk that Oracle fails to repay its debt rose to the highest level ever recorded.

The mechanism underneath is elementary. An option makes money when the price rises a long way and loses nothing when it collapses, so it rewards whoever increases the swings. Giving one to the people running a debt-financed bet of this size means paying them to press the accelerator, while if the bet goes wrong the bill falls on the shareholders who came in at $141 and on whoever bought the bonds. It is like handing the kitty to a poker player with a share of the winnings and none of the losses, and even the most honest player will end up playing differently from the way he would with his own money.

Ellison owns 38.2 per cent of Oracle, so one package of options more or less hardly matters to him. What mattered was the symbol, since he used to take a base salary of one dollar, the gesture by which a founder declares that he wants to earn only when shareholders earn too. In the year his options went to zero the salary rose to $950,000, the same as the two co-chief executives. All three then collected $4.9 million each in cash bonuses.

Further down, most of the options handed to employees are underwater and the pay of the median employee fell from $98,899 to $94,740.

Anyone sitting on a board that designs pay in the middle of a large investment cycle would do well not to read underwater options as proof that the plan punishes executives. It punishes them only until someone compensates them in cash, which this year has already happened in the form of salary and bonus. Before the budget figures, it would be worth looking at what the people who know that budget best chose from the menu.

Shareholders vote on the pay plan on 18 November.