VideoAnd Henley puts Oracle in the same camp as mature, large-cap tech companies like Microsoft, which announced it was doing away with options in July 2003. "The days of explosive gains in options are over, because we are just so big," he says. "That's one of the challenges for large companies — there isn't much equity upside."
Yet, Henley also admits that the compensation package of his successor as CFO, Harry You, differs little in structure from the one he had for years. "We are still giving him a fair amount of options," says Henley. (The new CFO received a substantial grant of 2 million options, with a strike price of $10.72, five days after being hired. The options vest in four equal annual installments, beginning after one year of service.) "We are contemplating partial substitution or replacement of options using some other type of equity vehicles," said compensation committee chairman Michael Boskin at Oracle's annual meeting. "No decision's been made." And although Oracle's latest proxy statement leaves open the possibility of paying directors with restricted stock, the company has yet to issue any.
Indeed, Oracle's experience illustrates how hard it is for any company in the incestuous technology industry to wean itself off options. "You have to base your compensation on the market," says Henley, noting that prized employees tend to stay in the tech field. "If everyone got rid of options and went to restricted stock, we probably would, too. That's not what's happening. Stock options are still the norm, so far at least."
Reduced Eligibility
Both in and out of Silicon Valley, however, stock options are no longer the norm for everyone. "The broader group of employees is more affected by this shift [away from options] than top levels of the organization," says Doubleday. "If you are a CFO, you can reasonably expect an annual options grant. But unless you are a star performer [lower] in the organization, you may no longer be eligible."
Although their base pay and short-term bonuses rose modestly across the board, lower-level finance employees nationwide already appear to be seeing fewer option grants. Over the past three years, Mercer's survey shows substantial decreases in the percentage of financial-analysis executives, division controllers, cost accounting managers, and payroll managers who are eligible for long-term incentives of any kind. "A lot of the cuts have come from reduced eligibility lower down in the ranks," confirms Burchman.
As if that weren't enough to set the rank and file grumbling, the survey also shows slight increases in long-term incentive eligibility among higher-level finance executives — corporate controllers, audit executives, accounting executives, tax executives, and risk-management officers — whose responsibilities have grown in the wake of the Sarbanes-Oxley Act. "The regulatory compliance and control stuff has two effects," says Burchman. "It significantly increases the workload, and also increases the level of risk." Ultimately, says Doubleday, that is good news for CFOs and other top-level finance employees. "They are very much now at the center of things, and that has an effect on their compensation."
For CFOs and other finance executives, though, the 2004 survey is decidedly a mixed bag. On one hand, base pay is up slightly, says Doubleday, and improving market conditions have brought bonuses back at many firms. And companies are funneling a larger percentage of long-term incentives toward top finance executives. "A lot is riding on that CFO," says Doubleday. "Boards are making sure that if they have a good CFO, they hang on to that person. And if they need a CFO, they are willing to pay."
The flip side is that even as finance executives garner a larger share of long-term incentives, the total pool is shrinking in size and value. Worse, when it comes to base pay and bonuses, there is no indication that the burdens and risks of Sarbanes-Oxley have substantially elevated the CFO's relative standing within the C-level suite.
Much has been made of CEO compensation as a multiple of the average worker's salary. But, says Doubleday, "in the context of corporate governance, observers are also noting the disparity between the CEO and the next level of senior management." And despite the scrutiny, that gap is huge. Excluding long-term incentives, which vary based on market conditions, this year's survey shows CFOs took home barely 30 percent of their CEO's total cash compensation.
Tim Reason is a senior writer at CFO.
See the 2004 Compensation Survey Tables
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