Say on pay: shaking off the yoke

In a sermon delivered on a boat bound for America in 1630, the Puritan John Winthrop argued that God made some people rich and others poor so that “He might have the more occasion to manifest the work of his Spirit . . . upon the wicked in moderating and restraining them, so that the rich and mighty should not eat up the poor, nor that the poor and despised rise up and shake off their yoke.”

For today’s tastes, Mr Winthrop was a bit too much in favour of yokes. But he had no idea how inequality would blossom where he was heading. What might Mr Winthrop have made of Larry Ellison, chief of Oracle, for example? Mr Ellison has shown restraint in not buying poor people and eating them up. But he has accumulated a $40bn fortune, and spends his pile with flash. Mr Winthrop would have disapproved. It is harder to say how he would judge Oracle’s shareholders, who did a bit of rising up this week, voting to reject Mr Ellison’s pay package.

The vote is non-binding, but sends a message. Mr Ellison, who had the Christian humility to forgo a cash bonus for the year because Oracle failed to hit internal targets, was to be paid a mere $80m or so in stock option grants. Non-Puritans will fail to see the problem. The grant comes to a (non-cash, after tax) expense of just a penny or so a share and puts Mr Ellison in the same boat as shareholders – both want the shares to rise. Yes, Oracle’s shares lag behind the wider market and technology companies over one year and five. But Mr Ellison runs a complex company that generated $13.5bn in free cash flow last year.

There is nothing wrong with Mr Ellison’s wealth. But there are two reasons to worry about this sort of compensation. First, the dynastic wealth bosses of big companies can now hope to earn makes it rational for them to aim for sheer corporate size over strong returns on capital or to shareholders. Second, stock options risk making managers too concerned about the stock price and thus inclined to favour share-moving, near-term profits over productive, long-term reinvestment. Some argue that this incentive has already harmed the global economy. Avarice is a sin and so is envy. Prudence is a virtue.

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