Oracle Corp., the world’s second- biggest software maker, said it will pay former Hewlett-Packard Co. Chief Executive Officer Mark Hurd $950,000 a year in salary as president, with a bonus of as much as $10 million.
Hurd’s target bonus for fiscal 2011 is $5 million, which may be higher if he exceeds performance targets, Oracle said in a regulatory filing. He also gets the option to purchase 10 million shares of the company’s stock at the market price on the date of the grant, allowing him to profit as the stock rises.
“Oracle has historically paid very well for strong players and obviously Hurd is a superstar,” said Brent Thill, an analyst at UBS AG in San Francisco, who recommends buying Oracle stock and doesn’t own it himself. “This is an unbelievable opportunity to take someone with his skill set and bring him in. He’s worth every penny.”
Hewlett-Packard filed a lawsuit yesterday to stop Hurd from working at Oracle. Hurd signed several non-disclosure agreements while at HP and it would be impossible for him to work as a president at Oracle without disclosing HP trade secrets and confidential information, the company said in its complaint.
Hurd left HP Aug. 6 after the company said he violated standards of business conduct. As part of his severance, Hurd was due to receive a payment of $12.2 million, plus other benefits that include restricted HP shares. All told, he may get $40 million to $50 million, according to an estimate by Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC in San Francisco.
Oracle CEO Larry Ellison called the HP lawsuit “vindictive” in a statement and said it would make it more difficult for the two companies to work together.
“Larry Ellison is known for taking significant competitive risks,” Glassner, who doesn’t own shares of either company, said in an interview. “He’s betting a good deal of gold on Mark Hurd, and the successes that Mark has had in the past.”
Following Hurd’s ouster and severance from HP, Oracle should restrict compensation that isn’t tied to performance as well as payments that Hurd might receive after being terminated, Glassner said.
Oracle fell 13 cents to $24.14 in Nasdaq Stock Market trading at 4 p.m. New York time, after rising 5.9 percent yesterday in the wake of the announcement about Hurd joining the company. HP dropped $1.11 to $38.81.
Hurd’s New Responsibilities
In his new position at Oracle, Hurd would report to Ellison and lead sales, consulting, marketing and customer support, the company said in its filing. The software maker has increased sales through acquisitions that widened its portfolio and added customers.
Hurd will also receive the option to buy 5 million additional shares a year for the next five years as part of Oracle’s companywide employee stock-option grants.
HP, based in Palo Alto, California, may find it difficult to win its case against Hurd because of public policy in California that favors letting employees move freely to work in their field, legal experts said.
Though HP said in its suit Hurd will have to use or disclose HP’s trade secrets and confidential information to serve as Oracle’s president, the theory that trade secrets will inevitably be disclosed won’t work in California to stop someone from taking a job, said Mark Lemley, a Stanford Law School professor.
“Neither will California courts enforce a noncompete agreement. HP will have to show real evidence that Mark Hurd is about to use its secrets at Oracle,” Lemley said.
The best HP may be able to do is get Hurd to exclude himself from certain decisions about products or strategic issues for a set period, said Stephen Hirschfeld, a partner at Curiale Hirschfeld Kraemer LLP in San Francisco.
“To say that they have an uphill battle would be an understatement,” Hirschfeld said.