Oracle's Billion-Dollar Bet on Stock Options Just Failed

The Options That Weren’t

Oracle handed its top executives nearly $1 billion in stock options this fiscal year. By the time the books closed on May 31, every single one was underwater. The stock needed to more than double just for two of them to see a dime.

This is not a minor accounting quirk. It is a clear signal that Oracle’s board of directors has abandoned the compensation playbook that most public companies adopted years ago, and is betting everything on the old-fashioned proposition that executives will only act in shareholders’ interests if they hold paper that actually moves with the stock. So far, the board has lost that bet, even as the company’s cloud business is posting explosive growth.

The options were priced near Oracle’s peak. Ellison’s award, valued at $117.8 million at grant in October, carries a strike price of $280. Co-CEOs Clay Magouyrk and Mike Sicilia received options priced at $308 each, shortly after their September 2025 promotions. Today, the stock trades at $137. The options are worthless. Zero intrinsic value, as Oracle’s own proxy statement bluntly noted.

Why This Matters Beyond Oracle

Stock options have been declining across Fortune 500 companies for years, replaced by performance shares and restricted stock units that retain value even when the stock dips. Oracle’s decision to hand out massive option packages is an outlier, and a deliberately contrarian one. The board is telling executives and investors alike that it wants skin in the game, not just participation.

Oracle frames this as working exactly as designed. Its compensation committee wrote that the underwater status does not mean the plan is broken, but rather confirms that executives only get paid when shareholders do. In theory, that is clean logic. In practice, it raises uncomfortable questions about who is actually being incentivized and at what cost.

The company grew its cloud revenue 39 percent to $34 billion this fiscal year. Cloud infrastructure revenue more than doubled, up 77 percent to $18.1 billion. Overall revenue climbed 17 percent to $67.4 billion. Remaining performance obligations ballooned to $638 billion from $138 billion the prior year. The business is thriving. The stock is not.

That disconnect is the real story here. Oracle spent $55.7 billion in capital last fiscal year, burning through cash and issuing $43 billion in senior notes. Free cash flow came in at negative $23.7 billion. The company sold $20 billion in stock this summer at $141 a share. Investors have been selling back into the company as fast as it issues shares, driving the stock down 53 percent over 12 months.

The New Cash Compensation Structure

Even as their options sit at zero, Ellison and the co-CEOs each took home $4.9 million in cash bonuses. Ellison’s base salary rose from $1 to $950,000, matching Magouyrk and Sicilia. The options may be dead money, but the cash compensation keeps flowing.

Oracle also rolled out a new equity program for new hires, giving executives the choice between stock options, restricted stock units, or a 50-50 split. The catch is that options come at four times the volume of RSUs because they only pay out if the stock rises. CFO Hilary Maxson, appointed in April 2026, chose the options route for part of her roughly $30 million package. Her options are priced at $185 and are also underwater. Her RSU allocation, meanwhile, dropped from $12.7 million at grant to $7.7 million by fiscal year end.

Catz, chief legal officer Stuart Levey, and operations chief Douglas Kehring opted for RSUs. Their awards still hold some value, though less than when granted. The pattern suggests some executives understood the risk and hedged accordingly, while others went full option on the bet that the stock would recover.

What Shareholders Will Decide

Oracle shareholders vote on the compensation plan on November 18. The underwater options give them a concrete reason to push back. Oracle’s cloud business is growing fast. Revenue is up. Profitability is in question, but growth is not. Yet the stock has cratered, and the executives who drove that growth walked away with nearly worthless paper and full cash bonuses.

The misalignment is stark. When cloud revenue doubles and performance obligations quadruple, shareholders should feel rewarded, not punished. But Oracle’s compensation design does the opposite, handing executives massive upside bets at peak prices while the rest of the company’s workforce sees its median total compensation drop from $98,899 to $94,740. Most Oracle employees’ outstanding options are underwater too. Layoffs have reduced headcount. The burden of the capital-intensive buildout is falling on everyone except the board’s compensation committee.

Oracle’s proxy statement argues that options are strongly performance-based. That is technically true. It is also precisely why this approach is failing the very people it claims to serve. If the stock never recovers, the options deliver nothing, the cash bonuses remain untouched, and shareholders absorb the loss on both sides. The board is structuring compensation so that executives benefit whether the stock goes up or down, as long as it goes up slowly enough to justify the bonus payouts.

The force majeure call on a New Mexico data center sent Oracle’s credit default swap costs to record levels. Bloomberg reported the development this week. The market is pricing in risk. The compensation committee is pricing in upside. They are not speaking the same language.

The Bigger Picture

This is not just an Oracle problem. It is a governance problem for any legacy platform company racing to fund AI and cloud infrastructure at scale. Oracle’s approach shows what happens when boards cling to options as a performance incentive without adjusting for the reality of today’s capital-intensive tech cycle. The old model assumed that rewarding executives with options would align them with shareholders. It assumes the stock will recover. It assumes the market will eventually price in the growth.

None of those assumptions held for Oracle this year. The stock fell 53 percent despite near-doubling cloud revenue. The capital spend exceeded $55 billion. The cash flow was deeply negative. And the options, priced at historical highs, delivered zero value.

The lesson for other mega-cap software companies is straightforward. Options can work when the stock is rising and the business is growing into its valuation. They fail when the stock is volatile and the business is burning cash to fund growth that investors have not yet priced in. Oracle’s board learned this the hard way, and now it is asking shareholders to decide whether to keep betting on an outdated compensation model.