The settlement relates to Oracle's purchase of Pillar Data Systems Inc, a data storage company that was majority owned by Ellison.

Oracle, the world's No. 3 software maker, paid no cash up front to buy Pillar, instead agreeing to make future payments that would depend on the acquired company's performance through 2014.

Under the deal, Ellison, who co-founded Oracle and owns around a quarter of its stock, would have received the first $562 million of any payment related to the acquisition, according to the court filing. According to the settlement, whatever the payment ultimately is, Ellison must pay 95 percent of it to Oracle.

The suit against Oracle's acquisition of Pillar was launched in Delaware by two pension funds - the City of Roseville Employees' Retirement System and the Southeastern Pennsylvania Transportation Authority. They said the deal to buy Pillar was "tainted by conflicts of interest and was unfair to Oracle."

Ellison has come under fire for the size of his paycheck as Oracle struggles to adapt to competition with smaller rivals and as the software company's once-hot shares lose favor on Wall Street. The 69-year old Ellison made about $78 million in Oracle's past fiscal year.

On Wednesday, the company responded to activist investor CtW Investment Group's criticism that Ellison's compensation is top-heavy compared to his peers.

"Shareholders have consistently and clearly articulated that they view Mr. Ellison as an extremely valuable asset to the Company," Oracle General Counsel Dorian Daley said in an SEC filing.

"And it is a role that will only grow in importance in the coming years as technology continues to advance and change at a rapid pace," Daley said.

(Reporting by Noel Randewich; Editing by Kenneth Barry)

By Noel Randewich