Cisco Holders Wading Into Stock-Pay Deluge

Some people think the fat cats are lapping up too much of the cream at Cisco (CSCO).

Tech investors have marked off Wednesday afternoon on their calendars, in honor of the company's widely anticipated fiscal first-quarter earnings release. But another date looms equally large for Cisco shareholders: next Tuesday, when they will vote on whether to expand the San Jose-based communications giant's costly employee stock plan.

Skeptical analysts have long criticized the company's liberal use of stock-based compensation -- particularly options. These people charge that, in effect, the proceeds of the Cisco cash machine have been funneled into the pockets of well-compensated insiders at the expense of outside investors. The jeers have only picked up as other tech titans have moved away from using options to pay workers.

Options aside, some 321 million shares have been issued already for Cisco's employee stock plan, which offers qualified workers a 15% discount on share purchases. Now, as Cisco stockholders consider a proposal that would expand that pool by a hundred million shares and extend the program through 2010, these critics are saying it's time to bring the milk wagon to a halt.

Adding stock now to an employee pay plan that has already includes millions upon millions of shares may seem like a drop in the bucket. But "it's a drop in an overflowing bucket," says CEO Greg Taxin of shareholder advocate Glass Lewis, which opposes Cisco's plan.

Cisco declined to comment on the Glass Lewis remarks, which were issued last week in a proxy paper. Shares of the computer networking giant rose 66 cents Monday, to $21.59.

Leadership

Cisco has become tech's strongest defender of using stock -- especially options -- to pay employees, even as peers such as Microsoft (MSFT) have curbed the use of options in favor of restricted stock grants.

Advocates of the shift to restricted stock say it better aligns workers' interests with those of shareholders, while potentially reducing the dilutive effect of massive option grants. They also point out that stock grants, unlike option grants, can retain value even in a falling market.