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eBay Clings to Its Options Habit

If shares of eBay (EBAY - Get Report) are a good thing, then managers of the sexiest company on the Internet may be getting too much of a good thing.

Over the past three years, eBay has been one of the most generous givers of options, even among technology companies known for their open-handed option allocations. And while there's no sign yet that eBay investors are concerned about the company's option grants -- eBay shares hit a new 52-week high Tuesday and closed up $3.61, or 3.6%, at $103.05 -- shareholders' equity is diluted when options are granted. And if regulators prevail with a plan to force companies to treat stock options as a regular cost of doing business, the price of options would become even more direct.

At the end of last year, there were 1.2 shares in unexercised stock options for every 10 eBay shares outstanding. At Tuesday's market capitalization, that means options on eBay shares (vested and unvested) worth nearly $4 billion are held by company employees.

There's more. At its annual meeting next month, the thriving online auction company will ask shareholders to approve a greater-than-50% increase in the number of shares it can award under its current stock-option plan. If approved, the measure would mark the third-straight year that eBay has increased its pool of options, a fact that is starting to raise the eyebrows of investor advocates.

"It sounds like they haven't transitioned to the new day in executive pay very well," said Scott Klinger, co-director of the advocacy group Responsible Wealth.

Already a prolific dispenser of options, eBay has increased its largesse even as other tech firms are reining in the practice.

eBay representatives did not return calls seeking comment on the company's stock-option proposal. But in the company's proxy statement, filed earlier this month, eBay's board urged shareholders to approve the measure, saying that stock options assist in attracting and retaining employees.

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