Shareholders Approve eBay's Options Plan

Despite warnings about dilution, eBay (EBAY Quote - Cramer on EBAY - Stock Picks) shareholders on Thursday approved a proposal to significantly increase its pool of stock options.

At the company's annual shareholder meeting in Orlando, Fla., investors approved the company's options proposal by a nearly 4-to-1 vote. Shareholders also approved the company's other proposals, including its choice of auditors and a stock plan for directors, and re-elected two board members who were up for election.

The vote represents the third time in three years that eBay shareholders have approved a large increase in the amount of options that the company can grant. Under the proposal passed on Thursday, the number of shares available under eBay's latest stock plan will increase by 50%, or 14 million shares. The increase in shares under the plan amounts to more than 4% of the company's outstanding stock.

eBay's options plan had drawn scrutiny from some investors and corporate governance critics because of the company's profligate use of options. Including the stock proposals passed on Thursday, the number of shares available under all of the company's stock plans is equal to more than 23% of outstanding shares.

Last year alone, the company awarded options equivalent to about 4% of outstanding shares. That was a far higher percentage than other technology or Internet companies such as Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks), Intel (INTC Quote - Cramer on INTC - Stock Picks) or Cisco (CSCO Quote - Cramer on CSCO - Stock Picks).

Calling eBay's options practices excessive, the California Public Employee Retirement System, the nation's largest pension fund, voted against the company's options plan. The proxy voting guidelines of Fidelity and Vanguard, two large institutional holders of eBay shares, also called for those companies to vote against eBay's proposal because of the dilution caused by eBay's stock plans.

In spite of this opposition, eBay shareholders did not raise any questions about the option plan during the shareholder meeting. According to an unofficial tally by proxy solicitation firm Morrow & Company, the proposal passed with about 68% of outstanding shares voting in favor of it. About 18% of outstanding shares voted against the proposal, about 2% abstained and some 12% of shares withheld their votes.