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eBay Vote Shows a Return to Complacency

With nary a question from investors about a management-enriching stock plan, eBay (EBAY) concluded its annual shareholder meeting on Thursday in less than 40 minutes.

Almost as quickly, it seems, once-rabid investors have shelved their suspicions that generous benefits for top executives come at the expense of average shareholders. Last week's vote at eBay suggests that typical investors -- no matter how much they complained after the fact about abuses at Enron, WorldCom, Tyco (TYC) and others -- still vote with their pocketbooks.

If a company's stock is rising, as eBay's surely is, shareholders aren't likely to rock the boat. Their restraint shows the limits of the corporate reform movement that followed a series of high-profile scandals and a long bear market on Wall Street.

With the full approval of its board, eBay is issuing ever-increasing amounts of stock options, transferring an unusually large portion of the company's market value to corporate insiders. And many of these insiders are cashing in, selling hundreds of millions of dollars worth of stock, even as other investors, especially mutual funds, have bought up the shares.

Barely a year ago, Congress, the Securities and Exchange Commission and other regulators were rushing to pass legislative and regulatory reforms to stop the practices that are believed to enrich corporate managers at the expense of shareholders. Responding to investor outrage over corporate excesses, accounting scandals and a declining market, the Sarbanes-Oxley Act and other reforms were intended to improve corporate governance and transparency. Pending reforms could limit companies' use of stock options by requiring such compensation to be counted as a regular business expense.

But last week, eBay shareholders overwhelmingly approved a proposal that would increase the number of shares available under the company's stock plan by more than 50%. Now eBay is cleared to give away an estimated $1 billion worth of options, about $250,000 per employee, this year alone. This year's potential handout is more than four times eBay's net income last year.

"This expanded options plan is exactly the kind of plan that got some of the Enrons and the WorldComs of the world in major trouble," said Scott Harshbarger, former Massachusetts attorney general who now heads up the corporate governance practice of Boston law firm Murphy, Hesse, Toomey & Lehane. "This ought to remind you that it takes very little to deflect the winds of change."

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