A Warning About eBay's Options 'Giveaway'

Glass Lewis opposed eBay's options proposal after the plan failed four of the 10 criteria the company used to judge the plan, Taxin said. Among the problems with the proposal: Glass Lewis estimates that eBay will hand out about $1 billion worth of options this year, which represents about four times its reported net income in 2002.

"You can't run a business in which you are giving away four times the net income that you generate in the form of options grants," Taxin said.

Awash in Options

Last year, for instance, eBay gave employees a net grant of 11.8 million options, which amounted to about 4.3% of the outstanding shares the company had at the beginning of 2002. That was a far greater proportion of outstanding shares than high tech peers such as Intel (INTC Quote), Cisco (CSCO Quote) and Amazon.com (AMZN Quote) handed out last year.

And eBay doesn't seem to want to curtail its options habit. After getting shareholders to vote for sizeable increases in its options pool in each of the last two years, the company is asking investors to approve a greater than 50% increase in the amount of shares it can grant under its current options plan. The proposed increase -- some 14 million shares -- amounts to more than 4% of the company's outstanding stock.

All of this comes at a time when mounting scandals have led to criticism of companies' open-handed options policies. Among the complaints about options: the dilution of shareholder interest and the skewing of executive behavior.

Reacting to this sentiment, accounting regulators are likely next year to require all companies to expense the cost of stock options. Some companies have already begun to expense options on a voluntary basis. In the meantime, some technology and Internet companies such as, Intel, Siebel (SEBL Quote) and Yahoo (YHOO Quote) have moved to limit their outstanding options.

eBay has made no such moves. And like other technology companies, eBay has resisted expensing stock options.