A Warning About eBay's Options 'Giveaway'

The company is transferring an excessive amount of its value to employees.

Instead of using market capitalization to judge stock options, as ISS does, Glass Lewis uses a company's enterprise value. Enterprise value is a company's market capitalization minus its cash plus its debt. Basically, enterprise value represents what someone might pay to acquire a company.

eBay has an enterprise value of about $29 billion. Given the estimate that it will hand out $1 billion in options this year, its options award represents about 3% of the company's enterprise value, noted Taxin.

The average options award at eBay's peer group is less than 1%, Taxin said. One standard deviation from that average would be about 1.3%, he said. Again, eBay's plan is far in excess of its peers, he said.

The historical costs of eBay's program have been excessive relative to its income.

Extrapolating from figures provided by eBay in its annual report, Glass Lewis estimates that eBay employees gained about $250 million by exercising their stock options last year. That amount is larger than what eBay posted in net income last year, noted Taxin.

"My view is that's an excessive amount of compensation that's going to employees who aren't generating sufficient profits for the benefit of their shareholders," Taxin said.

The company is paying an excessive amount of compensation to its employees, according to Glass Lewis

eBay has about 4,000 employees. Given Glass Lewis' estimate that the company will award more than $1 billion in options this year, on a per-employee basis that works out to an option grant of more than $250,000 per employee, just this year. And that's in addition to any cash compensation or other benefits that employees may receive.

"We think that's excessive," Taxin said. "It's certainly excessive compared to a standard deviation in [eBay's] industry. We don't think they need to be handing out $250,000 in shareholder money to employees each year."

Up Next: Calpers

Calpers plans to use Glass Lewis' proxy research in addition to ISS' research, said Brad Pacheco, a spokesman for Calpers. That decision doesn't represent dissatisfaction with the work done by ISS, Pacheco said.

However, Calpers is somewhat concerned about the alleged conflicts of interest at ISS that have been highlighted in recent months, he said. "It's nice to see a competitor in this field to give us alternative views on these issues."

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