eBay's Plan Too Big for Some Rulebooks

The plan has drawn scrutiny from investors and compensation critics because of eBay's past practices. The online auction company has been one of the most prolific dispensers of options in recent years.

At the end of the first quarter, eBay had about 39.7 million options outstanding that it had issued under its own stock plans. Those options were equal to about 12.5% of the company's outstanding shares.

But that's not all. Under its current options plans, eBay has an estimated 15.8 million shares, or 5% of outstanding stock, that it can still grant, regardless of how shareholders vote next week. Meanwhile, the company has issued thousands of shares under its employee stock purchase plan and could issue a million more under a separate stock plan proposal on its proxy ballot.

All told, shares that have been or could be issued under the company's current and proposed stock plans amount to more than 23% of outstanding shares, according to the Investor Responsibility Research Center. And that tally doesn't include about 1.7 million more options, equal to about 0.5% of outstanding shares, that eBay assumed through its acquisitions of Billpoint, Half.com and PayPal.

eBay's profligate use of options has come amid increased scrutiny concerning their use.

Arguing that options encourage short-term thinking and illegal accounting gimmicks, corporate critics have blamed their abuse in part for the accounting scandals at Enron and WorldCom. Critics have also charged that because companies don't have to expense options, they have been overly generous in handing them out, in the process diluting shareholder value.

Last year, for instance, eBay reported that it earned $249.89 million, or 85 cents a share. But including the cost of stock options, the company would have only earned $62.9 million, or 21 cents a share.

But that may not be the final word on options costs.