eBay Vote Shows a Return to Complacency

At last week's annual meeting, eBay shareholders approved a plan that for the third year in a row would greatly increase its pool of available options. The plan adds 14 million shares, equivalent to about 4% of the company's outstanding stock, to its option pool. All told, the amount of shares set aside by eBay's stock plans is equivalent to more than 23% of the company's common stock, according to the Investor Responsibility Research Center.

The vote last week wasn't even close. eBay shareholders approved the option plan by a nearly 4-to-1 margin. Of those shares that were actually voted, 78% were in favor of the option plan.

Some big institutional investors such as the California Public Employees' Retirement System, the nation's leading pension fund, the California State Teachers' Retirement System and the Ohio Public Employees Retirement System, voted against eBay's plan. Mutual fund companies Fidelity and Vanguard also may have voted against the plan, if they followed their proxy voting guidelines, which discourage dilution to the extent caused by eBay's plan. (Starting in August 2004, mutual funds will be required to announce votes from the previous year. But eBay's vote last week came before the period that requires disclosure.)

Such dissenting investors were in the distinct minority at eBay, however.

Some institutional shareholders, such as the New York State Common Retirement Fund, voted in favor of eBay's plan, saying they didn't see any harm in it. Other investors, such as the New Mexico Educational Retirement Board, followed the advice of leading proxy advisor Institutional Shareholder Services. ISS urged investors to vote for eBay's stock plan, saying that the plan came in under a cap the proxy advisory firm sets on stock plan costs.

Glass Lewis, a rival proxy advisor, has criticized ISS' analysis, noting that as a client of ISS, eBay could use the firm's options formula to calculate the maximum number of options it could grant and still come in under ISS' cap. But that objection wasn't enough.