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Electronic Arts Opens Employee Stock Spigot

But setting aside the company's execution issues, governance advocates tend to frown on option-exchange programs. The thinking is that by exchanging or repricing options, companies eliminate the only risk employees see from accepting options.

Worse yet, by exchanging options for shares of stock, EA would be trading the mere possibility of diluting shareholders for the near certainty of diluting them. In other words, options ostensibly can expire unexercised, but shares of restricted stock -- which is what the company would be giving to employees -- likely won't.

Restricted shares are full shares of stock that are typically subject to a vesting period, i.e., employees who receive them can't sell them until they are fully vested, which often takes one to five years. However, in EA's case, the company plans to limit the vesting period for the restricted shares depending on the degree to which the options they will be exchanged for were already vested.

And then there's the larger issues surrounding options in general. Thanks to new accounting rules, options now count against companies' earnings. That change, as well as the recent scandals involving the backdating of options, has highlighted for many investors how corporate managers have abused options, both legally and illegally, in the past.

While EA has not been caught up in the backdating scandal to date, it has been a prolific dispenser of options. At the end of the company's fiscal year in March, it had some 40.9 million options outstanding, which was equivalent to about 13% of the company's total share count as of the end of this month.

And that's not including all the stock options that insiders have already exercised. From fiscal 1996 through 2006, EA employees and executives cashed in some 90.6 million options, equivalent to about 28% of what the company's total shares outstanding would be if not for some recent buybacks.

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