Options' Bad RepThe corporate scandals over the last two years have brought stock options into the spotlight. The excesses seen at companies such as Enron, WorldCom and others have been blamed in part on the incentive that options give executives to do whatever they can to boost short-term share prices. But stock options also have gotten a bad rap because of the way they are treated under accounting rules. Although many critics argue that options are an expense that should show up on income statements, companies such as eBay have been able to keep them off their earnings reports, merely having to footnote them in their filings with the Securities and Exchange Commission. Because companies don't have to show how much options are costing them, many have been granting excessive amounts of options, severely diluting shareholder value, critics charge. That also puts pressure on companies to continually buy back their own shares rather than return the money to shareholders in the form of dividends. eBay, for instance, has made a name for itself as one of the few consistently profitable Internet companies. But its track record wouldn't look so good if it had to treat options as an expense.
|Taken for Granted: eBay's Options Loom Large Among Fellow Tech Firms |
Options grants in 2002 (numbers in thousands)
|Granted||Canceled||Net grant||Outstanding shares (end of prior year)||Net grant as % of outstanding shares|
|Notes: Siebel bought back 28 million options in 2002, mostly from CEO Tom Siebel. Cisco's fiscal year ends in July.|
As a fraction of outstanding shares, other tech companies have larger pools of unexercised options. Because of the increase in its share price, however, the average option at eBay is in the money -- which is not the case with many tech companies. The average price of an unexercised option at eBay at the end of 2002 was $53.73; the company's stock closed at $103.05 on Tuesday. In contrast, the average price of an unexercised Siebel ( SEBL) option at the end of last year was $17.42; Siebel's stock closed at $9.17 Tuesday.