Updated from 1:10 p.m. EDT

Opposition is mounting to eBay's ( EBAY) plan to expand its pool of stock options, with the nation's largest public pension fund deciding to vote against the proposal.

Calling it "excessive," the California Public Employees' Retirement System, or Calpers, said it will vote its shares against the plan. Calpers owns 213,000 shares in eBay, worth about $21.6 million in recent trading.

eBay did not return calls seeking comment.

Not only do options dilute shareholder value, but corporate governance critics have linked them to the scandals at Enron and WorldCom, charging that their use tends to encourage short-term -- and sometimes illegal -- actions to boost stock prices.

While not among the very largest institutional holders of eBay's stock, Calpers, with its $138 billion investment portfolio, is among the most influential. And it is taking a reformist bent in some of its votes.

They Object

The options plan is not the only issue on which Calpers plans to vote against. The pension fund also plans to vote against the board's selection of PricewaterhouseCoopers as the company's auditor. Calpers opposes this choice because PricewaterhouseCoopers, which has served as eBay's auditor since 1996, has also performed consulting work for the online auctioneer.

Last year, for instance, PricewaterhouseCoopers charged eBay $1.2 million in audit fees and $747,000 more in audit-related fees, which includes due diligence reviews of acquisitions and divestitures. Meanwhile, PricewaterhouseCoopers billed eBay $19,000 for consulting work regarding tax planning and advice, and another $91,000 for legal and other services.

"The Audit Committee has determined that the rendering of non-audit services by PwC was compatible with maintaining their independence," eBay said in its proxy statement.

But Calpers disagrees. For companies in which it invests, the pension fund has decided it will vote against their choice of auditors if the auditor is doing consulting work as well, said Brad Pacheco, a spokesman for agency.

"It doesn't matter the degree of consulting work. We still think there's a conflict there when they're taking on those dual roles," Pacheco said.

Calpers is taking this opposition to auditors doing consulting work a step further. The agency is voting against company directors who as members of an audit committee approve their auditors' dual role.

In eBay's case, Calpers is voting against Dawn Lepore, the only member of eBay's audit committee who is up for election this year. LePore, who serves as vice chairman of technology, operations and administration at Charles Schwab, has served on eBay's board of directors since 1999.

Options, Options Everywhere

San Jose, Calif.-based eBay has asked shareholders to approve a proposal that would increase by more than 50% the number of options it can grant under its current stock options plan. If approved, the plan would augment eBay's options pool by 14 million shares, which is equal to about 4% of the company's outstanding shares.

The proposal is only the latest effort by eBay to increase its options pool. In the past two years, eBay shareholders have approved three similarly large increases in eBay's available options.

eBay has drawn scrutiny from investors and compensation critics in recent weeks because its options practices appear to be out of step with its peers -- as well as prevailing sentiment.

"I'm befuddled at how something this inefficient can take place in the market," said Ken Broad, a portfolio manager at Transamerica Investment Management in San Francisco. (Transamerica does not have a position in eBay.)

"As a business model, it's a fabulous business," said Broad. "It's custom-made for the Internet. But its options model makes it non-starter for us."

The online auction company handed out options worth about 4% of outstanding shares last year, which was a far higher proportion than companies such as Amazon.com ( AMZN) and Cisco ( CSCO). According to one estimate, the amount of options cashed in by company employees in 2003 was greater than the company's reported net income of $250 million.

These prolific practices come in spite of growing concern over the use of options.

In response to the scandals at Enron and WorldCom, accounting regulators are likely to require companies to begin expensing stock options next year. Under current regulations, companies can choose to hide the cost of options in a footnote in their quarterly reports. Governance critics have argued that when companies have to show how much options cost them, they will be more judicious in their use.

Although many Silicon Valley companies have resisted the expensing of options, some have already moved to limit their options grants. Yahoo ( YHOO) and Intel ( INTC), for instance, have pledged to limit their annual options grants to 2% of outstanding shares. Meanwhile, under fire from investors for its options practices, Siebel ( SEBL) cancelled millions of options earlier this year.

In contrast, eBay neither expenses options nor has it made any move to limit their use.

Despite this, Institutional Shareholder Services, the nation's leading proxy advisory firm, announced last week that it would support eBay's proposal to increase its options. The plan's cost came in under a cap set by ISS.

But Glass Lewis, a rival proxy advisory firm has lambasted ISS's analysis. Saying that eBay's plan dramatically fails four of its 10 criteria, Glass, Lewis has recommended that eBay shareholders vote against it.

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