Updated from 1:19 p.m.


(CSCO) - Get Report

chief John Chambers was back at the pay window this week, cashing in $18.6 million worth of stock options.

According to federal filings, the economics-expounding executive exercised options on 1.8 million shares Tuesday. He sold slightly more than 1 million shares at an average price of about $18.50 and kept 791,000 shares. Chambers, who now holds 2.8 million shares, used the $18.6 million in proceeds to cover the costs and taxes on the transaction.

Chambers also set up a pre-arranged selling plan known as a 10b5-1, which will allow him to sell as many as 17.6 million Cisco shares over four years. At current levels those shares are valued at around $325 million.

The news comes just a week after the San Jose, Calif., Internet equipment giant

disappointed Wall Street with a

cautious second-half sales outlook. The setback added to a difficult 2004 for Cisco shareholders, who have seen their holdings lose more than a third of their value after an early January surge.

On Friday, Cisco slumped 43 cents to $18.67.

Significant Selling

For his part, Chambers has been making do in spite of the stock's slide. Over the past nine months, the executive has pocketed $56.9 million in cash from Cisco stock sales. At the same time, Chambers has emerged as a leading advocate of stock-based employee compensation and a vocal critic of reformers who argue that stock option costs should be tallied as part of generally accepted accounting rules and reported in companies' GAAP earnings.

That's hardly shocking, considering how Chambers' company would fare if options expensing became standard. Treating the issuance of employee stock options as an expense would have slashed net income by $311 million, or 26%, for the third quarter ended in April. Any bottom-line hit from options expensing could seriously undermine Cisco's stock, which even at depressed levels is valued at a healthy 19 times fiscal 2006 earnings estimates.

Meanwhile, as the option debate simmers, some Cisco investors charge that the company is unfairly

funneling cash into employee pockets -- and particularly to the benefit of option-holding executives. Critics point to the combination of Cisco's aggressive stock buyback program and the heavy employee stock issuance activity.

In the most recent quarter ended last month, Cisco generated $2.1 billion in cash from operations but spent $2 billion on stock buybacks. Cisco argues that the buyback is the best use of its $19 billion cash hoard. But with Chambers personally reaping tens of millions in stock sales during the buyback period, it's not clear whose interests are best served, critics say. This is especially notable since Cisco shareholders have seen a 35% drop in the stock since January.

Simple Living

For his part, Chambers has made a good show of it. For three years starting in May 2001, the San Jose, Calif., executive collected no bonus and a $1 annual salary. But during that time, to make ends meet, his stock awards have surged, larding his portfolio with 16 million shares.

This month, the company said his salary was reinstated at $350,000.

Chambers isn't the only networking gearmaker chief who is selling. Router rival


(JNPR) - Get Report

CEO Scott Kriens has sold $37.6 million worth of stock this year. Kriens has been selling roughly 500,000 shares each quarter for the past six quarters.

Chambers' new selling plan will help reduce any appearance that the executive might be acting on inside information or timing his cash-outs to maximize personal gain. Also, the options Chambers exercised this week were due to expire in January.

Prior to this, Chambers had been an occasional seller of large blocks of stock. In November, Chambers attracted attention by selling $38.3 million worth of shares, just after the stock had surged 14% in the weeks just prior to his cash-out.

The new selling plan filed with the

Securities and Exchange Commission

specifies that Chambers will retain at least a quarter of his holdings each time he sells.

Those holdings remain sizable. Chambers owns about 30.4 million shares, including options underlying 27.8 million shares, according to the Cisco proxy filed in July 2003.