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Tech Industry

eBay shareholders snub options expensing

Plan to list workers' stock options as an expense gets a thumbs-down as Washington ping-pongs on the issue.

eBay's shareholders have rejected a bid that would have allowed the online auction giant to expense the cost of stock options granted to its employees.

The company said on Thursday that its stock owners defeated the option expensing proposal, which had been submitted by the International Brotherhood of Electrical Workers Pension Benefit Fund, in a vote held at eBay's ongoing stockholders meeting in New Orleans. Nearly 60 percent of voters opposed the plan.

The idea of expensing stock options has piqued interest and ruffled feathers all the way from eBay's Silicon Valley home to the Capitol in Washington. When employees cash in their stock options, the process dilutes the value of existing shares, meaning each share is worth slightly less money. In March, the Financial Accounting Standards Board proposed that employee stock options should be included in corporate income statements starting in 2005, a requirement that would sharply cut the reported profits of technology companies.

Current FASB regulations require companies to disclose option grants in footnotes. The new proposal would oblige companies to treat exercises of stock options as expenses, which would mean that they would report reduced profits to shareholders and likely grant fewer options to new employees.

However, a House of Representatives panel last week approved a measure that established that stock options awarded to employees of U.S. companies would not have to be expensed. In that move, the Committee on Financial Services voted 45-13 to bar federal securities regulators from recognizing the FASB plan.

A collection of IT and venture capital industry groups backed the House measure, citing their belief that current practices provide investors with enough information to calculate the financial impact of employees exercising stock options. And the options are an important part of business that shouldn't be discouraged, they said.

The topic of stock options remains controversial in Silicon Valley, where such plans enjoyed unparalleled favor during the tech boom of the late nineties and where they remain a commonly used form of employee compensation. A protest rally against the practice of expensing options is slated for Thursday in Palo Alto, Calif., at City Hall Plaza, in the heart of Silicon Valley. The event is sponsored by TechNet, an association of IT industry chief executives, and the International Employee Stock Options Coalition.

At the New Orleans meeting, eBay's shareholders also approved the re-election of directors Meg Whitman, Philippe Bourguignon and Thomas J. Tierney to hold office until 2007, and named PricewaterhouseCoopers as the auction company's independent auditors for the fiscal year ending Dec. 31, 2004.

CNET News.com's Declan McCullagh contributed to this report.