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This excerpt taken from the EBAY DEF 14A filed May 16, 2005. Supporting
Statement
We believe that our Company’s compensation policies should
encourage the ownership of stock by senior executives in order
to align their interests with those of shareholders. To achieve
this goal, we favor granting senior executives actual shares of
stock for meeting specified performance goals. In our opinion,
performance-vesting shares are a better form of equity
compensation than fixed-price stock options or time-vesting
restricted stock.
Fixed-price stock option grants provide senior executives with
incentives that may not be in the best interests of long-term
shareholders. In our view, stock option grants promise
executives all the benefit of share price increases with none of
the risk of share price declines. Stock options can reward
short-term decision-making because many executives’ options
can be exercised just one year after the grant date.
Furthermore, we believe that stock options can create a strong
incentive to manipulate a company’s stock price through
questionable or even fraudulent accounting.
Leading investors and regulators have questioned the use of
stock options to compensate executives. Berkshire Hathaway CEO
Warren Buffet has characterized fixed-price stock options as
“really a royalty on the passage of time.” Federal
Reserve Chairman Alan Greenspan blamed poorly-structured options
for the “infectious greed” of the 1990s, because
“they failed to properly align the long-term interests of
shareholders and managers.”
Similarly, we oppose granting executives time-vesting restricted
stock that does not include any performance requirements. In our
view, time-vesting restricted stock rewards tenure, not
performance. Instead, we believe vesting requirements should be
tailored to measure each individual executive’s performance
through disclosed benchmarks, in addition to the Company’s
share price. To align their incentives with those of long-term
shareholders, we also believe that senior executives should be
required to hold a significant portion of these
performance-vesting shares for as long as they remain executives
of the Company.
Executive compensation consultant Pearl Meyer has said “if
a company is going to issue restricted stock grants as a way of
making sure executives are owners rather than optionees, the
grant should be earned on a performance basis — it
shouldn’t be just a giveaway.” Former SEC Chairman
Richard Breeden has stated that “there is not a strong
reason for granting restricted stock rather than simply paying
cash unless there are performance hurdles to vesting.”
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