With the full approval of its board, eBay is issuing ever-increasing amounts of stock options, transferring an unusually large portion of the company's market value to corporate insiders. And many of these insiders have wasted little time in cashing in, selling hundreds of millions of dollars worth of stock, even as other investors, especially mutual funds, have bought up the shares.

Pushed by investor outrage over corporate excesses, accounting scandals and a declining market, Congress, the Securities and Exchange Commission and other regulators have pursued a corporate reform agenda that was supposed to stop the practices that are believed to enrich corporate managers at the expense of shareholders. The targets include generous stock options to managers, and incomplete or misleading information given to shareholders and to boards that merely rubber-stamped managers' moves.

Despite these concerns, eBay shareholders last week overwhelmingly approved a proposal that would increase the number of shares available under its latest stock plan by more than 50%. The proposal would allow the company to give away an estimated $1 billion worth of options, about $250,000 per employee, this year alone. This year's handout is more than four times eBay's net income last year.

The vote is a strong indication that investors, no matter how much they complained about similar practices at Enron, WorldCom and Tyco, still vote with their pocketbooks. If a company appears profitable -- or, more importantly, if it is making money for shareholders -- they are not likely to rock the boat.

"This expanded options plan is exactly the kind of plan that got some of the Enrons and the WorldComs of the world in major trouble," said Scott Harshbarger, former Massachusetts attorney general who now heads up the corporate governance practice of Boston law firm Murphy, Hesse, Toomey & Lehane. "This ought to remind you that it takes very little to deflect the winds of change."

eBay representatives did not return calls seeking comment on the proxy vote.

It's understandable that eBay shareholders would favor the status quo. With a business model tailor made for the Internet, the company has taken and maintained a dominating share of the online auction market and a significant portion of overall e-commerce. Analysts generally consider it to be the only clear winner among all of the companies that were started in the dot-com boom.

However, the results have not been as good as the conmpany purports.

Hidden Cost of Options

If it had been required to include the cost of stock options in its reporting, eBay would have been unprofitable in three of the past five years. Although the company would have been profitable last year, taking into account options expense, its earnings would have been slashed from its reported $249.9 million, or 85 cents a share, to $62.9 million, or 21 cents a share, according to eBay's own estimates. Meanwhile, Standard & Poor's calculates that eBay's core earnings, which exclude one-time gains and charges, while including stock-based compensation expenses, were just 17 cents a share last year.

In the meantime, much of the cash generated by the company has come from the issuance of stock options, rather than its actual auction business. A tax benefit related to employees selling stock options accounted for about 20% of eBay's operating cash flow last year, for instance. Combining this tax benefit with the direct cash the company raised from employees selling options, eBay's total option benefit last year was $346.8 million, a total greater than its free cash flow.

Still, while eBay's profitability might be a matter of debate, the rise of its share price is not. eBay shares are up more than 50% in the year to date. At more than $100 a share, they are within striking distance of their all-time high of $127.50, set in March 2000, immediately before the market crash.