Eircom's shareholders are just digesting news of the large bonuses paid to the group's two senior executives last year. Now they have to decide if they want to introduce a share-option and share-award plan for up to 400 executives.

The Eircom board, chaired by Mr Ray MacSharry, is recommending that shareholders approve its Long Term Incentive Plan, but the board has not told shareholders the share price at which the options will be issued, or given an indication of how or when this will be set.

Since the share price - a price set now at which the executives can buy shares in the future - is fundamental to the value of the options, shareholders are being asked to approve a plan without being given the information necessary to assess it.

There is no mention whatsoever of the share price in the letter from Mr MacSharry to shareholders this week outlining the plan.

The Eircom board contends that the plan is in the best interests of the company and that it is important to its future success.

"The proposed plan is intended to help us to recruit, retain and motivate the people we need to implement our business goals and ensure their interests are aligned with those of shareholders," Mr MacSharry said in a letter to shareholders. Share-option plans are used widely in publicly quoted companies, as performance incentives for executives.

The argument is that a strong financial performance should lead to increases in the company's share price, benefiting both the shareholders and the executives holding the share options.

The theory behind these schemes is that they align the interests of shareholders and management. Generally, executives are granted options to buy shares in the future at a price set now by reference to the share price in the market, at the time the options are granted.

If the share price rises, executives stand to make significant profits. They can exercise their options and buy the shares at the price set in the past and then sell their shares at the higher market price.

Where the company fails to please the market and the share price stays static or falls, share options have no value to the executives.

To protect shareholders, some performance criteria are usually put in place so that share options are not too easily obtained, such as that options will only be awarded if a certain level of growth in profits or earnings per share is achieved.

On the Irish market, companies look to the Irish Association of Investment Managers to agree their schemes before they seek shareholder approval.

The Eircom remuneration committee - Mr MacSharry and directors Mr Jim Flavin, Mr Dick Spring and Mr Marten Pieters - has had a run-in with the IAIM over the performance criteria they wanted to put into the plan.

The IAIM, which represents the large investment and pensions funds which invest milions on behalf of their fundholders, considered Eircom's original criteria inadequate to protect shareholders' interests.

Eircom eventually accepted the IAIM position that the financial performance of the company - specifically growth in earnings per share - should be the criterion for awarding options.

But on the share price issue, Eircom is in an unusual position not provided for under current IAIM rules. One year after flotation its share price has fallen more than 30 per cent from the flotation price of €3.90. The rules set a minimum share price at which options can be exercised: it "should not be less than the average price of the shares in question on the dealing day preceding the time when the participation is granted".

This means Eircom could issue the options at the current market price and still comply with IAIM rules. But the Eircom share price is now close to its lowest ever level and analysts say it is being held down by technical factors such as the impending sale of the KPN stake, the future sale of the Telia stake and a generally depressed market for telecoms shares. So the question is whether issuing the options at this level would be fair to shareholders.

Usually share option schemes are introduced when a company is floated, with the share price for exercising the options set at the flotation price. If this had happened in Eircom's case, the executives' options would now be worthless. Launching the scheme one year after flotation, after the sharp fall in the share price, and setting the price at the current low levels, means executives stand to make significant gains when the share price recovers.

There is nothing to prevent the Eircom board setting the issue price above current market levels. The board has to weigh the negative impact on shareholder sentiment of pitching the option price at current market levels and finding a price that will ensure executives are "incentivised".

But shareholders, who are expected to vote on the issue next month, have not been given any indication of the board's intentions on price. Therefore, to protect their own interests they should vote against the plan.

The plan is unlikely to be rejected because of the strength of the institutional shareholders and other large shareholder blocks. However, a substantial No vote would send Eircom a signal that it should be more open and transparent with shareholders.

The share option plan is being put to shareholders at the same time as they learn that the company's two executive directors - chief executive Mr Alfie Kane and finance director Mr Malcolm Fallen - received payments last year totalling £2.2 million (some of the payment related to previous years' bonuses) before pension contributions and benefits in kind.

With Mr Kane and Mr Fallen each qualifying for options to the value of up to four times their annual emoluments under the plan, shareholders could be forgiven for wondering just how much it takes to "incentivise" the Eircom executives.