Siebel's Golden Parachutes

I admit it. I'm torn between praising Siebel Systems (Nasdaq: SEBL  ) for doling out severance benefit guarantees to its workforce and burying it for the notable top-heaviness of the company's offer.

There's no arguing that Siebel, which filed a Form 8-K detailing its new "Employee Retention Benefit Plans" yesterday, isn't more generous with bennies than Merck (NYSE: MRK  ) , which handed out its own golden parachutes last year. In both cases, the company in question had one thing on its mind: rumors of an imminent takeover attempt, probably by an unwelcome suitor, with subsequent layoffs likely. Management knew that when layoffs loom large on their workforce's minds, employees tend to spend less time doing their jobs and more time updating the old curriculum vita. To combat that tendency, Merck decided to knit golden parachutes for 230 senior managers. Meanwhile, the other 63,000-odd employees were cautioned to roll when they hit the ground.

In Siebel's case, while it's still only the execs getting full-size 'chutes, they're at least handing out umbrellas to the rank and file. According to Siebel's filed 8-K, execs just shy of founder Tom Siebel's level can receive as much as 18 months' salary and bonuses in the event barbarians come knocking at Siebel's gate. Lower down the ladder, corporate veeps can count on a full year's bennies; directors get six months; Joe & Jane in accounts payable get just three.

On the face of it, these kinds of plans -- especially Siebel's -- have some logic. To land or replace a senior-level executive takes time, effort, and hefty placement fees paid to a search firm. Siebel doesn't need that kind of expense and disruption, so it's understandable that they'd offer their heavy hitters a larger benefit package.

But that's just on the face of it. With executives' larger salaries, bigger bonuses, and more massive stock option allotments, a severance package that offered the same calendar multiple to rank and file would already be weighted in favor of rewarding top talent. But by inflating the calendar multiple to give senior execs six times the nominal benefits of an ordinary employee, Siebel's company management demonstrates once again that it's mostly looking out for No. 1.

That kind of attitude has Siebel vigorously fighting shareholder demands to share its $2.2 billion cash hoard by initiating a dividend. It seems that, when push comes to shove, management would much rather share that cash with itself than with the company's owners.

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Fool contributorRich Smithdoes not own shares in either company mentioned in this article.


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