Its hard to focus on building a business when you are constantly hearing rumors that your companys future as an independent concern may be measured in a few months or even weeks.
Thats the situation Siebel Systems, a producer of CRM (customer relationship management) software, is dealing with as it tries to plan future product enhancements and get back on a consistent growth path.
Rumors that Siebel is a buyout target or that it was actively seeking a buyer have been circulating for months.
Those rumors reached a crescendo in April after CEO Michael Lawrie resigned as CEO under pressure from the Siebel board of directors after less than a year on the job.
More recently, Eileen McPartland, Siebels senior vice president of global services, a division which had been a key revenue generator for the company, resigned in May.
To top it off, Carl Icahns holding company is reportedly a minority Siebel shareholder.
Despite his interest and the buyout rumors, Siebels share price, which topped $100 per share in late 2000, has been stuck in the doldrums trading between $9.50 and $8.50 for most of the year.
Employees see temptations beckoning outside the company as well. The Silicon Valley economy has improved along with the rest of the country, making good jobs more plentiful and making it easier for Siebel employees to move on.
So what is a company to do under such certain conditions? For Siebel, the answer was to set up an employee retention plan that would ensure that four different employee classes would receive specific severance benefits if the company was sold or taken over.
Under the retention program, a total of 5,260 employees would be eligible to receive severance benefits for a term that begins “three months prior to a change of control and ends one year following a change of control,” according to a Form 8-K statement filed with the U.S. Security and Exchange Commission.
Any covered employee would receive cash payments equal to three to 18 months base salary, and target annual bonus and commissions depending on the employees title and position if they were terminated as a result of a corporate acquisition or takeover, according to the statement.
Health and welfare benefits would continue for three to 18 months after termination due to a takeover and there would be an “immediate acceleration” of all unvested stock awards held by employees. Siebel would also remove any holding periods for any stock awards held by employees.
The Quest for Growth
The company is even offering to reimburse legal fees and expenses employees incur through litigation to enforce their rights under the retention program, according to the statement.
A Siebel spokesman declined additional comment on the intent and meaning of the retention program.
Guaranteeing these benefits up front makes this program potentially expensive if Siebel is ultimately bought out.
Its somewhat reminiscent on a much smaller scale of the customer assurance program that PeopleSoft put in place to help support sales during its protracted takeover battle with Oracle.
The program was also designed to make PeopleSoft unattractive as a takeover target, but it meant little when the two companies finally agreed to terms.
Its questionable whether Siebels promises to employees would be enforceable after a takeover. Once another company took control of Siebels board, it presumably would have the authority to change the terms or do away with it altogether.
However, the buyer would naturally have an interest in retaining key employees and would no doubt offer some kind of incentives to for them to stay.
The new owners would also likely offer severance package to employees who are let go. But whether it would be as generous as what Siebel is offering now is still an open question.
But does the fact that Siebel is offering the retention program mean that its inevitable that Siebel will be bought out? Its not a sure thing. But its looking more likely with every quarter Siebel fails to achieve consistent growth.
Wall Street is unlikely to look with favor on an employee retention program that only adds expense without adding shareholder value.
A few weeks ago, takeover rumors sparked a modest rise in the price of Siebel shares.
But by the end of May with no indication that anyone was showing an active interest in Siebel or that Siebel was involved in talks with anyone, shares prices settled back.
The bottom line is that Siebels CRM products are facing plenty of competition from Oracle, SAP, Microsoft and a swarm of smaller companies, including RightNow Technologies and Salesforce.com, that are offering hosted CRM services.
IT managers are being more selective than ever in how they acquire new applications. To keep their own jobs, they need to find applications that can be deployed faster than ever, at the lowest possible cost and that deliver a quick return on investment.
The retention program is Siebels attempt to deal with uncertainty. But the retention program alone wont keep the employees in place unless they believe that sales of Siebel software are going to take off and the company is going to start growing for months and even years into the future.
John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.