Making It Harder to Leave PeopleSoft

By Ellen Lee

Oct. 7, 2004

For more than a year, software maker PeopleSoft Inc. has weathered one of the toughest challenges of employee retention: rival Oracle Corp.’s $7.7 billion hostile takeover bid, which threatens to wipe out thousands of jobs.

    But PeopleSoft is soldiering on. The Pleasanton, California, company has intensified efforts to keep its 11,500 employees from abandoning the ranks, including boosting severance packages for executives and rank-and-file employees as well as holding seminars on retention for supervisors. And, in a move that some analysts have speculated was taken in part to keep employees from jumping ship, it also brought back founder Dave Duffield. He replaced Craig Conway as the company’s chief executive after Conway was fired last month.

    The moves come at a critical time in the company’s 16-month battle against Oracle. For most of the year, PeopleSoft had the edge. But a federal judge unexpectedly handed a crucial victory to Oracle in September. The ruling turned the tide in Oracle’s favor, increasing its chances of succeeding. And it meant that PeopleSoft was more vulnerable than ever to employee flight.

    Many employees have heralded Duffield’s recent return as a dramatic move to raise morale. Duffield has said that one of his goals is “reinvigorating the employee community.”

    Conway waged a vigorous defense against Oracle’s hostile takeover bid and had returned the company to profitability. But he never managed to win the same level of loyalty as Duffield. Conway lent the company a more conservative, suit-and-tie respectability; the unconventional, Hawaiian-shirt-clad Duffield drew widespread employee devotion during his 12-year tenure, even inspiring a company rock band named the Raving Daves. PeopleSoft director Steve Golby also said that in recent months PeopleSoft’s top executives had begun losing confidence in Conway’s leadership, pointing to his style of “micro-managing the business and people in it.”

    “It’s great to be back,” Duffield said in an e-mail to employees on the first day of his homecoming. “For those of you who don’t know me, you can expect to see me in the halls, on the road, in the cafeterias, looking for feedback and the opportunity to meet you.”

Avoiding morale problems
    Besides Duffield’s appointment, PeopleSoft has taken aggressive steps to offer employees a tangible reason for staying. A week after the federal court’s ruling, PeopleSoft announced new compensation packages. The board of directors approved the plan to recognize the role that workers have played in the past year and to alleviate their concerns “regarding their long-term employment prospects,” according to a Securities and Exchange Commission filing.

    The plan, which is triggered if another company takes control of PeopleSoft and fires its staff, gives executives between 150 percent and 200 percent of their annual salary and bonus, plus up to two years of health coverage. Before, they were to receive 75 percent to 100 percent of their salary and bonus.

    All employees will collect at least 12 weeks’ salary and health benefits; before, they were to receive one week of salary for each year of service, and the maximum available was three months’ salary. Some employees could receive additional benefits based on their level in the company and their performance, the filing said.

    In addition, the plan accelerated the vesting schedule for employee stock options, allowing them to be exercised and sold immediately. And lest the acquiring company try to avoid complying with the new plan, the SEC report said, PeopleSoft also “authorized changes to prevent an acquirer from seeking to avoid complying with the company’s existing obligations,” although it didn’t spell out what those changes were.

    “The two things you’re always fighting when you’re facing a hostile takeover are the distraction of the event itself and the impact on morale because of the uncertainty of what’s to come,” says Lynn Bersch, a partner at the law firm Reed Smith who specializes in employment issues. “That uncertainty is a big deal when your livelihood depends on it. You don’t want to be the last employee standing.”

    Bersch calls PeopleSoft’s new packages an “extraordinary measure.” Though many businesses, particularly start-ups, have change-of-control clauses for executives, few deploy the benefits to all employees, she says.

    The compensation plan, however, could have a dual effect. Though it acts as a deterrent for Oracle, raising the cost of the takeover, it could also put off a friendly acquirer such as IBM, which has been rumored to be a potential white knight. “It’s a double-edged sword,” Bersch says.

    But Ben Watson, PeopleSoft’s senior vice president of human resources, minimizes the link between the new packages and Oracle’s takeover bid, saying it was never PeopleSoft’s intention to use the new plan as an anti-takeover tactic. The new plan, in development for several months, originated from a desire to be competitive with other high-tech companies in Silicon Valley, Watson says. Improving the company’s compensation packages adds to the “total equation” for retaining and recruiting employees: a combination of company culture, strong management, good benefits and so forth.

    For the past few years, employees had hunkered down because of the poor job market. Now that it has picked up, so have some PeopleSoft employees, says Watson, who was himself lured from Sprint, relocating from Kansas City a few months ago. “There are more opportunities for our folks,” he says. “The world knows we have good people.”

    Jeff Markham, division director for Robert Half Technology in San Francisco, says PeopleSoft isn’t the only company that has re-evaluated its approach to employee retention. “Top talent has been at the forefront of people’s minds,” says Markham, who nevertheless called PeopleSoft’s compensation package generous. “We’re seeing a lot of companies go back to [more proactive] recruitment and retention strategies, not to the extent of the late ’90s, but close to.”

    PeopleSoft launched a thorough study before changing its compensation packages. Watson declined to offer details, but said that PeopleSoft hired a “prominent name in compensation consulting” and studied the packages of several other businesses. He and other PeopleSoft managers also met with the board several times to keep it apprised of the plan’s development and to receive feedback.

Lower turnover
    Despite PeopleSoft’s efforts, some employees have been polishing their résumés and looking elsewhere. For instance, Lawson Software, a competitor, has received more résumés from PeopleSoft employees in recent months than in the past.

    Among those already lost are some top managers, including Anne Jordan, PeopleSoft’s general counsel; Dee Anna McPherson, a public relations director; Joe Davis, general manager of PeopleSoft’s customer relationship management division; Doug Merritt, general manager of PeopleSoft’s human capital management systems division; Kyle Bowker, North America vice president; and Brad Wilson, marketing chief for the customer relationship management division.

    The latest departures: Ram Gupta, executive vice president of products and technology, who was a close ally of Conway. He was replaced by Stan Swete, a PeopleSoft veteran. Renee Lorton, general manager of financial management, and Pat Quirk, vice president and general manager of supply chain management, also left.

    Steve Swasey, a spokesman for PeopleSoft, says the departures were connected to personal and career development, not Oracle’s bid. PeopleSoft has lost good employees but also hired new ones, including a few from Oracle, he says. “It’s a continuous process.”

    Davis, for example, is now the CEO of Coremetrics, a San Mateo, California, Web analytics company. “I was definitely itching to get back to [running my own company],” he says. He was replaced by George Ahn, an executive from PeopleSoft competitor Siebel Systems.

    PeopleSoft declined to reveal its attrition rate, but said it is much lower than the high of 17 percent in 1999, when the economy was bubbling and the company was undergoing a major shift in control. At that time, top executives and employees fled the company, spurred by both the perks of the dot-coms and Duffield’s departure.

“Incredible resolve”
    During the past year, PeopleSoft says, it has made sure that such an exodus doesn’t happen again. It has been offering seminars for supervisors on employee retention. The seminars were not mandatory, Watson says, but were timely in light of the fight against Oracle.

    Throughout the year, PeopleSoft has also kept up employee morale by maintaining its regular company-wide events, such as last month’s Halloween party. And at the company’s annual customer conference, held in San Francisco in September, many employees partied alongside the customers in a blowout event complete with a trapeze, an ice rink, a rock-climbing wall, carnival rides and performances by Train and Kool & the Gang.

    In addition, PeopleSoft has fostered communication through daily online newsletters, called OneVoice. It has also occasionally broadcast PeopleSoft Radio through the Internet. During the monthlong antitrust trial to determine whether Oracle’s bid should be blocked, an attorney for PeopleSoft kept a daily blog that dissected court developments.

    Overall, PeopleSoft has encouraged employees to continue to work as though the bid were not hanging over them. “Sitting around worrying about it is not going to do anything other than distract us all,” Conway said in an interview a few months before his firing.

    He applauded the employees’ efforts. One day, he said, “someone will write about the incredible resolve of our employees. These are employees whose incomes have been impacted, who have had a greater degree of difficulty in their jobs than they would ordinarily, but will not be deterred.”

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