Updated from Feb. 4

PeopleSoft

(PSFT)

CEO Craig Conway's golden parachute, estimated to be worth $25 million according to a regulatory filing Tuesday, would soar to about $40 million, based on

Oracle's

(ORCL) - Get Report

latest takeover bid.

On Wednesday, Oracle announced that it is

raising its offer to $26 a share from $19.50 a share. The latest deal values PeopleSoft at $9.4 billion. Previously, PeopleSoft seemed to be successfully repelling a hostile takeover bid by its larger rival.

PeopleSoft, which has been criticized by corporate governance advocates for overpaying its executives, would give Conway a severance equal to two years' base salary, which currently sits at $1 million a year, plus an unspecified performance bonus, according to a filing with the

Securities and Exchange Commission

.

In the event of a change of control, the following would also occur:

Conway's 4 million unvested stock options, worth $12 million as of Dec. 31, will become fully vested. The pricing of the options would vary, depending on the stock price at the time of the change of control.

His 500,000 shares of restricted stock, valued at $11.4 million as of Dec. 31, also would fully vest.

Those estimates are based on PeopleSoft's closing stock price of $22.79 on Dec. 31. If Oracle's bid at $26 a share succeeds, Conway's windfall would be even higher -- an estimated $40 million.

The disclosure also says Conway and two other executives have "retention bonus arrangements that contain acceleration of service provisions" if there is a change of control. But it fails to disclose who those two executives are and give any detail on the so-called service provisions.

In yet another apparent protection for Conway, the employment agreement says if vesting of Mr. Conway's restricted stock cannot be accelerated, then PeopleSoft would make a cash payment. The payment would be equal to the fair market value of the unvested restricted stock owned by Conway at the date his employment terminates or the date of the change of control.

In addition to the options and stock, whose vesting would be accelerated under the golden parachute, Conway held $4 million exercisable options worth $17.2 million as of Dec. 31. Those exercisable options would be worth even more -- an estimated $30 million -- based on Oracle's new offer price of $26 a share.

According to a review of SEC filings, details of the golden parachute were actually approved by the board's compensation committee last April, before the company's last annual shareholder meeting and before Oracle launched its hostile bid. However, according to the filing Tuesday, the formal restated employment agreement was executed Friday.

A PeopleSoft spokesman declined to comment.

Details of the golden parachute come even as Conway had been dismissing Oracle's hostile bid as all but dead and accused his rival of stalling on a government antitrust investigation into the proposed merger. Oracle also has proposed a slate of candidates to run for the PeopleSoft board of directors, and PeopleSoft recently moved up the date of its annual meeting to March 25.

"I never like to see these things," said Sanford C. Bernstein analyst Charlie Di Bona. "I think you'd be hard-pressed to say that granting this to him at this point really helps the shareholders out." (The analyst has an underperform rating on PeopleSoft; his firm doesn't do investment banking but its parent, Alliance Capital, is a large shareholder of PeopleSoft shares.)

Greg Taxin, CEO of proxy advisory firm Glass Lewis, took a different view. The golden parachute and its amount is "par for the course," with severances typically ranging from one year to five years of pay.

"I guess from our perspective, severance arrangements are an acceptable form of compensation" Taxin said. "They incentivize management to look for deals that may be good for shareholders but which may involve the loss of their job."

Taxin further added that the agreement is "unlikely to make a big difference in the price Oracle or any other bidder is going to make for the company."

In general, however, Glass Lewis has been critical of PeopleSoft's pay-for-performance practices for executives. It also has drawn the attention of the California Public Employees' Retirement System, or CalPers; the huge ($154 billion) pension fund submitted a performance-based equity compensation program to be voted on at PeopleSoft's annual shareholder meeting next month.

Glass Lewis gave PeopleSoft's pay-for-performance practices a 'D' grade, finding that PeopleSoft pays its executives more than 96% of the companies in three peer groups of 100 companies each, while PeopleSoft's stock performance has been just a little above average vs. those peers. To measure company performance, Glass Lewis looks at such metrics as earnings per-share growth and stock performance.

Glass Lewis calculated that the compensation received by PeopleSoft's top five executives was north of $40 million, including options, last year. That's double what the average large tech company paid its executives last year and more than three times what the average large software company paid, according to Glass Lewis.

"It raises for us concerns about the compensation committee and whether or not that committee is focused on paying executives in line with the performance that those executives have generated for shareholders," Taxin said.

A Family Affair

PeopleSoft is not just paying its top execs hefty salaries. The company also disclosed this week in a separate SEC filing that the practice extends to a handful of executives' relatives. The company paid Gary Conway, the CEO's brother, a salary and bonus totaling $376,000 for his work as vice president of corporate marketing. The company also paid Chairman David Duffield's son and daughter-in-law, Michael Duffield and Michelle Duffield, an aggregate of $677,000 in 2003 for serving as an account executive and senior direct marketing specialist, respectively.

Such practices also raise red flags among corporate governance advocates, who say the relationships raise questions about a director's ability to make decisions.

"We don't like to see related parties showing up in proxy statements," said Pat McGurn, vice president and director of corporate programs for Institutional Shareholder Services, which advices institutional shareholders on proxies.

ISS also has given PeopleSoft a low corporate governance rating, finding the company outperformed only 15.1% of companies in the

S&P 500

but 72.7% of software and service companies. That's largely due to antitakeover provisions and various board issues, including a staggered board.

Shares of PeopleSoft rose 37 cents, or 1.7%, to close Tuesday at $21.89, and was trading virtually flat in recent after-hours trading.