Siemens AG has pledged it will give some 3,000 BenQ Mobile employees €35 million ($45 million) who will be laid off soon, sacrificing executive raises to help its former handset unit.

Under an intense amount of public scrutiny lately from government and labor union officials and the press, Siemens said Monday its managing board has decided to forgo its 30 percent pay raise.

Siemens announced it will use the €5 million ($6.4 million) to provide financial aid to its former employees at the now-bankrupt BenQ Mobile (see Bankruptcy Threatens BenQ Mobile).

Last week, BenQ Mobile announced it was filing for bankruptcy, a move Siemens said it was not privy to and was shocked to see happen.

“The suggestion that we have been prepared to accept the bankruptcy of BenQ Mobile in Germany is pure slander,” Klaus Kleinfeld, president and chief executive of Siemens AG, said in a statement.

Siemens claimed that during the sale of its mobile division, BenQ of Taiwan assured the Munich-based engineering company that not only would mobile operations continue, but BenQ would expand mobile operations in Germany.

In exchange for taking the failing handset division off of Siemens’ hands and remaining in operation, Siemens offered 600 patents, branding rights as BenQ-Siemens for the mobile devices, and €350 million ($445.3 million).

Failing Math

But as one of the largest European telecommunications companies, Siemens should not act as shocked as it claims to be to see a failing company fail.

“The outcome is natural. It’s a simple math equation,” said Brad Akyuz, senior analyst in the mobile devices division of Current Analysis. “Competition is getting stronger, and if you don’t have enough resources to keep up, you are going to lose money. It’s as simple as 2 + 2 = 4.”

BenQ was given €413 million ($525 million) in the final acquisition deal from Siemens to keep the handset division afloat. Since BenQ took over the business in 2005, it has lost €600 million ($760 million) due to mobile operations.

Siemens stock rose $0.09 to $86.58 in recent trading on the New York Stock Exchange, while BenQ fell 2.7 percent to NT$18.25 ($0.55) at the close of the market in Taipei on Tuesday.

Last Sunday, after news of BenQ’s insolvency, German newspapers like Bild Am Sonntag, politicians like Chancellor Angela Merkel’s coalition government, and Economy Minister Michael Glos rained criticism on Siemens for the sale of their Siemens Mobile.

“Siemens should have been able to do what Nokia did,” said Mr. Glos to German newspaper Welt am Sonntag, referring most likely to Nokia’s 2004 networks equipment division that was saved through reorganization but still had some layoffs.

Making Amends

After Siemens sold its handset unit to BenQ, it announced a 30 percent raise was going to take place for its executives. This caused an outpouring of criticism from labor unions, the press, and public officials as Germany is a “labor-sensitive environment,” said Mr. Akyuz.

Siemens claims that all €5 million set for the raise will now go to former Siemens employees currently working for BenQ Mobile. The engineering company has also assured employees that Siemens will “provide financial support and pay for employee education and retraining.”

The statement Monday also said that Siemens will treat all BenQ Mobile employees as internal applicants for the 2,000 current job openings at Siemens in Germany.

“It’s natural they act surprised, because it wouldn’t be very unethical to say they knew the mobile division was going to go down so they wanted to get rid of it,” said Mr. Akyuz. “I’m not saying they knew this, but [I’m] pretty sure they knew this [unit] wasn’t doing very well.”

Contact the writer:Editorial@RedHerring.com

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