PeopleSoft has bowed to pressure and agreed to link pay and performance, a concession to angry shareholders that might prove tactically useful as Oracle prepares to woo them.

The decision follows negotiations with the California Public Employees' Retirement System, the US's largest public pension fund.

Beginning in 2005, the software company will tie the vesting of 50 per cent of the options and restricted shares granted to PeopleSoft's chief executive Craig Conway and four other highest paid executives to meeting targets set by the board.

Proxy advisory firm Glass Lewis recently reported that PeopleSoft pays its executives more than 96 per cent of the companies in three peer groups of 100 companies, although PeopleSoft's stock performance has only been a little above the average of those groups.

As a result of PeopleSoft agreeing to this change, Calpers has withdrawn a proposal it had submitted for vote at PeopleSoft's annual meeting which would have required PeopleSoft to base 75 per cent of equity compensation on performance. The PeopleSoft management team already face a battle to prevent Oracle's prefered candidates from being elected at the meeting.

It's another climbdown for the PeopleSoft board which recently pledged not to raise cash compensation for any executive in 2004, decided to give executives restricted shares rather than stock options this year and reduced the pool of stock options available for issuance to employees and executives.