updated 10/2/2006 9:21:50 AM ET 2006-10-02T13:21:50

Siemens AG said Monday it will defer an executive pay hike and contribute the proceeds to a $44.3 million fund to help employees of its former cell phone business.

The German electronics and engineering conglomerate ceded its unprofitable handset business to Taiwan's BenQ Corp. a year ago as part of a restructuring drive under Chief Executive Klaus Kleinfeld.

However, BenQ unexpectedly pulled the plug last week, saying it could not afford to pump more capital into the business because there was only "a very slim chance" of turning it around. The unit filed for insolvency protection on Friday.

In a statement, Siemens confirmed a report in the Bild newspaper that its executives agreed to push back for one year a planned 30 percent pay rise which has drawn allegations of greed.

"We have a new situation now, and we want to signal our solidarity with the people" who could lose their jobs, Kleinfeld was quoted as telling Bild. "If BenQ abandons the work force, we want to help them actively and quickly."

The estimated $6.3 million saved will flow into the fund to pay for training to help the 3,000 employees of Siemens' former cell phone unit find new jobs, Siemens said.

Kleinfeld said at the time of the takeover that he had found a "sustainable" solution for the unit, now called BenQ Mobile. Staff accepted sharp wage cuts and BenQ forecast at the time that the unit could break even in 2006.

Labor leaders, politicians and media commentators at the weekend accused Siemens as well as BenQ of betrayal and put massive pressure on the Munich-based company to step in to help. The Bild am Sonntag newspaper ran its coverage of the affair on Sunday under a picture of a grinning Kleinfeld and the headline "The Ruinator."

A spokesman for Chancellor Angela Merkel welcomed Siemens' response, but said it was unclear if it would be sufficient.

"Siemens has understood that the company has a responsibility here," spokesman Thomas Steg said.

"There are a lot questions, also, about how BenQ behaved," Steg said. "There are fears that this (insolvency) was the intention from the beginning."

Kleinfeld described BenQ's handling of the mobile business as "reprehensible" and reiterated that Siemens could take legal action against the Taipei-based firm.

"We were assured that the German facilities would be kept running and strengthened. This promise has been broken. We are examining all legal avenues against BenQ," he was quoted as saying in the newspaper.

He rejected suggestions that Siemens knew the mobile unit was doomed.

"Our goal was always to give the Siemens mobile business a solid future. To that end, we made funds, patents and even our brand name available," he said.

It also said it might be able to rehire some BenQ staff to fill vacancies in Germany that currently number over 2,000.

BenQ, which also produces projectors and digital music players, acquired the German mobile-phone operations in a bid to expand its global market share. It has since booked $760 million in losses from those operations.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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