EMPLOYMENT AGREEMENT

Exhibit 10.40

E MPLOYMENT A GREEMENT

T HIS A GREEMENT is entered into as of January 23, 2004, by and between K ENT  L. P ARKER (the “Employee”) and A RIBA , I NC . , a Delaware corporation (the “Company”).

(a) Position . For the term of his employment under this Agreement (the “Employment”), the Company agrees to employ the Employee in the position of Senior Vice President of Global Sourcing Service at the Company’s Pittsburgh, Pennsylvania, work location. The Employee shall report to a position (including, without limitation, an Executive Vice President or the President) that, in turn, reports to the Chief Executive Officer of the Company. The Employee’s job responsibilities shall be those duties and responsibilities that the Employee maintained immediately prior to the Effective Time and such other additional duties and responsibilities as the Company may reasonably assign to the Employee that are commensurate with the Employee’s title and position with the Company. The Company agrees that the Employee may continue his current working and commuting arrangement, whereby the Employee lives in the state of Indiana and (i) commutes to the Company’s Pittsburgh, Pennsylvania, work location on a weekly basis for a portion of the workweek (staying in an apartment in Pittsburgh) and (ii) telecommutes from his home in the state of Indiana for the other portion of the workweek. The Company agrees to continue bearing the reasonable expenses relating to the Employee’s working and commuting relationship, as described in Section 4 below.

(b) Obligations to the Company . During his Employment, the Employee shall devote his full business efforts and time to the Company. During his Employment, without the prior written approval of the Company, the Employee shall not render services in any capacity to any other person or entity and shall not act as a sole proprietor or partner of any other person or entity or as a shareholder owning more than five percent of the stock of any other corporation. The Employee shall comply with the Company’s policies and rules, as they may be in effect from time to time during his Employment. Notwithstanding the foregoing, nothing herein shall preclude the Employee from (i) serving on the boards of directors of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable activities and community affairs and (iii) managing his personal investments and affairs, provided, that such activities do not materially interfere with the proper performance of his duties and responsibilities as set forth in Subsection (a) above.

(c) Effective Date . This Agreement shall become effective immediately after the “Effective Time” (as that term is defined in the Agreement and Plan of Merger and Reorganization among the Company, Fleet Merger Corporation and FreeMarkets, Inc. (“FreeMarkets”) dated as of January 23, 2004 (the “Merger Agreement”)). This Agreement shall have no legal effect unless the merger among the Company, Fleet Merger Corporation and FreeMarkets, as contemplated by the Merger Agreement, is consummated.

(a) Salary . The Company shall pay the Employee as compensation for his services a base salary at a gross annual rate of not less than $300,000. Such salary shall be payable in accordance with the Company’s standard payroll procedures. (The annual compensation specified in this Subsection (a), together with any increases in such compensation that the Company may grant from time to time, is referred to in this Agreement as the “Base Salary.”)

(b) Incentive Bonuses . The Employee shall be eligible to be considered for an annual incentive bonus with a target amount equal to $150,000. For the fiscal year ending September 30, 2004, the Employee shall receive a guaranteed bonus in an amount equal to 50% of the annual target bonus multiplied by a ratio, the numerator of which shall be the number of days of Employment completed by the Employee between the Effective Time and September 30, 2004, and the denominator of which shall be 365. The bonus shall be paid in quarterly installments to the extent provided by the Company’s generally applicable bonus payment procedures for similarly situated employees. The bonus shall be awarded based on the criteria established by the Company and communicated to the Employee during the first quarter of the applicable fiscal year (or, for the 2004 fiscal year, as soon as administratively practicable following the Employee’s commencement of Employment). Except as otherwise provided in the Agreement, the Employee shall not be entitled to an incentive bonus if he is not employed by the Company on the quarterly payment date or other date when such bonus is otherwise payable in accordance with the Company’s generally applicable bonus payment procedures for similarly situated employees.

(c) Stock Options . The Company shall grant the Employee an option to purchase 400,000 shares of the Company’s Common Stock (the “Option”). ¹ The Option shall be granted as soon as reasonably practicable after the Effective Time, but not later than 10 business days after the Effective Time. The exercise price for each share of the Company’s Common Stock subject to the Option shall be the closing price as reported on The Nasdaq Stock Market (or its successor) on the date of grant. The term of the Option shall be 10 years, subject to earlier expiration in the event of the termination of the Employee’s Employment. The Option shall become exercisable with respect to 25% of the shares of the Company’s Common Stock when the Employee completes 12 months of Employment with the Company after the Effective Time and with respect to the remaining shares of the Company’s Common Stock subject to the Option in equal monthly installments over the next three years of Employment. The grant of the Option shall be subject to the other terms and conditions set forth in the Ariba, Inc. 1999 Equity Incentive Plan, as amended, and in the Company’s standard Stock Option Agreement, as attached hereto as Exhibit A and as revised to conform to the terms of this Agreement.

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During his Employment, the Employee shall be eligible for paid vacations in accordance with the Company’s vacation policy for similarly situated employees, as it may be amended from time to time. During his Employment, the Employee shall be eligible to participate in the retirement, medical, dental, vision, life insurance, disability, tuition assistance and other benefit and fringe benefit plans (collectively, the “Employee Benefit Plans”) maintained by the Company or FreeMarkets for similarly situated employees, subject in each case to the generally applicable terms and conditions of the plan in question and to the determinations of any person or committee administering such Employee Benefit Plan.

During his Employment, the Employee shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties hereunder. The Company shall reimburse the Employee for such expenses upon presentation of an itemized account and appropriate supporting documentation, all in accordance with the Company’s generally applicable policies for similarly situated employees. In addition, the Company agrees to reimburse all reasonable expenses incurred by the Employee in connection with his working and commuting arrangement as described in Section 1 (including, without limitation, all travel-related expenses incurred by the Employee in traveling from his home in the state of Indiana to the Company’s Pittsburgh, Pennsylvania, work location and all expenses related to maintaining an apartment in Pittsburgh, Pennsylvania, that is located within a reasonable proximity of the Company’s primary work location in Pittsburgh, Pennsylvania). To the extent that any such expense reimbursement is determined to be taxable to the Employee for state, federal or local income or employment tax purposes and the corresponding expense item is not deductible to the Employee (each, a “Taxable Reimbursement”), the Company shall pay the Employee a bonus in an amount calculated to equal (net of any taxes payable with respect to such bonus) the amount of tax payable with respect to the Taxable Reimbursement (assuming in each case the Employee’s actual tax bracket for all such purposes). The intention of the preceding sentence is to provide that any increase in taxes payable by the Employee with respect to the reimbursement of the Employee’s expenses as described above be offset, on an after-tax basis, by the bonus.

(a) Termination of Employment . The Company may terminate the Employee’s Employment at any time and for any reason (or no reason), and with or without cause, by giving the Employee 30 days’ advance notice in writing. The Employee may terminate his Employment at any time and for any reason (or no reason) by giving the Company 30 days’ advance notice in writing. The Employee’s Employment shall terminate automatically in the event of his death. The termination of the Employee’s Employment shall not limit or otherwise affect his obligations under Section 9.

(b) Employment at Will . The Employee’s Employment with the Company shall be “at will.” Any contrary representations that may have been made to the Employee shall

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be superseded by this Agreement. This Agreement and the Separation Plan (as defined below and as incorporated herein) shall constitute the full and complete agreement between the Employee and the Company on the “at will” nature of the Employee’s Employment, which may only be changed in an express written agreement signed by the Employee and a duly authorized officer of the Company.

(c) Rights Upon Termination . Except as expressly provided in Sections 6, 7 and 8, upon the termination of the Employee’s Employment, the Employee shall only be entitled to the compensation, benefits and expense reimbursements that the Employee has earned under this Agreement before the effective date of the termination. The payments under this Agreement shall fully discharge all responsibilities of the Company to the Employee.

(a) General Rule . If the Employee’s Employment terminates for a reason described in section 4.1 of the FreeMarkets, Inc. Change of Control Separation Plan, as in effect on January 8, 2004 (the “Separation Plan”), during the 18-month period following the Effective Time, then the Employee’s separation benefits (if any) shall be determined exclusively under the Separation Plan, except as otherwise provided in this Section 6.

(b) Exception for Subsequent Change in Control Involving the Company . Notwithstanding the general rule in Subsection (a) above, if the Employee’s Employment terminates during the 18-month period following the Effective Time for a reason described in Section 8 in connection with a Change in Control (as defined in Section 8) involving the Company, the Employee shall receive at his election (i) the benefits provided under this Section 6 pursuant to the provisions of the Separation Plan or (ii) the benefits provided under Section 8.

(c) Definition of “Base Pay . ” The definition of “Base Pay” in the Separation Plan shall mean the Employee’s annual base salary as of December 31, 2003.

(d) Definition of “Good Reason . ” The definition of “Good Reason” in the Separation Plan shall be construed as follows:

(i) Job Responsibilities . The Employee and the Company agree that, for purposes of the Separation Plan, the Employee’s job responsibilities shall not be deemed to have been substantially diminished as a result of the Employee’s moving from his position with FreeMarkets prior to the Effective Time into the position described in Section 1(a); provided that any change in the Employee’s job responsibilities from those described in Section 1(a) after the Effective Time that materially diminishes the Employee’s job responsibilities from those in effect immediately prior to the Effective Time shall constitute “Good Reason” for purposes of the Separation Plan.

(ii) Travel Requirements . The Employee and the Company agree that, on and after the Effective Time, the Employee may be subject to

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additional travel requirements and that such requirements shall be deemed to be substantially consistent with his travel obligations immediately prior to the Effective Time.

(iii) Employee Benefits . The Employee and the Company agree that his employee benefits shall not be deemed to have been materially reduced if he is eligible to participate in all Employee Benefit Plans offered to the similarly situated employees of the Company.

(iv) Assumption of Separation Plan . The Employee and the Company agree that this Agreement constitutes a satisfactory agreement by the Company to assume and agree to perform FreeMarkets’ obligations to the Employee under the Separation Plan.

(e) Accelerated Vesting of Equity . Section 4.2(d) of the Separation Plan, relating to accelerated vesting of options and restricted stock, shall apply only to options and restricted stock held by the Employee as of the Effective Time and shall not apply to any grants made by the Company after the Effective Time (including, without limitation, the option grant described in Section 2(c)). Notwithstanding the foregoing, in the event the Employee is terminated within the first 12 months of Employment and the Employee is otherwise eligible for the benefits described in this Section 6 and the Separation Plan, the Employee shall be deemed to have 12 months of Employment for purposes of determining the vested portion of the Option.

(a) Qualifying Terminations . This Section 7 shall only apply if:

(i) Section 8 does not apply;

(ii) The Company terminates the Employee’s Employment for a reason other than Cause or Permanent Disability more than 18 months after the Effective Time; and

(iii) Either (A) the Employee and the Company have executed a reciprocal general release (in the form attached hereto as Exhibit B ) of all known and unknown claims that they may then have against each other and have agreed not to prosecute any legal action or other proceeding based on such claims or (B) the Company (at its sole discretion) has determined to waive the requirement of a reciprocal general release.

The foregoing notwithstanding, the Employee and the Company shall not be required to release any claims to indemnification, advancement of expenses or repayment arising under the Company’s Amended and Restated Certificate of Incorporation or the Company’s Amended and Restated Bylaws, in each case as currently in effect or as subsequently amended.

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(b) Severance Pay . If this Section 7 applies, then the Employee shall be entitled to receive severance payments from the Company for a period of 12 months following the termination of his Employment (the “Continuation Period”). Such severance payments shall be made in accordance with the Company’s standard payroll procedures. The annual rate of such severance payments shall be equal to the sum of (i) the Employee’s Base Salary at the annual rate in effect when his Employment terminates plus (ii) the Employee’s annual target bonus for the fiscal year in which his Employment terminates. In addition to any other remedies that may be available to the Company, severance payments shall cease immediately if the Employee fails to comply with the covenants set forth in Section 9.

(c) Acceleration of Vesting . If this Section 7 applies, then:

(i) The vested portion of any restricted shares of the Company’s Common Stock held by the Employee at the time of the termination of his Employment shall at all times thereafter be determined by adding 12 months to his actual period of Employment with the Company.

(ii) During the Continuation Period, the Employee shall continue to vest in the options to purchase shares of the Company’s stock held by him at the time of the termination of his Employment, subject to his compliance with the covenants set forth in Section 9 below. The monthly rate of vesting during the Continuation Period shall be the same as prior to the termination of the Employee’s Employment.

(d) Extension of Option Exercise Period . If this Section 7 applies, then all options to purchase shares of the Company’s stock held by the Employee at the time of the termination of his Employment shall remain exercisable until the earlier of:

(i) The later of (A) the date 12 months after the termination of the Employee’s Employment or (B) with respect to any increment of options that becomes exercisable later than nine months after the termination of the Employee’s Employment, the date three months after such increment becomes exercisable; or

(ii) The date the options would have expired if the Employee’s Employment had not terminated.

(e) Definition of “Cause . ” For purposes of this Section 7 only, “Cause” shall mean:

(i) Any gross negligence or intentional misconduct that materially injures the Company and its subsidiaries, taken as a whole, or has a material adverse effect on the business or affairs of the Company and its subsidiaries, taken as a whole;

(ii) Any unauthorized use or disclosure by the Employee of the Company’s confidential information or trade secrets resulting from gross negligence that materially injures the Company and its subsidiaries, taken as a

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whole, or has a material adverse effect on the business or affairs of the Company and its subsidiaries, taken as a whole;

(iii) A failure by the Employee to comply with the Company’s written policies or rules that materially injures the Company and its subsidiaries, taken as a whole, or has a material adverse affect on the business or affairs of the Company and its subsidiaries, taken as a whole, provided that the Company shall have given the Employee notice of such failure and an opportunity to cure such failure, if curable; or

(iv) The Employee’s conviction of, or plea “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof.

With respect to acts or omissions described in Paragraphs (i) and (iii) above, “Cause” shall only be deemed to exist following written notice to the Employee from the Company and his failure to cure such acts or omissions within 30 days of receipt of such written notice.

(f) Definition of “Permanent Disability . ” For all purposes under this Agreement, “Permanent Disability” shall mean that the Employee, at the time notice is given, has failed to perform the duties of his position with the Company for a period of not less than 180 consecutive days (or such longer period as may be required by law) as the result of his incapacity due to physical or mental injury, disability or illness.

(a) Qualifying Terminations . This Section 8 shall apply if:

(i) The Company terminates the Employee’s Employment with the Company for a reason other than Cause or Permanent Disability more than 18 months after the Effective Time but within 12 months after a Change in Control; or

(ii) The Employee resigns for Good Reason more than 18 months after the Effective Time but within 12 months after a Change in Control.

(b) Severance Payment . If this Section 8 applies, then the Employee shall be entitled to receive a severance payment from the Company. The amount of such payment shall be equal to 150% of the sum of (i) the Employee’s Base Salary at the annual rate in effect when his Employment terminates plus (ii) the Employee’s annual target bonus for the fiscal year in which his Employment terminates. Such payment shall be made in a lump sum in cash on the date the Employee’s Employment terminates under Subsection (a)(i) above or not later than the date three business days after his Employment terminates under Subsection (a)(ii) above.

(c) Acceleration of Vesting . If this Section 8 applies, then all of the Equity held by the Employee at the time of the termination of his Employment shall become fully and

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