Retirees Take on Verizon Board of Directors

Challenge Executive Compensation & Bonuses, saying “No More Stock Bonuses for Mediocrity

Published March 2010

Retirees of Verizon Communications ( who in the past have forced changes in company compensation and management policies are urging shareowners to support a proxy proposal that will change management’s awarding of Executive Performance Stock Units and also to be vocal with their “Say on Pay” against management’s executive compensation this year.   Verizon’s annual meeting is May 6, 2010 in Little Rock, Arkansas.
The Association of BellTel Retirees Inc., which authored the “Say on Pay,” is advocating shareowners utilize that power to vote against “management’s executive compensation guidance".  The group says they want compensation policies better aligned with shareholder interests. 
They are asking shareowners to vote for a proxy proposal on Performance Stock Unit Performance Thresholds (PSU).  They say a new policy is needed to limit large PSU payouts.  Retirees say “Performance Share Units should not vest or pay out unless the company’s performance is equal to or above the median relative to the company peer index selected by the Board.”
According to the Association of BellTel Retirees, annually the company's named executive officers receive long-term equity awards approximately seven times salary divided between PSUs (60%) and Restricted Stock Units (40%). CEO Ivan Seidenberg is an exception; he receives 100% of long-term equity in the form of PSUs.
“While we commend the Board for tying the majority of long-term equity compensation to the performance of Verizon's stock, we believe that large pay-outs for below-median performance -- as low as the bottom 26th percentile -- does not adequately align pay with performance,” said C. William Jones, President of the Association of BellTel Retirees, Inc.  

“The problem is that Verizon’s Performance Stock Units begin paying out even if the company performs at the bottom of its industry or as low as 25th among the 34 Related Dow Peers.”
The Corporate Library's 2008 update on "Pay for Failure" companies singled out Verizon's PSUs for criticism: "Verizon's [PSUs] continue to pay out for TSR performance below the median." For the performance cycles ending in 2008 and 2009, it noted, "the company would have to perform below the 20thpercentile for executives to receive nothing."
They cite that CEO Seidenberg's Target Award for the 2009-2011 PSU grant is $11 million. He will receive 50% of Target ($5.5 million) if Verizon's TSR ranks as low as 25th among the 34 Dow Peers - nearly bottom quartile performance.  Seidenberg would receive 200% of Target ($22 million) if Verizon ranks among the top four (88th percentile or better).

The Board of Directors’ Position in the Proxy reinforces the need for this resolution, the retirees say. The Board acknowledges that "in order to earn 100% of the target number of PSUs," Verizon's "TSR over the three-year performance cycle must rank at least 16th" among the 34 Dow Peers, which is barely above the median.  The Board fails to acknowledge that senior executives can still receive 50% of the target award for performance below the 30th percentile.

Shareowners Raising Their Voices To Have A “Say on Pay”:

The retirees advocate shareowners  use their “say on pay" to vote against approving the board’s recommended executive compensation package and clarify that key elements of Verizon's executive compensation are not aligned with shareholder interests.  “We believe the Board should scale back its expensive windfall termination benefits,” said Mr. Jones.  The retirees offer some illustrative examples, for instance:

Golden Parachutes: If CEO Ivan Seidenberg is terminated or even retires, he receives a $33.1 million severance, more than seven times his base salary plus bonus.  Retired President & COO Dennis Strigl would have received $37.4 million if he had been terminated after a change in control-a platinum parachute exceeding 12 times his salary plus bonus.

Golden Coffins: Upon termination of employment due to death, Seidenberg would receive an additional $39.4 million, while Strigl would receive $49 million, over and above any pension or deferred compensation (paying out tens of millions more).

Executive Pensions: In 2006 Verizon froze its defined benefit SERP, which provided senior executives with a company contribution equal to 32% of base salary and bonus. While not as generous, the new nonqualified retirement saving plan continues to apply benefit formulas more generous than those that apply to rank-and-file managers or employees. For example, Seidenberg received $893,000 in SERP compensation in 2009: A $419,900 Company contribution to his non-qualified plan and, in addition, $473,390 in "above-market earnings" on his non-qualified plan assets.

To support its recommendation, the Board describes how it has reformed Verizon's pay practices. However, a majority of reforms cited were adopted only after receiving significant shareowner votes as proposals the Board initially opposed.

For example, beginning this year the Company will stop reimbursing senior executives for personal income taxes paid on life insurance, personal travel and excess golden parachute payments - a practice known as "tax gross-ups" that the Association of BellTel Retirees have criticized in previous years.

Mr. Jones added, “Verizon’s pro-shareholder compensation policies have come only because shareholders send a strong message to the board.”