Item 8 on Proxy Card:
C. William Jones, 7055 Thomas Lane, Easton, MD 21601, owner
of 118 shares of the Companys common stock, proposes
Resolved, that the shareholders of Verizon urge our
Board of Directors to adopt a policy whereby at least 75%
of future long-term incentive compensation (viz., stock options
and restricted stock) awarded to senior executives shall be
performance-based, with challenging performance metrics adopted
by the Board and disclosed to shareholders.
Performance-based equity compensation is defined
- (a) Indexed stock options, the exercise
price of which is linked to outperforming an industry index;
- (b) Premium-priced stock options,
the exercise price of which is substantially above the market
price on the
grant date; or
- (c) Performance-vesting options
or restricted stock, which vest only when the market price
of the stock
exceeds a specific target
for a substantial period (e.g., 180 days).
As long-term shareholders, we support compensation policies
for senior executives that provide challenging performance
objectives that motivate executives to achieve long-term shareholder
value. We believe that a greater reliance on performance-based
equity grants that only pay off when senior executives generate
substantial value for shareholders is particularly needed
For many years the compensation of Verizons senior
executives has been disconnected from returns to shareholders,
in our view.
For example, Institutional Shareholder Services, in its 2004
Proxy Analysis of Verizon, stated that CEO Seidenbergs
$19.1 million compensation for 2003 was arguably excessive
for a company that had negative shareholder returns for the
past one-, three- and five-year periods, a performance that
trailed both the S&P 500 Index and the S&P 500 telecom
services index, according to Bloomberg Business News.
That same year Glass Lewis & Company, a leading proxy
consultant, awarded Verizon a D grade for pay-for-performance.
Until 2004, Seidenberg received the largest part of his total
compensation in standard option grants. According to last
years proxy, he received 468,000 in 2004, 1.7 million
over the most recent three-year period, and held more than
5 million total.
To its credit, over the past two years the Board has shifted
the mix of long-term compensation toward a greater emphasis
on performance stock units (PSUs), with payouts
contingent on the relative performance of Verizons Total
Shareholder Return. In 2004, 60% of senior executive long-term
compensation was granted in the form of these contingent restricted
The problem is that a close look at the PSU agreement reveals
that the performance hurdle is what we believe golfers refer
to as a gimme.
For example, if 79% of the companies in the S&P 500 and
industry peer groups outperform Verizon (that is, total return
ranks at the 20th percentile), the executive receives 34%
of the total value of the restricted shares. If Verizon performs
somewhat below average finishing at the 45th percentile
in total return the executive receives 76.5% of the
total possible award.
I believe the Board should set a considerably higher performance
hurdle for long-term equity compensation.
The policy proposed here would more tightly align equity
compensation with real increases in shareholder wealth, in
our view. Premium-priced options and performance-vesting equity
grants are options that would tie long-term compensation more
closely to increases in overall shareholder value.
Please VOTE FOR this proposal.
BOARD OF DIRECTORS POSITION
The Human Resources Committee of the Board of Directors believes
that its incentive compensation plans for executives are in
fact performance-based with challenging performance metrics
that have been approved by the Committee and disclosed to
shareholders. As explained in the Committees report
on page 22 of this Proxy Statement, Verizons incentive
compensation plans emphasize a pay for performance philosophy
that reflects both individual and company performance. The
plans provide aggressive and competitive performance objectives
that serve both to motivate and retain executives and to align
their interests with those of the Companys shareholders.
As a result, a significant portion of the long-term compensation
of Verizon executives is performance based.
For example, the Verizon Long-Term Incentive Plan, approved
by Verizons shareholders in 2001, is designed and administered
to align the interests of the Companys senior management
group closely with those of its shareholders by focusing on
external performance measures, stock price and relative shareholder
return. As disclosed in the Companys proxy statements,
in 2004 and 2005, 60% of each executives long-term incentive
compensation opportunity was granted in the form of performance
stock units. A performance stock unit represents a share of
Verizon stock that is payable only if Verizon achieves certain
pre-determined performance targets at the end of a three-year
performance cycle. No performance stock units are paid unless
Verizons Total Shareholder Return (TSR) during the performance
cycle meets a specific minimum threshold percentage when compared
to the TSR of the companies that make up the Standard &
Poors 500 and to the TSR of Verizons selected
industry peer group companies in telecommunications, broadband,
wireless and cable.
The Committee believes that these performance targets, which
are based on external measurements, are appropriately challenging
and provide the necessary incentives for the executives to
grow Verizons business and in turn increase shareholder
value. If the established targets are not met, the executives
will receive far less in value and may receive nothing. In
addition, because the value of each performance stock unit
is equal to the fair market value of a share of Verizons
common stock, each executive will receive greater value to
the extent Verizons stock price increases and less value
to the extent Verizons stock price declines. This further
aligns the interests of the Companys executives with
those of its shareholders. By basing awards on Verizons
relative TSR performance over a three-year performance cycle,
the Committee intends to reinforce managements focus
on the goal of investing time and capital in those businesses
that can over time sustain meaningful future growth and profitability
for our shareholders. Imposing arbitrary and subjective limitations
on the Committees discretion to grant long-term compensation
awards would unduly limit the Companys ability to design
and administer a competitive long-term compensation program
to meet market demands.
For the foregoing reasons, the Board believes that this proposal
is unnecessary and not in the best interests of the Company
and its shareholders.
The Board of Directors recommends a vote AGAINST this