Shareholder Proposals – Item 4 on Proxy Card
AFL-CIO Reserve Fund, 815 Sixteenth Street, N.W.,
Washington, D.C. 20006, owner of 1,700 shares of the
Company’s common stock, proposes the following:
RESOLVED: that the shareholders of Verizon Communications,
Inc. (“the Company”) urge the Board of
Directors to seek shareholder approval of future severance
agreements with senior executives that provide benefits
in an amount exceeding 2.99 times the sum of the executives’
base salary plus bonus.
“Severance agreements” include any agreements
or arrangements that provide for payments or awards
in connection with a senior executive’s severance
from the Company, including employment agreements;
retirement agreements; settlement agreements; change
in control agreements; and agreements renewing, modifying
or extending such agreements.
“Benefits” include lump-sum cash payments
(including payments in lieu of medical and other benefits);
the payment of any “gross-up” tax liability;
the estimated present value of periodic retirement
payments; any stock or option awards that are awarded
under any severance agreement; any prior stock or
option awards as to which the executive’s access
is accelerated under the severance agreement; fringe
benefits; and consulting fees (including reimbursable
expenses) to be paid to the executive.
In our opinion, severance agreements as described
in this resolution, commonly known as “golden
parachutes”, are excessive in light of the high
levels of compensation enjoyed by senior executives
at the Company and U.S. corporations in general. The
Institutional Shareholder Services (ISS) survey of
16 shareholder proposals to restrict golden parachutes
in 2006 showed they averaged 51.2% of the vote and
obtained majority support at six companies.
We believe that requiring shareholder approval of
such agreements may have the beneficial effect of
insulating the Board of Directors from manipulation
in the event a senior executive’s employment
must be terminated by the Company. Because it is not
always practical to obtain prior shareholder approval,
the Company would have the option if this proposal
were implemented of seeking shareholder approval after
the material terms of the agreement were agreed upon.
In 2003, a similar proposal was approved by 59% of
voting shareholders. However, we believe the policy
our Company implemented is insufficient. According
to the Company’s 2006 Proxy, the Board of Directors
will seek shareholder ratification of any new severance
agreement between a senior executive officer and the
Company that provides for a total cash value severance
payment exceeding 2.99 times the sum of the executive’s
base salary plus bonus. But this limitation only applies
to the cash value of any post-employment consulting
arrangement between the senior executive officer and
the Company, and does not apply to the cash value
of any benefits that are payable or become payable
pursuant to Company policy applicable to management.
We believe the cash value of benefits can be substantial.
For example, under Vice Chairman Lawrence Babbio’s
employment agreement, if there were a change of control,
he would be entitled to at least $16,104,135, which
includes just his performance stock units (provided
that the Company attains the applicable performance
goals), restricted stock units, and lump sum payment.
This figure is already more than 2.99 times his 2005
base salary and bonus of $3,000,000.
For these reasons, we urge shareholders to vote FOR
BOARD OF DIRECTORS’ POSITION
In 2004, the Human Resources Committee of the Board
of Directors adopted a policy that provides that the
Company will not enter into a new severance agreement
with a senior executive officer that provides for
a total lump-sum cash severance payment exceeding
2.99 times the sum of the executive’s base salary
plus bonus without seeking shareholder ratification
of such severance agreement. While it is not the Company’s
practice to enter into post employment consulting
arrangements, any compensation paid for such services
would also be included in the limitation. The policy’s
limitation does not, however, apply to the cash value
of any earned and vested retirement benefits or earned
and vested stock awards, as the proposal would require.
The Committee supports reasonable and appropriate
limits on severance payments and it believes that
the limitations in its existing policy are appropriate
because they effectively prevent the payment of extraordinary
severance benefits without shareholder approval. This
policy effectively addresses the primary concerns
of the proposal. However, the Committee believes that
other benefits that are not provided under the terms
of a severance plan or employment agreement should
not be included in the severance calculation, as would be required by
the proposal. These other benefits include accrued
and vested retirement benefits and vested prior stock
awards. These benefits are not payable under the terms
of any severance plan or employment agreement, and
are earned by the executives over the course of their
careers, as is the case for any employee of the Company.
The Committee further believes that, by failing to
properly differentiate vested retirement benefits
that are generally available to all management employees
from cash separation benefits provided under the terms
of a severance policy or employment agreement, the
proposal could place the Company at a competitive
disadvantage in recruiting and retaining top talent.
For the foregoing reasons, the Board of Directors
recommends a vote AGAINST this proposal.
* This is an interactive electronic version of Verizon’s 2006
Annual Report to Shareholders, and it is intended to be complete and
accurate. The contents of this version are qualified in their entirety
by reference to the printed version. A reproduction of the printed version
is available in PDF format on this website.