Proxy Statement
Compensation Discussion and Analysis

Compensation Objectives and Elements

The Company’s compensation program is designed to:

  • Align the interests of the executives with those of Verizon’s shareholders by linking a substantial portion of compensation to the Company’s stock performance;
  • Motivate executives to achieve both short- and long-term performance goals; and
  • Offer a competitive total compensation program that enables the Company to attract and retain high- performing and experienced executives.

In setting total compensation at appropriate competitive levels, the Committee determines the balance between:

  • Fixed and variable pay elements;
  • Short- and long-term pay elements; and
  • Cash and equity-based pay elements.

The following are the key elements of Verizon's compensation program:

Pay Element

Primary Objective

Relative Weight
(Approximate)

Base salary

Attract and compensate high-performing and experienced executives

10%

Annual cash incentive opportunity

Motivate executives to achieve pre-established short-term performance measures

20%

Long-term incentive opportunity

Align with shareholder interest to grow long-term value and retain executives

70%

The named executive officers are eligible to receive medical, disability and savings plan benefits that are generally provided to all management employees. The named executive officers are also eligible for certain executive life insurance, financial planning and corporate transportation benefits, which are provided in order to attract high-performing executives and to enhance the executive’s safety and security.

In establishing a pay-for-performance environment, the Committee balances the importance of meeting the Company’s short-term business goals with the need to meet Verizon’s goal of creating sustained shareholder value. The Committee has emphasized creating sustained shareholder value in setting the relative weighting of overall compensation opportunities. Accordingly, annual incentives represent approximately twenty percent of the total compensation opportunity while long-term incentives that are linked with stock performance, especially as measured by Verizon’s total shareholder return1 over a three-year period, represent approximately seventy percent of the total compensation opportunity.

Developments in Compensation Policy

The Committee regularly monitors emerging trends and best practices in executive compensation and evaluates whether they are appropriate and relevant for Verizon. In recent years, the Committee has eliminated:

  • An employment agreement for the CEO. Mr. Seidenberg does not have an employment, severance or change-in-control agreement;
  • Tax-qualified and supplemental defined benefit retirement plan benefits; and
  • Executive perquisite allowances.

During 2007 the Committee asked management to discuss Verizon’s executive compensation programs and certain potential program design changes with large institutional investors. After taking into account these discussions, the opinions of shareholders as reflected in the votes on compensation-related proposals presented at the 2007 annual meeting and developments in executive compensation, the following changes were made:

  • Upon the Committee’s recommendation and to further strengthen Verizon’s corporate governance practices, the Board amended the Company’s Corporate Governance Guidelines to initiate an annual shareholders’ advisory vote regarding executive compensation, beginning at the 2009 annual meeting.
  • The Committee revised its existing policy requiring shareholder approval of certain executive severance arrangements, to better define the elements of severance pay.
  • The Committee adopted a formal policy confirming that the Consultant is not permitted to perform any work for the Company, to ensure the continued independence of the Consultant.
  • The Committee adopted a policy that enables the Company to recapture incentive payments received by an executive who has engaged in financial misconduct, to ensure that executives do not benefit from engaging in such misconduct.

Recognizing the dual objectives of improving the clarity of the Company’s compensation program and more closely linking total compensation and shareholder value, the Committee has also made the following changes:

  • Annual Incentive Award Targets. To make the plan easier to understand, beginning in 2007, annual incentive award levels are expressed at threshold, target and maximum dollar values. If the performance measures are achieved at 100%, the target award is earned.
  • Single Peer Group. In order to simplify the pay-for-performance comparison group, the Committee decided that it will use a single peer group for benchmarking both compensation opportunities and long-term stock performance beginning in 2008 (see discussion of Related Dow Peer Group on page 22). In 2007 and prior years, the Committee looked at data from two peer groups (see discussion of Market and Industry Peer Groups on page 21) to benchmark compensation opportunities. The Committee determined long-term incentive award payments based on Verizon’s TSR, compared to the Standard and Poor’s 500 Index, referred to as the S&P 500 Index, and the Industry Peer Group.
  • Total Compensation. Instead of benchmarking each element of compensation separately against two peer groups, beginning in 2008 the Committee will evaluate total compensation opportunities as compared to a single peer group. In addition, the Committee will target total compensation opportunities for 2008 to fall within the 60th to 65th percentile in the single peer group described below. As a result of this change, shareholders will be able to more easily compare Verizon’s compensation program to that of companies of similar size and business complexity. Focusing on total compensation provides a framework that allows the Committee to vary individual pay elements for executives in a manner that addresses retention needs and individual experience.
  • Stock Ownership Guidelines. To further emphasize the importance of executive share ownership, the Committee revised Verizon’s stock ownership guidelines. Beginning in 2008, all previously granted and future long-term incentive awards that are linked to stock value but payable in cash will no longer count towards meeting the stock ownership guidelines (see discussion of Stock Ownership Guidelines on page 29).

Since these changes will be fully implemented for 2008 and discussed in next year’s proxy statement, the Committee determined that it would be appropriate to hold Verizon’s first shareholders’ advisory vote regarding executive compensation at the 2009 annual meeting.

Summary of 2007 Company Performance and Compensation Actions

The following highlights the Company’s 2007 performance and summarizes significant compensation actions. A more detailed discussion may be found under Elements of Compensation.

  • Verizon reported strong financial and operating results in 2007 and delivered adjusted earnings per share results that exceeded the performance measure. Verizon Wireless achieved industry-leading results for key financial measures, including significant growth in service revenue and net income, and industry-leading net retail additions and customer loyalty. Verizon Wireline continued to perform well in a competitive market environment. In addition, Verizon Wireline continued to increase revenues in the most strategic areas of its business.
  • Verizon’s stock delivered a 28% total return to shareholders for the three-year period through 2007.
  • Based on 2007 corporate and business segment performance, 2007 annual incentive awards were paid at 14.7% above target for Mr. McAdam, President and Chief Executive Officer of Verizon Wireless, and at 6.7% above target for the other named executive officers.
  • Verizon’s named executive officers earned 76% of their targeted number of performance stock units (plus applicable dividend equivalent units) that were awarded to them as part of their 2005-2007 long-term incentive award opportunity. This percentage of performance stock units was based upon Verizon's TSR relative to the companies in the S&P 500 Index and Verizon’s Industry Peers, which is discussed in more detail on page 27. In 2007, the named executive officers, other than the CEO, also received a portion of their annual long-term incentive value in the form of restricted stock units. These restricted stock units are linked with Verizon’s stock price and promote executive retention and alignment with shareholder value.
  • In determining the 2005-2007 performance stock unit payment for Verizon's CEO, the Committee and the Board also evaluated the Company’s performance relating to four strategic initiatives and, based upon Mr. Seidenberg’s leadership with respect to these initiatives, increased his 2005-2007 performance stock unit payment by $4.6 million in addition to the amount that was determined based on the relative TSR formula for all executives.
  • In connection with their promotions, Mr. Strigl and Mr. McAdam received base salary increases in 2007.

Benchmarking

In order to assess whether the compensation opportunities are both appropriate and competitive, the Committee compared each named executive officer’s compensation opportunities to the compensation opportunities for similarly-situated executives in comparable positions at peer companies. From 2001 through 2007, the Committee has benchmarked the Company’s compensation programs against two peer groups.

  • The Industry Peers are shown in the following chart and include companies that are in Verizon’s industry sector (regardless of size) and provide wireline, wireless and broadband communications services. The Committee measured Verizon’s relative performance against the Industry Peers because these companies compete directly with Verizon for customers and are affected by similar market and regulatory conditions.

INDUSTRY PEERS

Alltel
AT&T
Cablevision
Century Tel

Charter Communications
Citizens Communications
Comcast
Level 3 Communications

Qwest
Sprint Nextel
Time Warner

  • The Market Peers are listed below and include a broader group of large, multi-faceted companies that are similar to Verizon in terms of size and structure and compete with Verizon for executive talent and against which the market compares Verizon's performance. Most of the companies in the Industry Peer group are also included in the Market Peers.

MARKET PEERS

3M
Alltel
Altria
American Express
AT&T
Boeing
Bristol Myers Squibb
Cablevision
Cisco Systems
Citizens Communications
Coca-Cola

Comcast
Ford
General Electric
General Motors
Hewlett-Packard
Honeywell
IBM
Intel
Johnson & Johnson
Merck
Microsoft

Motorola
Nortel
PepsiCo
Procter & Gamble
Qwest
Sprint Nextel
Time Warner
UTC
Walt Disney
Wyeth

For 2007, the Committee determined that target annual compensation (base salary and target annual incentive opportunities) for the named executive officers should generally be at the 50th percentile for comparable positions at the Market Peers. The Committee believed that providing the opportunity to earn this level of annual compensation, if the applicable performance measures are achieved, was appropriate to attract high-performing and experienced executives and motivate the executives to achieve the short-term performance measures. The Committee benchmarked target long-term incentive opportunities for the named executive officers between the 60th and the 75th percentile when compared to positions at the Market Peers. The Committee believed that providing the opportunity to earn this level of long-term compensation, if the relative TSR performance levels are achieved, was appropriate to align the executives’ interests with the creation of sustained long-term shareholder value.

Related Dow Peer Group

In 2007, in consideration of market trends, the Committee reevaluated the companies against which it benchmarks compensation opportunities and performance.

  • The Committee determined that, given the ongoing consolidation in the industry, the reduced number of similarly-sized industry competitors and the entry of non-traditional competitors, beginning in 2008, it will use a single group to benchmark decisions related to compensation and performance.
  • This new peer group includes the 29 companies (other than Verizon) in the Dow Jones Industrial Average, plus Verizon’s four largest competitors that are not included in the Dow Jones Industrial Average. The current companies are listed in the following chart.

RELATED DOW PEERS

3M
Alcoa
American Express
AIG
AT&T
Bank of America
Boeing
Caterpillar
Chevron
Citigroup
Coca-Cola

Comcast
Du Pont (E.I.)
Exxon Mobil
General Electric
General Motors
Hewlett-Packard
Home Depot
IBM
Intel
Johnson & Johnson
JP Morgan Chase

McDonald’s
Merck
Microsoft
Pfizer
Procter & Gamble
Qwest
Sprint Nextel
Time Warner
UTC
Wal-Mart
Walt Disney

The Committee believes that this new peer group will better reflect the large and multi-faceted companies against which Verizon competes for executive talent and against which the market compares Verizon’s performance. This new peer group will also provide a level of continuity because it includes many of the companies in the Market and Industry Peer Groups. This new peer group is referred to as the Related Dow Peers. By using this group of similarly-sized companies as reflected in an established and recognizable index and by including Verizon’s largest industry competitors, the new peer group will provide a consistent point of comparison and will make it easier for shareholders to evaluate, monitor and understand Verizon's compensation programs.

Elements of Compensation

Annual Compensation

Base Salary

The determination of individual base salaries is primarily based on the competitive pay practices at the Market Peers for comparable positions and also reflects the scope of the executive’s responsibility and experience. In 2007, Mr. Strigl became President and Chief Operating Officer of Verizon and Mr. McAdam became President and Chief Executive Officer of Verizon Wireless. Each of these promotions significantly increased the scope of the executive's responsibilities. The Committee determined it was appropriate to increase Mr. Strigl's base salary by 11.1% and Mr. McAdam's base salary by 10.3% to reflect the increased responsibilities of their new positions consistent with competitive market data at the Market Peers.

Short-Term Incentive Plan

Under the Verizon Short-Term Incentive Plan, which is referred to as the Short-Term Plan, no awards may be paid if Verizon's return on equity2 for the plan year does not exceed 8%, even if some or all of the performance measures are achieved. The Committee may reduce but not increase the maximum award under the Short-Term Plan for any participant. The 2007 performance measures are described below. The following summarizes the general operation of the Short-Term Plan.

  • If 100% of an annual performance measure is achieved, the participants are eligible to receive 100% of the target award opportunity with respect to that measure;
  • If performance exceeds 100% of an annual performance measure, the payout may increase up to the maximum award opportunity with respect to that measure depending on the level of performance (see Grants of Plan-Based Awards Table on page 32 for the maximum award opportunities under the Short-Term Plan);
  • If performance is below 100% of an annual performance measure but above the threshold level approved by the Committee, the Committee will decrease the payout below the target award opportunity to as low as the threshold award opportunity with respect to that measure depending on the level of performance (see Grants of Plan-Based Awards Table on page 32 for the threshold award opportunities under the Short-Term Plan); and
  • If the performance is below the threshold level for any annual performance measure, no payment for that measure is credited toward the total award. If performance for all measures is below the thresholds for the measures, no award is paid.

Each year, the Committee establishes the values of the threshold, target and maximum award opportunities under the Short-Term Plan. The values of these opportunities are primarily based on the scope of the executive's responsibility and on the competitive pay practices at the Market Peers for comparable positions. The Committee set the 2007 target award opportunities for the named executive officers at: $3,937,500 for Mr. Seidenberg; $1,875,000 for Mr. Strigl; $945,000 for Mr. Barr; $928,125 for Ms. Toben and $900,000 for Mr. McAdam. The 2007 target award opportunities for Mr. Strigl and Mr. McAdam increased by 11.1% and 10.3% over their prior year levels as a result of their base salary increase described above. The target award opportunities for Mr. Seidenberg, Mr. Barr and Ms. Toben did not increase in 2007.

Performance Measures

In the first quarter of 2007, the Committee reviewed and approved the annual financial and operating performance measures for the corporate level and for each business segment (Verizon Wireline and Verizon Wireless), at a level the Committee considered appropriate to motivate the Company’s executives to achieve outstanding short-term results and to build value for shareholders.

The awards for Messrs. Seidenberg, Strigl and Barr and Ms. Toben were based on the level of attainment of the performance measures for Verizon corporate. The award for Mr. McAdam, the President and Chief Executive Officer of Verizon Wireless, was based upon the level of attainment of the performance measures for Verizon Wireless.

Corporate Performance Measures

The Committee approved the following 2007 corporate performance measures:

  • $2.28 for adjusted earnings per share,3 weighted at 50% of the total award.
  • A diversity measure weighted at 5% of the total award providing that: 50% of new hires and promotions at the manager level and above consist of minority and female candidates; and that $10 million in supplier spending be directed to minority and female owned or operated firms.
  • An income-weighted measure reflecting a composite of Verizon Wireline and Verizon Wireless performance against their performance measures, weighted at 45% of the total award.

Business Segment Performance Measures

Verizon Wireless

The Committee approved the following 2007 Verizon Wireless performance measures:

  • $37.6 billion for wireless service revenue, weighted at 20% of the total award.
  • $16.9 billion for wireless EBITDA,4 weighted at 25% of the total award.
  • $3.6 billion for wireless net income (reflecting Verizon's 55% ownership in Verizon Wireless), weighted at 15% of the total award.
  • An operating performance measure of 7.1 million net retail customer additions, weighted at 20% of the total award.
  • A composite customer service/network performance measure of 100, based on internal baseline testing and third-party wins, and overall customer satisfaction and loyalty, weighted at 15% of the total award.
  • A diversity measure weighted at 5% of the total award providing that: 50% of new hires and promotions at the manager level and above consist of minority and female candidates; and that $0.9 billion in supplier spending be directed to minority and female owned or operated firms.

Verizon Wireline

The Committee approved the following 2007 Verizon Wireline performance measures:

  • $50.5 billion for wireline revenue, weighted at 20% of the total award.
  • $4.7 billion for wireline operating income, weighted at 30% of the total award.
  • $1.6 billion for wireline net income, weighted at 10% of the total award.
  • Operating performance measures at Verizon Wireline, each of which was weighted at 5% of the total award:
    • FiOS net customer additions of 1.8 million.
    • Legacy Verizon non-enterprise retail access line losses of 1.7 million.
    • Strategic services revenue (measuring revenue at Verizon Wireline’s most strategic growth areas) of $5.1 billion.
    • A reduction in the ratio of payments to independent carriers as a percentage of revenue.
  • A composite customer service/network performance measure of 100, based upon provisioning, repair and maintenance, receivables management, network performance and customer engagement, weighted at 15% of the total award.
  • A diversity measure weighted at 5% of the total award providing that: 50% of new hires and promotions at the manager level and above consist of minority and female candidates; and that $1.8 billion in supplier spending be directed to minority and female owned or operated firms.

Determining the 2007 Award Payout

  • Verizon Corporate Results and Awards
    • Verizon reported strong 2007 results including adjusted earnings per share of $2.36, which exceeded the performance measure of $2.28.
    • 110% of the diversity measure for new hires and promotions and 186% of the diversity supplier spending measure was achieved.
    • 100% of the weighted business segment composite performance measure was achieved, based upon the results described below for Verizon Wireless and Verizon Wireline and income weighting of approximately 72% for Verizon Wireless and 28% for Verizon Wireline.

The Committee, and for Mr. Seidenberg, the Board, approved the following Short-Term Plan award payments based on the level of achievement of the corporate performance measures: $4,200,000 for Mr. Seidenberg; $2,000,000 for Mr. Strigl; $1,008,000 for Mr. Barr and $990,000 for Ms. Toben. This resulted in their 2007 annual incentive awards being paid at 6.7% above the target level. Generally, the annual incentive awards for Verizon’s management employees at the corporate level were based upon the same level of attainment of the performance measures used to determine the payments for Mr. Seidenberg and the other corporate level named executive officers.

Verizon Wireless Results and Awards

Verizon Wireless continued its industry-leading performance in key financial and operating areas. It reported significant growth in service revenue, EBITDA and net income and industry-leading net retail customer additions and overall customer loyalty.

  • Verizon Wireless reported $38.0 billion in service revenue, $16.9 billion in EBITDA and $3.8 billion in net income (reflecting Verizon's 55% ownership of Verizon Wireless).
  • Verizon Wireless reported 6.9 million in net retail customer additions.
  • Verizon Wireless achieved 98% of its composite customer service/network performance measure.
  • Verizon Wireless achieved 110% of its diversity measure for new hires and promotions and 112% of its diversity supplier spending measure.

The Committee approved a Short-Term Plan award payment of $1,032,000 to Mr. McAdam based on the level of achievement of the Verizon Wireless performance measures. This resulted in his 2007 annual incentive award being paid at 14.7% above the target level. The annual incentive awards for all of Verizon Wireless' employees were based upon the same level of attainment of the performance measures used to determine the payment for Mr. McAdam.

Verizon Wireline Results and Awards

Verizon Wireline continued to perform well in an extremely competitive market environment and continued to increase revenues in the strategic growth areas of its business.

  • Verizon Wireline reported $50.3 billion in revenue, $4.7 billion in operating income and $1.5 billion in net income.
  • Verizon Wireline reported 1.6 million in net FiOS customer additions, 2.3 million in legacy Verizon non-enterprise retail access line losses, $5.2 billion in strategic services revenue and achieved 95% of the measure with respect to reduction in the ratio of payments to independent carriers as a percentage of revenue.5
  • Verizon Wireline achieved 101% of its composite customer service/network performance measure.
  • Verizon Wireline achieved 104% of its diversity measure for new hires and promotions and 117% of its diversity supplier spending measure.

Long-Term Incentive Compensation — The Verizon Long-Term Incentive Plan

The Verizon Long-Term Incentive Plan, which is referred to as the Long-Term Plan, rewards participants for the creation of long-term shareholder value. For each three-year performance cycle, the Committee establishes target award opportunities stated as a percentage of base salary.

The Committee has maintained the same level of target award opportunities since 2006. Currently, long-term incentive awards consist of Performance Stock Units, referred to as PSUs, and Restricted Stock Units, referred to as RSUs. Because the PSUs and RSUs are paid in cash, the number of Verizon shares outstanding does not increase, which avoids the dilution that would result from paying the awards in stock.

For 2007, the named executive officers, other than Mr. Seidenberg, received 60% of their 2007 long-term award opportunity in the form of PSUs and 40% in the form of RSUs. The Committee believes that a combination of PSUs and RSUs links compensation with Verizon'’s stock value and performance over a three-year period and helps to retain highly-qualified executives. Because the Committee believes that the CEO has the primary responsibility for increasing the value of Verizon’s stock, 100% of Mr. Seidenberg’s long-term incentive opportunity has consisted of PSUs. For each of the last three performance cycles, his award has included an opportunity to increase his payout based upon the Company's performance relating to certain strategic initiatives.

The Committee also has the authority to grant special awards. In 2007, the Committee recognized Mr. Strigl’s promotion to President and Chief Operating Officer and granted him a special RSU award valued at $3,000,024 on the date it was granted. The terms of this award generally provide that, in order for the award to become payable, Mr. Strigl must be continuously employed by Verizon for two years from the grant date.

The following table provides a summary of the long-term incentive awards granted during 2007. A description of the 2007 PSU and RSU awards, including the performance requirements, follows the table. A discussion of the level of performance attainment for the 2005 PSUs is also provided on pages 27-28.

 

 

 

Award Mix at Target

 

Name

2007 Target
Award Value
in Total

Target %
of Base
Salary

PSUs
(Based on
Relative TSR)

RSUs

Special RSU
Award

I. Seidenberg

$

13,125,200

 

625%

100%*

0%

 

No

 

D. Strigl

$

7,812,800

 

625%

60%

40%

$

3,000,024

 

W. Barr

$

4,410,660

 

525%

60%

40%

 

No

 

D. Toben

$

4,331,620

 

525%

60%

40%

 

No

 

L. McAdam

$

4,200,520

 

525%

60%

40%

 

No

 

* The Committee has the discretion to recommend that the Board increase the value of Mr. Seidenberg’s award based upon performance relating to strategic initiatives.

2007 PSUs and RSUs

The Committee determines the number of PSUs a participant earns based on Verizon's TSR for a three-year performance cycle relative to the TSR of:

  • The companies in the Industry Peer Group (60% weight); and
  • The companies in the S&P 500 index (40% weight).

In determining the PSU award payouts, the Committee has historically used the companies in the S&P 500 Index in lieu of the Market Peers in order to benchmark against the stock performance of a broader, recognized market index.

The following table shows the potential payout of PSU opportunities for the 2007-2009 performance cycle based on a range of relative TSR positioning compared with the Industry Peers and the companies in the S&P 500 Index.

 

Verizon’s Relative TSR Position Compared to S&P 500 Index

 

less than 20th percentile

20th percentile

50th percentile

55th percentile

75th percentile

100th percentile

Verizon’s Relative
TSR Position Compared
to Industry Peers

less than 20th percentile

0%

16%

40%

44%

60%

80%

20th percentile

18%

34%

58%

62%

78%

98%

50th percentile

45%

61%

85%

89%

105%

125%

55th percentile

60%

76%

100%

104%

120%

140%

75th percentile

90%

106%

130%

134%

150%

170%

100th percentile

120%

136%

160%

164%

180%

200%

As the chart illustrates, the target award would be achieved if Verizon’s results were at the 55th percentile when compared to the Industry Peers and the 50th percentile when compared to the companies in the S&P 500 Index.

As a complement to the 2007 PSU awards, the Committee granted RSU awards to the named executive officers other than Mr. Seidenberg. These 2007 RSU awards are payable at the end of the three-year award cycle and provide a retention-oriented award linked with Verizon's stock price.

The Committee may recommend that the Board increase the payout of Mr. Seidenberg’s 2007 PSU award based on an evaluation of the Company’s performance during the three-year performance cycle relating to the following strategic areas: Verizon’s succession plan (development and retention of executive leadership team); maintaining and growing Verizon’s market leadership positions with respect to corporate reputation, brand recognition, and broadband and wireless growth; and the successful passage and implementation of key legislative and regulatory initiatives. The Committee did not weight these strategic initiatives. The Committee has the discretion to recommend to the Board whether and to what degree the award should be increased. However, if Verizon does not achieve the threshold TSR level, the Board may not authorize any payment of Mr. Seidenberg’s 2007 PSU award (including any portion relating to these strategic initiatives). The total payout for Mr. Seidenberg’s 2007 PSU award, including the value of any discretionary payment, may not exceed two times his target value of $13.125 million.

Payment of 2005 PSU Awards

Named Executive Officers and All Other Plan Participants. Over the three-year performance period ending on December 31, 2007, Verizon’s TSR ranked in the 44th percentile when compared to the S&P 500 companies and in the 46th percentile when compared to the Industry Peers. As a result of this relative performance, the Committee approved in 2008 a payment of 76% of the target number of PSUs awarded for the 2005-2007 performance cycle to all participants, including the named executive officers. Because Verizon’s relative TSR was below the 55th percentile when compared to the Industry Peers and below the 50th percentile when compared to the companies in the S&P 500, participants were paid less than 100% of the target award opportunity.

Mr. Seidenberg. As a participant in the Long-Term Plan, Mr. Seidenberg received a payment of 76% of the target number of PSUs for the three-year performance period ending on December 31, 2007. In addition, the Committee had the discretion to recommend that the Board increase his payout for the 2005-2007 performance cycle based on performance with respect to the following strategic initiatives: synergy savings goals relating to the launch of Verizon Business; Wireless growth; passage of key legislation and FiOS and broadband growth. The Committee did not assign any specific weighting to these initiatives. Mr. Seidenberg’s award provided that the total payout for the 2005-2007 performance cycle, including the payment relating to the strategic initiatives, could not exceed his maximum award opportunity. In assessing whether an increased payment was appropriate, the Committee and the Board considered Mr. Seidenberg’s leadership, guidance and contribution to achieving the following industry leading results and accomplishments.

  • The Company completed its merger with MCI in January 2006. During 2006 and 2007, Verizon’s Wireline business generated operating benefits from combining its sales force with MCI’s and from product and systems integration programs. As a result of the acquisition of MCI, Verizon achieved productivity improvements and merger synergies that contributed to a savings that was 30% above the synergy savings goal announced at the time of the MCI merger. In addition, Verizon expanded its Ethernet and VoIP offerings in the U.S. and abroad, opened the new Government Network Operations and Security Center and launched a fully-integrated Customer Center.
  • Verizon realized an average consolidated pro forma6 revenue growth of 5% during 2006 and 2007 and 17% average revenue growth at Verizon Wireless during 2006 and 2007, which led the wireless industry. In addition, Verizon Wireless added a market leading total of 14.6 million retail customers for 2006 and 2007.
  • In connection with key legislative initiatives, Verizon has obtained over 1,000 video franchises covering 12.5 million households in 17 states, including California, Florida, Massachusetts, New Jersey, New York, Texas and Virginia.
  • At the end of 2007, Verizon's FiOS video service was available for sale at 5.9 million premises and Verizon added a total of 3.1 million broadband connections for 2006 and 2007.

After evaluating the Company’s performance relating to these strategic initiatives, the Committee recommended and the Board approved paying Mr. Seidenberg’s 2005 PSU award at 104% of target. This represented an increase of $4.6 million over the amount that was payable to Mr. Seidenberg based solely on Verizon’s relative TSR performance over the 2005-2007 performance cycle.

As previously noted, the Committee encourages a pay-for-performance environment by linking long-term compensation opportunities to the creation of sustained shareholder value. The Committee reviews the potential payouts for varying levels of performance under the Long-Term Plan to ensure that they are consistent with aligning executive compensation with the creation of shareholder value. During the three-year period through 2007, under Mr. Seidenberg’s leadership, Verizon delivered a 28% return to shareholders. In addition, during this period Verizon made significant capital investments in its business to help ensure future growth opportunities in its most strategic areas. The Committee recommended and the Board concluded that the total payment to Mr. Seidenberg of $17 million for the 2005-2007 performance period was consistent with the level of value created for shareholders over this three-year period.

Other Elements of the Total Compensation Program

Transportation

The Company provides certain aircraft and ground transportation benefits to enhance the safety and security of certain of the named executive officers. Additional information on company-provided transportation is included in footnote 5 to the Summary Compensation Table on page 31.

Executive Life Insurance

The Company offers the named executive officers and other executive employees the opportunity to participate in a supplemental executive life insurance program in lieu of participation in the Company’s basic and supplemental life insurance programs. Additional information on this program is provided in footnote 5 to the Summary Compensation Table on page 31.

Financial Planning

The Committee approved a voluntary Company-sponsored financial planning benefit program for the named executive officers and other executive employees. Additional information on this program is provided in footnote 5 to the Summary Compensation Table on page 31.

Retirement Benefits

Effective June 30, 2006, Verizon stopped all future pension accruals under its management tax-qualified and supplemental defined benefit retirement plans. The Committee determined that guaranteed pay in the form of supplemental executive retirement benefits was not consistent with the Company’s pay-for-performance culture. These legacy retirement benefits previously provided by Verizon to its named executive officers are described in more detail in the footnotes accompanying the retirement plan tables on pages 34-35.

During 2007, all of Verizon’s management employees, including the named executive officers, were eligible to participate in the Company’s tax-qualified and nonqualified savings plan. These plans are described in the section entitled Defined Contribution Savings Plans on page 35.

Other than the benefits mentioned above, the Company provides no other compensation or benefits to its named executive officers.

Tax and Accounting Considerations

Federal income tax law prohibits publicly held companies from deducting certain compensation paid to a named executive officer (other than a chief financial officer) that exceeds $1 million during the tax year unless it is based upon attaining pre-established performance measures that are set by the Committee pursuant to a plan approved by the Company's shareholders.

The Committee has been advised by management that compensation paid to the named executive officers under the Short-Term Plan currently meets the performance-based exception and is fully deductible. In addition, the Committee has been advised by management that to the extent PSUs are paid for the 2005-2007 and 2006-2008 performance cycles based upon Verizon’s relative TSR, such payments meet the performance-based exception and will be fully deductible. However, the compensation that will be paid for the 2007-2009 performance cycle under the Long-Term Plan will not qualify for a deduction because the categories of performance measures under the Long-Term Plan were last approved by shareholders in 2001. Management has advised the Committee that any resulting loss of a tax deduction will not be material to Verizon’s overall tax liability. The Committee retains the flexibility to take any compensation-related actions that it determines are in the best interests of the Company and its shareholders including determining when to request shareholder approval of the Verizon incentive plans and when to award compensation that may not qualify for a tax deduction.

The Committee also considers the effect of certain accounting rules on the various compensation programs available to the named executive officers. The Committee reviews potential accounting effects in determining whether its compensation actions are in the best interests of the Company and its shareholders. Because the PSUs and RSUs are paid in cash, the number of Verizon shares outstanding does not increase, which avoids the dilution that would result from paying the awards in stock. The Committee has been advised by management that the impact of the variable accounting treatment required for those awards (as opposed to fixed accounting treatment) will depend on future stock performance.

Stock Ownership Guidelines

To strengthen the alignment of management and shareholder interests, the Committee has approved guidelines that require each named executive officer and other executives to maintain certain stock ownership levels.

  • These guidelines require the CEO to maintain share ownership equal to at least five times his base salary and require the other named executive officers to maintain share ownership equal to at least four times their base salaries.
  • Executives must achieve the guideline level of ownership within five years of being promoted to that position. The guidelines also prohibit an executive from short-selling or engaging in any financial activity where they would benefit from the decline of Verizon’s stock price.
  • In 2007 all of the named executive officers were in compliance with the stock ownership guidelines.

In determining whether an executive meets the required ownership level, the calculation included the executive’s outstanding PSUs and RSUs, any shares held by the executive directly or through a broker, shares held through the Verizon 401(k) plan or the Verizon nonqualified savings plan and other deferred compensation plans and arrangements that are valued by reference to Verizon’s stock.

Beginning in 2008, all previously granted and future PSUs and RSUs that are payable in cash no longer count toward meeting these guidelines. Executives who are subject to these revised guidelines are required to meet the ownership level for their position within three years.

Employment Agreements, Severance and Change in Control Benefits

When the Verizon merger was completed in 2000, the Company negotiated and entered into employment agreements with Messrs. Strigl and Barr, who were executive officers of the Company. The Committee believed that it was important to ensure that these individuals would continue to lead the Company and provide the expertise and continuity that were critical to the Company's success. The Company also entered into an employment agreement with Ms. Toben, who was a senior executive, but not an executive officer, at that time. In addition, Verizon Wireless entered into an employment agreement with Mr. McAdam, who was a senior executive of Verizon Wireless, but not an executive officer of Verizon, at that time.

The compensation levels established under each of the employment agreements reflected the Company’s general compensation practices, as applicable to each individual’s position, at the time the agreements were entered into. The severance benefits established, and the circumstances under which they would be payable, are appropriate based on each executive’s position and tenure with the Company, and competitive practices in effect among the Market Peers at the time of execution of the agreements. Consistent with these competitive practices, the definitions of “cause” and “good reason” incorporated into the agreements were selected to assure that the executives would be fairly compensated in the event that the Company denied them the opportunity to fulfill the terms of their agreements, or materially altered the terms and conditions under which they were to perform their services. The terms and conditions of these severance benefits are described in more detail in the severance and change in control tables on pages 37-41. Since the merger in 2000, the Committee has generally not provided new employment agreements. However, the Committee has retained the ability to offer employment agreements in the future if it deems that it is appropriate and in the best interests of the Company and its shareholders. In addition, the Committee continues to honor employment agreements that have been in effect since the merger or that have been subsequently renewed.

In 2007, to better define the elements of severance pay, the Committee revised its policy that requires shareholders to approve or ratify any new employment agreement or severance agreement with an executive officer which provides for a total cash value severance payment exceeding 2.99 times the sum of the executive's base salary plus Short-Term Plan incentive payment. The revised policy specifies that any lump-sum cash severance payment includes payments for any consulting services, payments to secure a non-compete agreement, payments to settle any litigation or claim, payments to offset tax liabilities, payments or benefits that are not generally available to similarly-situated management employees and payments in excess of, or outside, the terms of a Company plan or policy.

1

Total shareholder return, which is referred to as TSR, is defined as the change in Verizon’s stock price plus the value of dividends reinvested in Verizon’s stock over the three-year performance period.

2

The definition of return on equity in the Short-Term Plan excludes special items, such as extraordinary losses, and losses from discontinued operations, business combinations, changes in accounting principles and certain other items.

3

Adjusted earnings per share excludes the following items from income:

  • Merger integration costs;
  • Gain/loss on the disposition of international investments in Puerto Rico and Venezuela;
  • Access line spin-off related charges;
  • Contributions to the Verizon Foundation;
  • Taxes on foreign distributions; and
  • Severance and other related charges.

4

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. It adds depreciation and amortization to operating income.

5

This is a confidential measure of a targeted level of payments for services from other carriers. This measure has not been previously used in determining Short-Term Plan award payments, but was used in 2006 as a strategic business measure. Attainment of this confidential business measure in 2006 was 97%. Based on that level of prior attainment, and based on the higher level of difficulty of the 2007 measure, the Committee believed that attainment of this measure at 100% would be more difficult than in 2006.

6

Revenues on a pro forma basis are calculated as if Verizon and MCI had merged on January 1, 2005.