Notes to Consolidated Financial Statements

NOTE 14 (1 OF 3)

STOCK-BASED COMPENSATION

Refer to Note 1 for a discussion of the adoption of SFAS No. 123(R), which was effective January 1, 2006.

Verizon Communications Long Term Incentive Plan

The Verizon Communications Long Term Incentive Plan (the Plan), permits the granting of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance shares, performance share units and other awards. The maximum number of shares for awards is 207 million.

Restricted Stock Units

The Plan provides for grants of RSUs that generally vest at the end of the third year after the grant. The RSUs are classified as liability awards because they will be paid in cash upon vesting. The RSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the performance of Verizon's stock. Dividend equivalent units are also paid to participants at the time the RSU award is paid.

The following table summarizes Verizon's Restricted Stock Unit activity:

(shares in thousands)

Restricted
Stock Units

 

Weighted-Average
Grant-Date Fair Value

 

Outstanding, January 1, 2006

 

6,869

 

 

$

36.12

 

Granted

 

9,116

 

 

 

31.88

 

Cancelled/forfeited

 

(392

)

 

 

35.01

 

Outstanding, December 31, 2006

 

15,593

 

 

 

33.67

 

Granted

 

6,779

 

 

 

37.59

 

Payments

 

(602

)

 

 

36.75

 

Cancelled/forfeited

 

(197

)

 

 

34.81

 

Outstanding, December 31, 2007

 

21,573

 

 

 

34.80

 

Granted

 

7,277

 

 

 

36.64

 

Payments

 

(6,869

)

 

 

36.06

 

Cancelled/forfeited

 

(161

)

 

 

35.45

 

Outstanding, December 31, 2008

 

21,820

 

 

 

35.01

 

Performance Share Units

The Plan also provides for grants of PSUs that generally vest at the end of the third year after the grant. As defined by the Plan, the Human Resources Committee of the Board of Directors determines the number of PSUs a participant earns based on the extent to which the corresponding goals have been achieved over the three-year performance cycle. All payments are subject to approval by the Human Resources Committee. The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting. The PSU award liability is measured at its fair value at the end of each reporting period and, therefore, will fluctuate based on the price of Verizon's stock as well as performance relative to the targets. Dividend equivalent units are also paid to participants at the time that the PSU award is determined and paid, and in the same proportion as the PSU award.

The following table summarizes Verizon's Performance Share Unit activity:

(shares in thousands)

Performance
Share Units

 

Weighted-Average
Grant-Date Fair Value

 

Outstanding, January 1, 2006

 

19,091

 

 

$

36.84

 

Granted

 

14,166

 

 

 

32.05

 

Payments

 

(3,607

)

 

 

38.54

 

Cancelled/forfeited

 

(1,227

)

 

 

37.25

 

Outstanding, December 31, 2006

 

28,423

 

 

 

34.22

 

Granted

 

10,371

 

 

 

37.59

 

Payments

 

(5,759

)

 

 

36.75

 

Cancelled/forfeited

 

(900

)

 

 

36.18

 

Outstanding, December 31, 2007

 

32,135

 

 

 

34.80

 

Granted

 

11,194

 

 

 

36.64

 

Payments

 

(7,597

)

 

 

36.06

 

Cancelled/forfeited

 

(2,518

)

 

 

36.00

 

Outstanding, December 31, 2008

 

33,214

 

 

 

35.04