Proxy Statement
Approval of Verizon Communications Inc. Long-Term Incentive Plan
(Item 4 on Proxy Card)

Introduction

In 2001, Verizon’s shareholders approved the Verizon Communications Inc. Long-Term Incentive Plan, which is referred to as the 2001 LTIP. On February 5, 2009, the Human Resources Committee adopted the amended and restated Verizon Communications Inc. Long-Term Incentive Plan. This plan, which is referred to as the 2009 LTIP, is described in this section and a copy of the plan is attached as Appendix B to this proxy statement. The Board of Directors directed that the 2009 LTIP be submitted to shareholders for approval at the 2009 Annual Meeting. It will become effective on the date the shareholders approve the plan.

Overview

The 2009 LTIP provides the framework for all of the Company’s long-term incentive awards, which are based on the Company’s performance over a multi-year cycle. The 2009 LTIP is designed to promote a performance-based culture and link the interests of participants and shareholders. The 2009 LTIP is similar to the plan that was approved by shareholders in 2001 and includes additional provisions that also reflect sound compensation practices.

  • “Double-Trigger” change in control provisions. The 2009 LTIP provides that after a change in control of the Company, a participant’s outstanding awards do not vest unless and until a participant loses his or her position with the Company within twelve months following a change in control, a “double-trigger.” Under the 2001 LTIP, a participant’s awards vest immediately upon a change in control of the Company.
  • No “reload” options. The 2009 LTIP specifically prohibits the automatic granting of replacement options upon the exercise of an outstanding grant. Although the Company has not provided for the grant of “reload” options since 2004, this type of grant was not prohibited under the terms of the 2001 LTIP.
  • No repricing. The 2009 LTIP does not permit any modification of stock options or stock appreciation rights, referred to as SARs, that would be treated as a repricing without the approval of shareholders.
  • No discount awards. The grant price of any award will be equal to at least 100% of the fair market value of a share on the date of grant.
  • No “evergreen” provision. A limited number of shares are available under the 2009 LTIP, and the plan does not contain an “evergreen” provision to automatically increase the number of shares available for future issuance.
  • Nontransferable awards. All awards granted under the 2009 LTIP are nontransferable except upon the participant’s death.

The primary differences between the 2009 LTIP and the 2001 LTIP are the provisions related to “double-trigger” change in control vesting and “reload” options, which are described above, and limitations on the number of shares issuable for awards under the plans. Under the 2009 LTIP, 115,000,000 shares of common stock will be issuable for new awards. A total of 207,000,000 shares of common stock were issuable under the 2001 LTIP, 161,269,220 of which currently remain eligible for future grants. If shareholders approve the 2009 LTIP, the shares that remain eligible for future grants under the 2001 LTIP will be cancelled, and the Company will not be able to grant any additional shares under the 2001 LTIP. Under the 2001 LTIP, of the 207,000,000 shares available, all of such shares were available for issuance pursuant to the exercise of nonqualified stock options, however not more than 62,100,000 of such shares were available for issuance pursuant to the exercise of incentive stock options and not more than 31,050,000 of such shares were available for awards other than stock options. While the 2009 LTIP limits the number of shares that may be issued under the plan, it does not provide specific limitations for shares that may be issued for any particular type of award.

The main features of the 2009 LTIP are outlined below. This summary is qualified by reference to the complete text of the plan in Appendix B.

Purpose

The 2009 LTIP is designed to:

  • Promote a performance-based culture that links the interests of participants and shareholders;
  • Motivate participants to continue to create shareholder value over the longer term; and
  • Provide the Company with a variety of compensation tools that it can use to attract and retain the services of participants who make significant contributions to the Company’s success.

Administration and Participation

All of the approximately 223,900 employees of Verizon and certain related companies and Verizon’s non-employee Directors will be eligible to participate in the 2009 LTIP. In 2008, approximately 3,300 employees and the non-employee Directors participated in the 2001 LTIP. The Committee will administer the 2009 LTIP, and it may delegate its authority, subject to any limitations imposed by law or the regulations of any applicable stock exchange.

Types of Awards

As described in the Compensation Discussion and Analysis, the Company granted in 2008 long-term incentive awards to employees in the form of performance share units and restricted stock units. Under the 2009 LTIP, the Committee has the authority to grant various types of awards including:

  • Performance Shares and Performance Share Units. These awards are linked to the performance of the Company over a performance cycle designated by the Committee. The initial value of a performance share will be equal to the fair market value of a share of common stock on the date of grant. The initial value of a performance share unit cannot be less than the fair market value of a share of common stock on the date of grant. These awards will be paid only if and to the extent that Verizon attains the corresponding performance measures. The Committee will establish the terms, conditions, restrictions and other provisions of each award. Under the 2009 LTIP, awards may be payable in cash, common stock, or a combination of both, as determined by the Committee.

  • Restricted Stock and Restricted Stock Units. These awards are grants of common stock or stock units that may be forfeited or lapse if one or more of the terms of that award are not met. The initial value of a share of restricted stock will be equal to the fair market value of a share of common stock on the date of grant. The initial value of a restricted stock unit cannot be less than the fair market value of a share of common stock on the date of grant. The Committee will determine the terms, conditions, restrictions and other provisions that apply to any award. Restricted stock units may be payable in cash, common stock, or a combination of both, as determined by the Committee.

  • Stock Options. Each stock option represents the right to purchase a specified number of shares of Verizon common stock at a fixed grant price. That grant price cannot be less than the fair market value of the stock on the date of grant. The maximum term of a stock option cannot exceed 10 years from the date of grant. Options will be exercisable only in accordance with terms established by the Committee. The purchase price of an option may be payable in cash, common stock (valued at fair market value on the day of exercise), or a combination of both. The 2009 LTIP authorizes the Committee to grant nonqualified stock options or grant incentive stock options that comply with the requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended, which is referred to as the Code.

  • Other Awards. The Committee also has authority to grant a variety of other types of awards including, but not limited to, SARs or other share equivalents that are denominated in, payable in, valued in whole or in part by reference to, or otherwise related to shares of common stock. The Committee will determine the terms and conditions of any awards.

Payment of Awards

The Committee will determine whether the awards have been earned and the date on which awards are payable. The Committee may permit or require a participant to defer all or a portion of an award subject to the requirements of Section 409A of the Code.

Because the 2009 LTIP is subject to shareholder approval, the Committee has not granted any awards under this plan. The Committee annually determines whether and to what extent awards may be made under the plan. Accordingly, it is not possible to determine the number of future awards that may be allocated to any one individual or group of individuals under the 2009 LTIP.

Limitation on Shares and Awards

If the shareholders approve the 2009 LTIP, Verizon will be authorized to issue up to 115,000,000 shares of common stock for new awards. The Committee believes that this number of shares represents a reasonable amount of potential equity dilution and allows the Company a sufficient reserve of shares to continue awarding equity-based incentives, which are an important component of Verizon’s overall compensation program.

If certain events occur, the Committee is required to adjust the number, type and/or price of shares subject to outstanding awards. These events include a stock split, a corporate transaction, including a merger, consolidation, separation, spin-off, or other distribution of stock or property of the Company, a reorganization, a partial or complete liquidation of the Company, or other similar events. The adjustments are designed to prevent dilution or enhancement of the benefits available under the 2009 LTIP.

Shares will be considered to be issued under the 2009 LTIP at the time awards denominated in shares or units are granted to a participant. However, the number of shares available under the 2009 LTIP will be restored to the extent that (i) stock-based awards are paid in cash, (ii) shares subject to an award are cancelled, terminated or forfeited or shares are subject to a grant that expires, and (iii) a participant pays an option exercise price or tax withholding obligation with previously acquired shares or by withholding shares that he or she would otherwise have had the right to acquire on the exercise of such option.

Under the 2009 LTIP, the maximum award granted to any one participant in a calendar year may not exceed the lesser of (i) one-half of one percent of the number of shares of Verizon common stock that are issued and outstanding as of the effective date of the 2009 LTIP or (ii) 13,500,000 shares.

Amendment and Termination of the 2009 LTIP

Unless it is terminated earlier, the 2009 LTIP will remain in effect until all shares subject to the 2009 LTIP have been purchased, acquired, or forfeited, and all cash awards have been paid or forfeited, pursuant to the 2009 LTIP’s provisions. However, no awards may be granted after the 10th anniversary of the effective date of the 2009 LTIP. Prior to that date, the Committee may amend, suspend or terminate the 2009 LTIP in whole or in part. The Committee may not amend the 2009 LTIP without shareholder approval if the amendment would cause the plan to fail to comply with any requirement of applicable law or regulation.

“Double-Trigger” Change in Control Provision

As noted previously, the 2009 LTIP provides for a “double-trigger” for the vesting of any outstanding awards following a change in control (as defined in the 2009 LTIP). In order for the awards to vest and become payable, (i) a change in control must occur, and (ii) within 12 months of the change in control, the participant must lose his or her position with the Company. The 2009 LTIP provides that, if within 12 months after a change in control, a participant is either involuntarily terminated without “cause” or leaves his or her position for “good reason” (both of these terms are defined in the terms of the award agreement), any outstanding stock options and SARs will become exercisable and all other awards will become vested and will be paid at their targeted award level. However, restricted stock units and performance share units will not be paid until their regularly scheduled time under the applicable award agreement.

Federal Income Tax Considerations

The following is a summary of the federal income tax consequences of the various types of awards available under the 2009 LTIP based on current tax laws. The federal income tax consequences of any particular award may vary based on the terms and conditions associated with that award.

  • Restricted Stock Units, Performance Share Units and Performance Shares. A participant who has been granted a restricted stock unit, performance share unit or performance share will not realize taxable income at the time of grant, and the Company will not be entitled to claim a corresponding income tax deduction at that time. The participant will have income equal to the amount of cash received when the award is paid and/or the fair market value of the shares at the time they are distributed. The Company will be entitled to claim a corresponding income tax deduction at that time.

  • Restricted Stock. A participant who has been granted shares of restricted stock will not realize taxable income at the time of grant, and the Company will not be entitled to claim a corresponding income tax deduction, assuming that any restrictions on the participant’s ability to earn such award create a “substantial risk of forfeiture” for federal income tax purposes. When the stock that is the subject of an award vests, the participant will realize ordinary income in an amount equal to the then fair market value of those shares, and the Company will be entitled to claim a corresponding income tax deduction. Gains or losses that the participant realizes upon a subsequent disposition of those shares will be treated as capital gains or losses. Alternatively, a participant may elect under Section 83(b) of the Code to recognize income at the date of grant of restricted stock and to have the applicable capital gain holding period commence as of that date. In that event, the Company will be entitled to claim a corresponding income tax deduction as of the date of grant.

  • Stock Options and SARs. A participant will not recognize any taxable income, and the Company will not be entitled to claim a corresponding income tax deduction, upon the grant of a nonqualified stock option, incentive stock option or SAR under the 2009 LTIP.

  • If a participant exercises a nonqualified stock option or SAR, he or she will recognize taxable income equal to the difference between the fair market value of Verizon common stock on the date of exercise and the grant price of such nonqualified stock option or SAR. Verizon will be entitled to claim an income tax deduction equal to the amount of taxable income recognized by the participant.

  • A participant does not recognize taxable income upon the exercise of an incentive stock option. However, the difference between the fair market value of Verizon common stock on the date of exercise and the grant price of the incentive stock option is a tax preference item that must be considered in determining whether the participant is subject to the alternative minimum tax. If the participant does not dispose of the stock acquired through the exercise of an incentive stock option within two years after the date of grant or one year after the exercise date, any taxable income recognized on the date of sale will be subject to tax as a capital gain. If the above holding period requirements are not met, part or all of any income recognized on the date of sale will be subject to tax as ordinary income, and Verizon will be entitled to claim an income tax deduction in an equal amount.

  • An incentive stock option becomes a nonqualified stock option if it is exercised more than three months after the participant has terminated his or her employment with Verizon or 12 months if the termination of employment is due to death or disability.

  • Deduction Limits and Performance Measures. A federal income tax deduction is typically not available for annual compensation in excess of $1,000,000 paid to the chief executive officer or any one of the other named executive officers (other than the chief financial officer). However, “performance-based” compensation as defined in Section 162(m) of the Code is not counted toward this limit. The Committee may designate certain awards under the 2009 LTIP as “performance-based” compensation and must condition those awards on the achievement of specified performance measures. The Committee may use Company performance measures that are based on one or more of the following: income measures (including, but not limited to, gross profit, operating income, earnings before or after taxes, or earnings per share); return measures (including, but not limited to, return on assets, investment, equity, or sales); free cash flow; cash flow return on investments (which equals net cash flows divided by owners’ equity); gross revenues; market value added; economic value added; and share price (including, but not limited to, growth measures and total shareholder return or relative growth measures and relative total shareholder return). To satisfy the requirements that apply to “performance-based” compensation, the performance measures must be approved by the Company’s shareholders. Approval of the 2009 LTIP will also constitute approval of the performance measures listed above.

Equity Compensation Plan Information

The following table provides information as of December 31, 2008 for (i) all equity compensation plans previously approved by the Company’s shareholders, and (ii) all equity compensation plans not previously approved by the Company’s shareholders. Other than the 2001 LTIP, the only Company equity compensation plan that currently has shares available for issuance is the Verizon Communications 2000 Broad-Based Incentive Plan, which provides for awards of nonqualified stock options, restricted stock, restricted stock units and other equity-based hypothetical stock units to employees of Verizon and its subsidiaries. When the 2009 LTIP is approved, the 182,623,557 shares that remain available for future issuance under both the 2001 LTIP and the Verizon Communications 2000 Broad-Based Incentive Plan will be cancelled.

Plan category

Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights

Weighted average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available
for future issuance
under equity
compensation plans

Equity compensation plans
approved by security holders


106,700,481

 


$49.18

 


161,269,220

 

Equity compensation plans not
approved by security holders


28,562,020

 


$41.86

 


21,354,337


*

Total

135,262,501

 

$47.64

 

182,623,557

 

* Indicates the number of shares available for issuance under the Verizon Communications 2000 Broad-Based Incentive Plan.

The Board of Directors recommends that you vote FOR approval of the amended and restated Verizon Communications Inc. Long-Term Incentive Plan.