Shareholder Proposals (Item 10 on Proxy Card)
The Firefighters’ Pension System of the City of Kansas City, Missouri, Trust, 12th Floor, City Hall, 414 East 12th Street, Kansas City, Missouri 64106, owner of 100 shares of the Company’s common stock, and The City of Philadelphia Public Employees Retirement System, Sixteenth Floor, Two Penn Center Plaza, Philadelphia, Pennsylvania 19102, owner of 72,179 shares of the Company’s common stock, propose the following:
RESOLVED: The shareholders of Verizon Communications Inc. (the “Company”) urge the board of directors to adopt a policy of obtaining shareholder approval for any future agreements and corporate policies that would obligate the Company to make payments, grants, or awards following the death of a senior executive in the form of salary, bonuses, accelerated vesting of awards or other benefits, or the continuation of unvested equity grants, perquisites and other payments or benefits in lieu of compensation. This policy would not affect compensation that the executive earns and chooses to defer during his or her lifetime.
We support a compensation philosophy that motivates and retains talented executives and ties their pay to the long-term performance of the Company. We believe that such an approach is needed to align the interests of executives with those of shareholders.
“Golden coffin” agreements, however, provide payment without performance, after an executive is dead. Companies claim that these agreements are designed to retain executives. In our opinion, death defeats this argument. “If the executive is dead, you’re certainly not retaining them,” said Steven Hall, a compensation consultant.” (“Companies Promise CEOs Lavish Posthumous Pay-outs,” The Wall Street Journal, June 10, 2008.)
Senior executives have ample opportunities to provide for their estate by contributing to a pension fund, purchasing life insurance, voluntarily deferring compensation, or through other estate planning strategies. Often, these services are provided by or subsidized by the company even though, in our opinion, the senior executives could afford to pay for these benefits themselves out of their other compensation. We see no reason to saddle shareholders with payments made without receiving any services in return. Peter Gleason, chief financial officer of the National Association of Corporate Directors, calls “golden coffin” arrangements a “bad idea.” (“Making Peace Between Boards and Investors,” Financial Week, June 16, 2008.)
The “Golden Coffin” problem is illustrated by the Company’s 2008 proxy statement. According to the Compensation Table on page 30, the Company’s most highly compensated executives received total compensation in 2007 of $26,553,576, $18,460,140, $9,690,614, $9,465,325 and $18,089,163. According to the Severance and Change in Control Benefits table on pages 37-39, if these same executives would have died on December 31, 2007, they would also have received $43,375,476, $53,758,828, $29,349,211, $20,370,621, and $19,012,650 respectively. These additional payments would have been generated by incentive plans, employment agreements (where applicable), financial planning and executive life insurance. Footnotes e) and f) on page 31 explain the Company’s payments on premiums and tax gross-ups for the insurance.
Consequently, we requested that the Company adopt a policy of providing shareholders with a vote on agreements that would provide payments or awards after a senior executive’s death and are unrelated to services rendered to the Company. We believe this may induce restraint when parties negotiate such agreements.
Prior shareholder approval may not always be practical to obtain, and this proposal provides the flexibility to seek approval or ratification after the material terms are agreed upon.
BOARD OF DIRECTORS’ POSITION
The Human Resources Committee of the Board of Directors is committed to performance-based compensation programs that attract and retain executives and also serve the best interests of Verizon’s shareholders. The Committee believes that the benefits Verizon provides upon the death of an executive are reasonable within the overall structure of the Company’s compensation programs and are competitive with those that are offered by its peer companies.
The Board disagrees with the proponents’ assertion that Verizon’s compensation programs “saddle shareholders with payments made without receiving any services in return.” Under the terms of Verizon’s long-term incentive awards, if an employee dies while still employed at Verizon, the awards remain outstanding. This applies equally to all Verizon employees who participate in the long-term incentive plan and is not only available to senior executives. These terms are designed to recognize the contributions that the employee made toward achieving Verizon’s performance goals prior to his or her death. It is important to note that the award payments are not a windfall – they are not accelerated or increased when an employee dies. An award is payable on the regularly scheduled date and is only paid if and to the extent that the applicable performance criteria are satisfied.
In addition, the Verizon executive life insurance plan provides a valuable recruiting and retention tool and is a component of Verizon’s overall compensation program. The total costs of the plan associated with the company-subsidized premiums make up a very small percentage of an executive’s overall compensation package and the death benefit is ultimately paid by the insurance company, not by Verizon. The Committee has determined that the value of the plan far outweighs the relatively small cost to the Company.
The Board believes that the Committee should continue to retain the flexibility to provide and administer competitive compensation programs and that the proposed policy would be unduly restrictive.
The Board of Directors recommends that you vote AGAINST this proposal.