Proxy Statement
Compensation Discussion and Analysis

Summary of 2008 Compensation Program

The following highlights significant aspects of the Company’s 2008 compensation program.

Objectives

  • Encourage executives to both increase short-term performance and create long-term growth by linking a significant portion of their compensation opportunities to the achievement of these goals.
  • Provide total compensation opportunities that attract, retain and motivate talented and diverse executives.

Policies

  • Single Peer Group. In 2008, the Committee began using a single peer group of large capitalization companies to benchmark both compensation opportunities and long-term stock performance. The Committee believes that using this single peer group better reflects the overall market environment for a large company like Verizon and will make it easier for shareholders to evaluate the design and effectiveness of Verizon’s compensation programs. In prior years, the Committee used more than one peer group for these purposes.
  • Benchmarking Total Compensation. Beginning in 2008, the Committee benchmarked each executive’s total compensation opportunity instead of separately evaluating each element of compensation, using a single peer group to evaluate total compensation. By evaluating the total compensation opportunity, the Committee is able to provide a competitive program, while having the ability to differentiate among individual pay elements in order to address retention needs and reflect an executive’s specific experience.
  • Company-Wide Performance Measures. The Committee believes that shareholders and the investment community generally assess Verizon based on Company-wide performance with respect to top line revenue growth and bottom line adjusted earnings per share. The Committee also believes that in order to achieve these performance objectives, the executives must successfully manage each of the underlying business segments. After reviewing best practices, trends in compensation matters and input from large institutional investors, the Committee determined that for 2008, the short-term incentive compensation opportunities for all of the named executive officers would be based on the same set of Company-wide performance measures, rather than multiple measures of business segment performance.

2008 Compensation Decisions

  • The Committee targeted total compensation opportunities to fall within the 60th to 65th percentile of the Related Dow Peers. This peer group is described on pages 30-31.
  • In consultation with the Consultant, the Committee reviewed competitive market pay practices to determine whether base salary increases were advisable. After considering this information, the Committee determined that for 2008, the data supported base salary increases for the named executive officers other than the CEO ranging from 3% to 6%, and it recommended to the Board, and the Board concurred, that it was not necessary to adjust the base salary of the CEO.
  • Based on the Company’s performance against the measures the Committee established at the beginning of the year, the 2008 short-term incentive awards were paid at 95% of their targeted level for all of the named executive officers.
  • Based on the Company’s performance against the measures the Committee established at the beginning of the 2006–2008 performance cycle, Verizon’s named executive officers each earned 123% of the number of performance stock units that were granted to them as part of their long-term incentive award opportunity for that three-year performance cycle. They also received dividend equivalent units on the portion of the award that was paid to them. The named executive officers, other than the CEO, received a portion of their long-term incentive award in the form of restricted stock units as described on page 35.

Compensation Objectives

Align Executives’ and Shareholders’ Interests and Promote Short-Term Performance and Long-Term Growth

To promote a performance-based culture that links the interests of management and shareholders, the Committee has developed a compensation program that focuses extensively on variable, performance-based compensation. The largest portion of compensation is based on performance against challenging pre-established metrics and the smallest portion is based on fixed compensation (base salary). In addition, the program does not include such fixed compensation elements as guaranteed defined benefit pension and supplemental pension benefits.

In establishing the performance objectives used in the Company’s pay-for-performance program, the Committee balances the importance of meeting the Company’s short-term business goals with the need to create shareholder value over the longer term. To ensure that the interests of Verizon executives remain closely aligned with the interests of its shareholders, long-term compensation opportunities represent more than three times the compensation opportunities related to short-term performance. In addition, the Committee has attempted to structure the compensation program and the performance metrics to discourage executives from taking undue business risks to meet performance targets.

In motivating executives to achieve short- and long-term goals, the Committee has established incentive awards that are earned based on the Company’s performance over one- and three-year periods. After considering a variety of data including the practices of its peers, trends and input from large institutional investors, the Committee determined that Verizon’s short-term compensation opportunities should continue to be based upon Verizon’s stand-alone performance against absolute goals, while Verizon’s long-term compensation opportunities should continue to be based upon Verizon’s performance relative to peer companies.

Attract, Retain and Motivate High-Performing Executives

In order to attract, retain and motivate executives, the Company’s compensation program features:

  • Compensation opportunities that are competitive with Verizon’s peer companies. The Committee generally targets total compensation opportunities to fall within the 60th to 65th percentile of the Related Dow Peers. The Committee believes that this is an appropriate level of compensation because of the significant depth of each executive’s experience, Verizon’s emphasis on performance-based incentive pay and the elimination of certain fixed pay elements, including guaranteed defined benefit pension and supplemental pension benefits.
  • Three-year long-term performance cycles that encourage high-performing executives to remain with the company.

Elements of Compensation

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

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

The following table illustrates the elements of Verizon’s compensation program and the Committee’s weighting of each.

Pay Element

Primary Objective

% of Compensation
(Approximate)

Base salary

Attract and compensate high-performing

and experienced executives

10%

Annual incentive opportunity

Motivate executives to achieve challenging short-term performance measures

20%

Long-term incentive opportunity

Align executives’ interests with those of shareholders

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. They are also eligible for certain executive life insurance, financial planning and corporate transportation benefits, which are provided in order to attract and retain high-performing executives and to minimize any risks to the executives’ safety and security.

Role of Benchmarking and the Related Dow Peers

In order to determine whether the compensation opportunities for executives are appropriate and competitive, the Committee compares each named executive officer’s total compensation opportunity to the total compensation opportunities for executives in comparable positions at peer companies. Prior to 2008, the Committee used an industry peer group and a market peer group for this purpose. In 2008, the Committee began using a single peer group that 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. This group is referred to as the Related Dow Peers.

In the Committee’s view, the Related Dow Peers represent Verizon’s primary competitors for executive talent and investor dollars. In addition, the ongoing consolidation in the telecommunications industry has greatly reduced the number of similarly-sized industry competitors, and a variety of non-traditional competitors have entered the marketplace. As a result of these changes, the Industry Peers no longer represent the most relevant standard for comparison. Accordingly, the Committee determined that it was appropriate to benchmark both total compensation opportunities and Verizon’s relative stock performance under its long-term incentive plan against the Related Dow Peers.

The Committee also believes that this group of companies, which is reflected in an established and recognizable index that includes both similarly-sized companies and Verizon’s largest industry competitors, provides a consistent measure of Verizon’s performance and makes it easier for shareholders to evaluate, monitor and understand Verizon’s compensation program.

The following chart lists the companies included in the Related Dow Peers as of December 31, 2008. It shows their net income, annual revenue and total employees as reported as of each company’s 2008 fiscal year-end, and it also shows each company’s market capitalization based on publicly available market data as of December 31, 2008.

RELATED DOW PEERS


Company

Market Capitalization*
($ Millions)

Net Income
($ Millions)

Revenue
($ Millions)

Total
Employees

3M

39,873

 

3,460

 

25,269

 

79,183

 

Alcoa

9,012

 

(74

)

26,901

 

87,000

 

American Express

21,516

 

2,699

 

31,920

 

66,000

 

AT&T

167,951

 

12,867

 

124,028

 

301,000

 

Bank of America

70,648

 

4,008

 

113,106

 

243,000

 

Boeing

31,270

 

2,672

 

60,909

 

162,200

 

Caterpillar

26,946

 

3,557

 

51,324

 

112,887

 

Chevron

150,292

 

23,931

 

255,112

 

67,000

 

Citigroup

36,566

 

(27,684

)

105,756

 

322,800

 

Coca-Cola

104,735

 

5,807

 

31,944

 

92,400

 

Comcast

48,016

 

2,547

 

34,256

 

100,000

 

Du Pont (E.I.)

22,830

 

2,007

 

30,529

 

60,000

 

Exxon Mobil

406,067

 

45,220

 

425,071

 

79,900

 

General Electric

170,033

 

17,410

 

180,929

 

323,000

 

General Motors

1,953

 

(30,860

)

148,979

 

243,000

 

Hewlett-Packard

87,684

 

8,329

 

118,364

 

321,000

 

Home Depot

39,029

 

4,395

 

77,349

 

221,700

 

IBM

113,065

 

12,334

 

103,630

 

398,455

 

Intel

81,539

 

5,292

 

37,586

 

83,900

 

Johnson & Johnson

166,002

 

12,949

 

63,747

 

118,700

 

JP Morgan Chase

117,681

 

5,605

 

101,491

 

224,961

 

Kraft Foods

39,446

 

2,901

 

42,201

 

98,000

 

McDonald’s

69,314

 

4,313

 

23,522

 

400,000

 

Merck

64,271

 

7,808

 

23,850

 

55,200

 

Microsoft

172,930

 

17,681

 

60,420

 

91,000

 

Pfizer

119,417

 

8,104

 

48,296

 

81,800

 

Procter & Gamble

184,576

 

12,075

 

83,503

 

138,000

 

Qwest

6,200

 

681

 

13,475

 

32,937

 

Sprint Nextel

5,228

 

(2,796

)

35,635

 

56,000

 

Time Warner

36,090

 

(13,402

)

46,984

 

87,000

 

UTC

50,953

 

4,689

 

58,681

 

223,100

 

Wal-Mart

219,898

 

12,731

 

378,799

 

2,100,000

 

Walt Disney

42,000

 

4,427

 

37,843

 

150,000

 

Verizon

96,292

 

6,428

 

97,354

 

223,900

 

Verizon’s Ranking

13

 

13

 

12

 

11

 

* Source: Bloomberg Professional Services

2008 Annual Base Salary

The Committee determines an executive’s base salary after reviewing the competitive pay practices of the Related Dow Peers for comparable positions, considering the scope of the executive’s responsibility and experience and discussing it with the Consultant. The Committee also discusses its assessment of the other named executive officers with the CEO. For 2008, the Committee determined that the data supported a 6% base salary increase for Mr. Strigl and Ms. Toben and a 3% base salary increase for Messrs. Barr and McAdam, and it recommended to the Board, and the Board concurred, that it was not necessary to adjust the base salary of the CEO.

2008 Short-Term Incentive Compensation

The Verizon Short-Term Incentive Plan, which is referred to as the Short-Term Plan, motivates executives to achieve challenging short-term performance goals. Each year, the Committee establishes the potential value of the opportunities under the Short-Term Plan, as well as the performance targets to achieve these opportunities.

The Committee sets the value of the opportunities under the Short-Term Plan based on the scope of the executive’s responsibility and on the competitive pay practices of the Related Dow Peers for comparable positions. These opportunities are established as threshold, target and maximum opportunities that are dependent on achieving different performance measures. The Short-Term Plan award opportunities for each of the named executive officers are shown in the Grants of Plan-Based Awards table on page 42. The Committee may reduce but not increase a participant’s maximum total award under the Short-Term Plan.

The following chart shows the 2008 target Short-Term Plan award opportunity for each of the named executive officers.



Named Executive Officer

Target
2008 Short-Term Plan Award
Opportunity

Mr. Seidenberg

$

3,937,500

 

Mr. Strigl

$

1,987,500

 

Mr. Barr

$

973,125

 

Ms. Toben

$

1,312,500

 

Mr. McAdam

$

928,125

 

The Committee did not increase Mr. Seidenberg’s 2008 target award opportunity, but it did increase the 2008 target award opportunities for the other named executive officers from the target levels established for their 2007 awards that are reflected in the Summary Compensation Table as follows:

  • Ms. Toben’s opportunity was increased as a result of her base salary increase and to better align her total compensation opportunity with the compensation of executives in comparable positions at the Related Dow Peers; and
  • Messrs. Strigl’s, Barr’s and McAdam’s opportunities were each increased as a result of their base salary increases.

Whether, and the extent to which, the named executive officers earn the targeted Short-Term Plan award is determined based on whether Verizon achieves performance measures established by the Committee.

Determination of Annual Performance Measures

The Committee reviews and establishes the performance measures for the Short-Term Plan on an annual basis to ensure that the program design appropriately motivates executives to achieve challenging financial and operational performance goals.

In the first quarter of 2008, the Committee reviewed and approved the following annual financial and operating performance measures for all of Verizon’s executives, including the named executive officers, and ascribed to each the weighting shown below.

Performance Measure

% of Total Award at Target

Adjusted EPS

60%

Revenue Growth

35%

Diversity

5%

As discussed previously, because the Committee believes that shareholders and the investment community primarily evaluate Verizon based on its consolidated performance, the Committee based the Short-Term Plan award opportunities for all of the named executive officers on two Company-wide financial performance measures, as determined by top line revenue growth and bottom line Adjusted EPS. The Committee also recognized that the executives must successfully manage the challenges for each business segment to create revenue growth and segment operating earnings in order to achieve the overall Company performance goals.

Adjusted EPS. The Committee views Adjusted EPS as an important indicator of Verizon’s success. The Committee has selected Adjusted EPS as one of the performance measures under the Short-Term Plan because it is broadly used and recognized by investors as a significant indicator of Verizon’s ongoing operational performance. Adjusted EPS excludes non-recurring and non-operational items, such as impairments and gains and losses from discontinued operations, business combinations, changes in accounting principles, extraordinary items and restructurings. As a result, Adjusted EPS is not positively or negatively impacted from period to period by these types of items, so it better reflects the relative success of the Company’s ongoing business.

In setting the Adjusted EPS target for 2008 and in evaluating the Company’s success in meeting that target, the Committee took into account that the Company’s stock repurchases were within the limits of the stock repurchase plan approved by the Board at the time the Adjusted EPS target was established.

In addition, the Committee’s policy requires the exclusion of the effect of any net impact from pension income and other postretirement benefit costs. For 2008, the Committee reviewed the net contribution of pension income and postretirement benefit costs to Adjusted EPS and determined the Adjusted EPS measure for compensation purposes after excluding the impact of any net benefit from pension income and other postretirement benefit costs.

Revenue Growth. The Committee also views consolidated adjusted total revenue growth as another important indicator of the Company’s success in managing its capital investments. This measure reflects the level of penetration of products and services in key market segments. Using this measure provides balance within the Short-Term Plan because executives can only achieve a maximum total award when there is both significant revenue growth and significant profitability.

Diversity. The Company is committed to promoting diversity among its employees and to recognizing and encouraging the contribution of diverse business partners to the Company’s success. To reflect that important commitment, the 2008 performance measures also include a diversity measure.

The value of the Short-Term Plan award opportunity for each performance measure varies depending on the Company’s performance with respect to that measure. For each measure, (i) if performance exceeds the target performance, the value of the opportunity for that measure will be greater than the target opportunity but not above the maximum award opportunity for that measure; (ii) if performance is below the target but exceeds the threshold performance, the value of the opportunity for that measure will be between the target and threshold values for that measure; and (iii) if performance is below the threshold performance, no value will be paid with respect to that measure. If the Company’s performance is below the threshold for all of the performance measures, no award will be paid under the Short-Term Plan for that year.

In addition, under the Short-Term Plan no awards may be paid if Verizon’s return on equity for the plan year, calculated based on adjusted net income, does not exceed 8%, even if some or all of the performance measures are achieved.

The Committee believes that these performance measures are appropriate to motivate the Company’s executives to achieve outstanding short-term results and to build value for shareholders.

2008 Annual Performance Measures

The 2008 performance measures for the named executive officers are shown below:

  • An Adjusted EPS target range of $2.53 - $2.56;
  • A consolidated adjusted total revenue growth target range of 4% to 5%; and
  • A diversity target of (i) having 50% of new hires and promotions at and above the manager level consist of minority and female candidates, and (ii) directing at least $25 million in supplier spending at the corporate level to minority- and female-owned or operated firms.

2008 Company Results and Annual Performance Awards

Despite a recessionary economy, Verizon reported strong 2008 results including:

  • Return on equity of 14.3%1;
  • Adjusted EPS of $2.541, which, after considering the net impact of pension income and other postretirement benefit costs, for compensation purposes was 1.6% lower than the target performance measure range as described above;
  • Consolidated adjusted total revenue growth of 5.1%2, or 2.2% higher than the target performance measure range as described above; and
  • 122% of the diversity measure for new hires and promotions and 133% of the diversity supplier spending measure.

After considering the level of performance described above, the Committee and, for Mr. Seidenberg, the Board, approved payment of Short-Term Plan awards at 95% of the target level. The following table shows the amount of the Short-Term Plan awards paid to each named executive officer.


Named Executive Officer

Actual
2008 Short-Term Plan Award

Mr. Seidenberg

$

3,740,625

 

Mr. Strigl

$

1,888,125

 

Mr. Barr

$

924,469

 

Ms. Toben

$

1,246,875

 

Mr. McAdam

$

881,719

 

Long-Term Incentive Compensation

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 over a three-year period. In considering the appropriate duration of the performance cycle under the Long-Term Plan, the Committee believes that it is important to establish a period that is longer than one year in order to meaningfully evaluate the performance of long-term strategies and the effect on value returned to shareholders. The Committee determined that a three-year performance cycle for the Long-Term Plan awards was appropriate.

For each performance cycle, the Committee establishes target award opportunities that are set as a percentage of base salary. Since 2006, the Committee has maintained the target award opportunity for each named executive officer at the same level.

Currently, long-term incentive awards consist of Performance Share Units, referred to as PSUs, and Restricted Stock Units, referred to as RSUs. The PSUs and RSUs are paid in cash so that the number of Verizon shares outstanding does not increase when they are paid and accordingly, there is no equity dilution to Verizon’s shareholders.

The value of each PSU is equal to the value of one share of Verizon common stock and accrues dividend equivalents that are deemed to be reinvested in PSUs. The dividend equivalents are only paid to the extent that PSUs are vested and earned. The Committee determines an executive’s compensation opportunity by assuming that he or she will earn 100% of the PSUs initially awarded in any performance cycle. However, the number of PSUs that are actually earned and paid is determined based on Verizon’s total shareholder return, or TSR, as compared to a designated peer group over the three-year performance cycle. The final value of each PSU is based on the closing price of Verizon’s stock on the last trading day of the year that the performance cycle ends. As a result, awarding PSUs provides a strong incentive to senior management to outperform other major companies that are viewed as alternatives to an investment in Verizon.

On the date of the award, the Committee also establishes the number of RSUs that may be earned over an award cycle. The value of each RSU is equal to the value of one share of Verizon common stock and accrues dividend equivalents that are deemed to be reinvested in RSUs. The dividend equivalents are only paid to the extent that RSUs are vested and earned. The 2008 RSU awards are payable at the end of the three-year award cycle based on Verizon’s closing stock price on the last trading day of the year that the award cycle ends and provide a retention-oriented award linked with Verizon’s stock price.

2008 Long-Term Plan Award Opportunities

For 2008, Ms. Toben and Messrs. Strigl, Barr and McAdam received 60% of their 2008 Long-Term Plan award opportunity in the form of PSUs and 40% in the form of RSUs. This allocation reflects the Committee’s focus on encouraging both outstanding relative TSR performance and the retention of the Company’s highly-qualified senior management team. Because the Committee believes that the CEO has the primary responsibility for increasing the value of Verizon’s stock, Mr. Seidenberg’s entire Long-Term Plan award opportunity for 2008, consistent with prior performance cycles, consists of PSUs. Also consistent with prior performance cycles, Mr. Seidenberg’s 2008 award provides a separate opportunity to earn an additional payout. This additional opportunity is based upon the Company’s performance relating to certain pre-established strategic initiatives. However, Mr. Seidenberg’s total payout cannot exceed the maximum award value.

The following table shows the Long-Term Plan awards granted to the named executive officers during 2008. A description of the 2008 PSU awards, including the performance requirements, follows the table.

 

 

 

Award Mix at Target



Named Executive Officer

2008 Target
Award Value
in Total

Target %
of Base
Salary

PSUs
(Based on
Relative TSR)



RSUs

Mr. Seidenberg

$

13,125,000

 

625%

100%*

0%

Mr. Strigl

$

8,281,250

 

625%

60%

40%

Mr. Barr

$

4,541,250

 

525%

60%

40%

Ms. Toben

$

4,593,750

 

525%

60%

40%

Mr. McAdam

$

4,331,250

 

525%

60%

40%

* As described on page 36, 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.

Terms of 2008 PSU Awards

The following table shows the percentage of PSUs that were originally awarded for the 2008-2010 performance cycle that can be earned based on a range of relative TSR positioning compared with the companies in the Related Dow Peers.

Verizon’s Relative TSR
Ranking Among the
Companies in the
Related Dow Peers



Percentage of Awarded
PSUs that will be Earned




Performance Level

1

4

200%

Maximum

5

8

175%


Above Target, Below Maximum

9

12

150%

13

16

100%

Target

17

21

75%

Below Target, Above Threshold

22

25

50%

Threshold

26

34

0%

Below Threshold

Verizon’s TSR during the three-year performance cycle must rank at least 16th among the members of the Related Dow Peers in order to earn 100% of the target number of PSUs. Similarly, the maximum number of PSUs (200% of target) can only be earned if Verizon’s TSR during the three-year performance cycle ranks among the top four companies, representing approximately the 90th percentile of the companies in the Related Dow Peers. If Verizon’s TSR during the three-year performance cycle falls below approximately the 25th percentile of the companies in the Related Dow Peers, none of the PSUs will be earned.

Under Mr. Seidenberg’s 2008 PSU award, the Committee may recommend that the Board increase his payout based on the Company’s performance during the three-year performance cycle in the following strategic areas: (i) producing double-digit consolidated earnings growth each year; (ii) maintaining Verizon Wireless’s market leadership position; (iii) sustaining Verizon’s top line consolidated total revenue growth at 5-6% per year; (iv) developing Verizon’s executive talent pool and preparing Verizon’s succession plan; (v) participating in and providing leadership to various industry forums; and (vi) implementing key policy initiatives. The Committee has not assigned a particular weight to any of these strategic initiatives and has the discretion to recommend to the Board whether and to what degree the award should be increased. However, if Verizon’s relative TSR performance during the measurement period does not merit any payout of PSUs, Mr. Seidenberg may not receive any payment of his 2008 PSU award (including any portion relating to these strategic initiatives). The maximum total payout for Mr. Seidenberg’s 2008 PSU award, including the value of any discretionary payment based on these strategic initiatives, cannot exceed the amount that would be payable if the percentage of earned PSUs was equal to 200% of the number of PSUs awarded.

Terms of 2006 PSU Awards

With respect to the PSUs awarded in 2006, the Committee determined the number of PSUs a participant earned based on Verizon’s TSR for the 2006-2008 three-year performance cycle relative to the TSRs of:

  • The companies in a telecommunications industry peer group shown below, referred to as the Industry Peers (60% weight); and
  • The companies in the S&P 500 Index (40% weight).

For PSUs awarded prior to the 2008–2010 award cycle, including the 2006 PSU awards, the Committee compared the Company’s stock performance to the Industry Peers to determine a portion of the award. The Industry Peers were selected because they are companies that compete directly with Verizon for customers and are generally affected by similar market and regulatory conditions. The Committee based the remainder of the award on the Company’s TSR performance compared to the companies in the S&P 500 Index in order to approximate the value of the Company’s performance compared to a common investment alternative for shareholders.

The following chart shows the Industry Peers as of December 31, 2008. As previously indicated, the Industry Peers include companies in Verizon’s industry sector (regardless of size) that provide wireline, wireless and broadband communications services.

INDUSTRY PEERS

AT&T

Comcast

Qwest

Cablevision

Frontier Communications

Sprint Nextel

CenturyTel

Level 3 Communications

Time Warner

Charter Communications

 

 

The following table illustrates the percentages of the PSUs initially awarded for the 2006-2008 performance cycle that could potentially be earned based on a range of relative TSR performance.

 

 

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 is payable if Verizon’s results are 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.

2006 PSUs Earned by the Named Executive Officers and All Other Plan Participants. Over the three-year performance cycle ending on December 31, 2008, Verizon’s TSR ranked in the 61st percentile when compared to the Industry Peers and in the 62nd percentile when compared to the S&P 500 Index companies, significantly outperforming both peer groups. The payout is based on the Company’s performance over the entire three-year cycle. As a result, the Committee approved in 2009 a payment to all participants of 123% of the number of PSUs awarded for the 2006-2008 performance cycle, based on Verizon’s closing stock price of $33.90 on December 31, 2008.

Mr. Seidenberg’s Award. As a participant in the Long-Term Plan, Mr. Seidenberg received the same percentage (123%) of the 2006 PSUs as the other participants in the Plan. Under the separate opportunity provided to Mr. Seidenberg, the Committee also had the discretion to recommend that the Board increase his payout for the 2006-2008 performance cycle to a level that did not exceed his maximum award opportunity, based on the Company’s performance during that three-year period 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. Despite Verizon’s strong performance during the performance cycle with respect to these strategic initiatives, after taking into account the overall economic and market conditions during 2008, Mr. Seidenberg requested that the Committee recommend that the Board not consider making a discretionary award to him. After reviewing this request, the Committee and the Board agreed not to consider a discretionary payment with respect to Mr. Seidenberg’s 2006-2008 performance award.

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 41.

Executive Life Insurance

The Company offers the named executive officers and other executive employees the opportunity to participate in an executive life insurance program in lieu of participation in the Company’s basic and supplemental life insurance programs. The Committee believes that this program provides an important recruiting and retention tool that is an important component of Verizon’s overall compensation plan. Additional information on this program is provided in footnote 5 to the Summary Compensation Table on page 41.

Financial Planning

The Company provides 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 41.

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 pension and supplemental executive retirement benefits was not consistent with the Company’s pay-for-performance culture. These legacy retirement benefits that were previously provided to Verizon’s named executive officers are described in more detail in the footnotes accompanying the pension plan table on pages 44-45.

During 2008, all of Verizon’s management employees, including the named executive officers, were eligible to participate in the Company’s tax-qualified and nonqualified savings plans. These plans are described in the section entitled Defined Contribution Savings Plans on pages 45-46.

Tax and Accounting Considerations

Federal income tax law generally prohibits publicly-held companies from deducting 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.

Management has advised the Committee that the compensation paid to the named executive officers under the Short-Term Plan currently meets the performance-based exception and is deductible. However, if those executives receive compensation for the 2008-2010 performance cycle under the Long-Term Plan, those payments 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 losing a tax deduction for these payments will not be material to Verizon’s overall tax liability. The Committee has 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 that apply to the various aspects of the compensation program 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. By paying the PSUs and RSUs in cash, the number of Verizon shares outstanding does not increase and this avoids the equity 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.

Approval of Amended and Restated Short-Term and Long-Term Incentive Plans

As discussed on pages 15-20 of this proxy statement, Verizon is requesting that its shareholders approve amended and restated short-term and long-term incentive plans. If these amended and restated plans are approved, management has advised the Committee that payments under those plans will qualify for the performance-based compensation exception and be deductible for federal income tax purposes under the current law until such time as subsequent shareholder approval is required by the federal tax laws. (Items 4 and 5 on the proxy card.)

The amended and restated Verizon Short-Term Plan will continue to:

  • Provide that no awards be made unless Verizon’s return on equity attributable to Verizon exceeds 8%;
  • Limit the maximum award that a participant may receive; and
  • Allow the Committee to reduce, but not increase, a participant’s maximum award.

The amended and restated Verizon Long-Term Plan will, among other things:

  • Continue to specifically prohibit the repricing of any equity awards;
  • Provide for a “double-trigger” for the vesting of any awards after a change in control of the Company so that a participant must actually lose his or her job for the awards to vest based upon a change in control;
  • Prohibit the practice of granting “reload” options so that no options can be automatically granted based upon the exercise of an outstanding grant; and
  • Continue to require that all awards are granted with prices at no less than the stock’s fair market value at the time the award is granted.

The proposed amended and restated Verizon Short-Term Plan and Verizon Long-Term Plan that are being submitted for shareholder approval are described in more detail beginning on page 15.

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. In 2000, 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, in 2000, Verizon Wireless entered into an employment agreement with Mr. McAdam, who was a senior executive of Verizon Wireless at that time, but not an executive officer of Verizon. Mr. McAdam’s employment agreement was assumed by Verizon when he became an executive officer of Verizon in 2007. Mr. Seidenberg’s employment agreement expired in 2004 and was not replaced. Accordingly, Mr. Seidenberg is not eligible for a cash separation payment upon his separation from service.

The compensation levels established under each of the employment agreements reflect the Company’s general compensation practices, as applicable to each individual’s position, at the time the agreements were entered into.

The severance benefits and the circumstances under which they would be payable were based on each executive’s position and tenure with the Company and competitive practices among the Company’s 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. These severance benefits are described in more detail in the severance and change in control tables on pages 47-51.

Mr. Barr retired from the Company effective December 31, 2008. The Company has determined that Mr. Barr is eligible to receive separation benefits under the terms of his employment agreement. These benefits are more fully outlined in the termination and change in control table on page 48. The total amount of his cash separation payment is equal to $10,380,000 and will be payable on or about July 1, 2009. In addition, Mr. Barr is eligible to receive certain other benefits that he is entitled to as a retiree of the Company. At the time of his retirement and as required by his employment agreement as a condition to receiving separation benefits, Mr. Barr executed a release and agreed that he will not compete or interfere with any Verizon business for a period of one year after his separation from service.

In 2007, the Committee revised its policy relating to shareholder approval or ratification of any new employment agreement or severance agreement with an executive officer that 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 more specifically defines the elements of severance pay and specifies that a 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.

Stock Ownership Guidelines

To further align the interests of Verizon’s management with those of its shareholders, 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 a decline in Verizon’s stock price.

In determining whether an executive meets the required ownership level, the calculation includes 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, the calculation does not include any existing or future PSUs and RSUs that are payable in cash. Executives are required to meet the ownership level for their position under these revised guidelines within three years.

Recovery of Incentive Payments

The Committee believes that it is appropriate that the Company’s compensation plans and agreements provide for financial penalties to an executive who engages in fraudulent or other inappropriate conduct. Accordingly, the Committee has adopted a policy that enables the Company to recapture incentive payments received by an executive who has engaged in misconduct.

    1 For 2008, adjusted net income and Adjusted EPS exclude the following items:

    • Merger integration costs;
    • Access line spin-off related charges;
    • Investment-related charges; and
    • Severance, pension and benefit charges.

    2 For 2008, consolidated adjusted total revenue differs from consolidated total revenue due to reclassifications made to reported revenues to reflect comparable operating results for the spin-off of the wireline segment’s non-strategic local exchange and related business assets in Maine, New Hampshire and Vermont.