Proxy Statement
Compensation Discussion and Analysis

Executive Summary

Summary of Key 2011 Compensation Decisions

The Committee took Verizon’s accomplishments in 2011 into account in making the following key compensation decisions:

  • 2011 Base Salary and Target Incentive Opportunities.  During 2011, the Committee reviewed competitive market pay practices to determine whether base salary increases and increases in target short-term and long-term incentives were advisable. After considering this information, the Committee did not increase the base salaries of the named executive officers other than for Mr. Milch, and did not increase the target short-term and long-term incentive award values for the named executive officers (which are expressed as a percentage of each of their respective base salary levels).
  • 2011 Short-Term Incentive Awards.  Based on the Company’s performance against the measures the Committee established at the beginning of the year, the named executive officers’ 2011 short-term incentive awards were paid at 90% of their targeted level.
  • 2009-2011 Long-Term Incentives Earned.  Based on the Company’s total shareholder return, or TSR, against the performance measures the Committee established at the beginning of the 2009-2011 performance cycle, Verizon’s executives, including the named executive officers, each vested in 75% of the number of performance stock units (referred to as PSUs) that were granted to them as part of their long-term incentive award opportunity for the 2009-2011 three-year performance cycle, plus dividend equivalents credited on those PSUs pursuant to the terms of the award.
  • Mr. Seidenberg’s 2009-2011 Long-Term Incentive Earned.  Based on the Committee’s and the independent Board members’ evaluation of Mr. Seidenberg’s leadership with respect to the Company’s performance relating to the six strategic initiatives identified at the beginning of the performance period, Mr. Seidenberg’s 2009-2011 PSU payment included approximately $6.4 million in addition to the amount that was determined based on the Company’s relative TSR formula for all executives.
  • 2011-2013 Long-Term Incentive Awards.  As in prior years, the long-term incentives awarded to the named executive officers in 2011 as part of the annual equity grant consisted of PSUs that vest based on Verizon’s TSR for the 2011-2013 performance cycle and restricted stock units (referred to as RSUs) that vest based on the executive’s continued service with Verizon through the end of the three-year performance cycle.
  • Special One-Time Equity Award to Mr. McAdam.  In connection with Mr. McAdam’s appointment to CEO, he was granted a special equity award to provide an additional one-time incentive to create long-term shareholder value. The equity award is composed of PSUs and RSUs that will vest, subject to continued employment, at the end of the five-year performance cycle ending on July 31, 2016. The number of PSUs that vest at the end of the five-year performance cycle will be determined based on Verizon’s average annual return on equity, calculated based on adjusted net income, during the performance cycle. The award, to the extent vested, will be settled in shares of Verizon common stock, and Mr. McAdam will be required to hold any such shares for at least 2 years following the vesting date.

Program and Practices

Our commitment to following best compensation and governance practices is reflected in the design of our compensation program. Some of these elements include:

  • Pay-for-Performance.  Our compensation program is designed to reward performance that creates long-term shareholder value. This is reflected in the long-term orientation of the total compensation mix, with the substantial majority of each named executive officer’s total compensation opportunity in the form of long-term equity and performance based awards; substantial linkage of compensation to long-term stock performance through the awards of PSUs; and strong absolute and relative performance in order to achieve above median pay levels.
  • Benchmarking Total Compensation.  The Committee benchmarks each executive’s total compensation opportunity against a single peer group, referred to as the Related Dow Peers and described on pages 32-33. The Committee references the 50th percentile of the Related Dow Peers for total compensation opportunity, with additional consideration given to the tenure and overall level of responsibility of a particular executive.
  • Compensation Best Practices.  The Committee regularly considers competitive market trends and seeks to understand the views of shareholders when considering changes to existing policies. As a result of this process, the Committee has been a leader in adopting many best practices over the years, including:
    • Adopting advisory votes on executive compensation beginning in 2009;
    • Eliminating guaranteed pension and supplemental retirement benefits;
    • Eliminating Section 280G and other tax gross-ups;
    • Eliminating executive employment agreements;
    • Eliminating cash severance benefits for the CEO;
    • Eliminating single-trigger change in control equity payments;
    • Adopting a “claw back” policy to recapture and cancel incentive payments received by executives who engage in financial misconduct;
    • Settling RSUs in shares; and
    • Requiring the CEO to maintain share ownership equal to at least seven times his base salary.
  • Evaluation of Potential Linkage between Compensation and Risk Taking.  When reviewing the compensation program and the performance metrics, the Committee considers the impact of the compensation program on the Company’s risk profile. The Committee believes that Verizon’s compensation program has been structured to provide strong incentives for executives to appropriately balance risk and reward consistent with the Company’s enterprise business risk management efforts.
  • Shareholder Outreach Program.  At the request of the Committee, management and the Committee’s compensation consultant, Pearl Meyer & Partners (the “Consultant”), engage in a semiannual shareholder outreach program with certain institutional investors to discuss the design and operation of Verizon’s executive compensation program. Management and the Consultant participate in conference calls with large institutional investors and provide a detailed report to the Committee on the results of those calls. The Committee believes this program provides opportunities for shareholders to provide input on Verizon’s executive compensation program and policies in addition to the annual say-on-pay vote.

The Role of Shareholder Say-on-Pay Votes

The Company provides its shareholders with the opportunity to cast an annual advisory vote on executive compensation (a “say-on-pay”). At the Company’s Annual Meeting of Shareholders held in May 2011, 92% of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. Based on the shareholders’ strong support for the Company’s say-on-pay proposal in 2011 and the discussions with the Company’s investors during the semiannual shareholder outreach program described above, the Company did not make fundamental changes to its approach to executive compensation in 2011.

Role of Benchmarking and the Related Dow Peers

To determine whether the compensation opportunities for executives are appropriate and competitive, the Committee compares each named executive officer’s total compensation opportunity (which represents the aggregate amount of the executive’s base salary and target award amounts under the short-term and long-term incentive plans) to the total compensation opportunities for executives in comparable positions at peer companies. For this purpose, the Committee uses a single peer group that includes the 29 companies (other than Verizon) in the Dow Jones Industrial Average, plus Verizon’s four largest industry competitors that are not included in the Dow Jones Industrial Average. This group is referred to as the Related Dow Peers. This peer group is self-adjusting so that changes in the companies included in the Dow Jones Industrial Average are also reflected in the Related Dow Peers over time.

The Committee generally references the 50th percentile of the Related Dow Peers for total compensation opportunity, although the total compensation opportunity may be above or below the 50th percentile depending upon the tenure and overall level of responsibility of a particular executive. The Committee believes that this is an appropriate targeted level of total compensation opportunity because of Verizon’s emphasis on performance-based incentive pay, Verizon’s size relative to the Related Dow Peers and the elimination of certain fixed pay elements, including guaranteed defined benefit pension benefits and supplemental pension benefits. Actual total compensation may fall above or below the targeted percentile based on annual and long-term performance.

The Committee believes the companies in the Related Dow Peers represent Verizon’s primary competitors for executive talent and investor dollars. The Committee believes that this group of companies, comprised of similarly-sized companies (based on market capitalization, net income, revenue and total employees) that are included in an established and recognizable index, as well as Verizon’s four 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. 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.

Appendix B includes a chart that lists the companies included in the Related Dow Peers as of December 31, 2011, their market capitalization as of December 31, 2011, as reported by Bloomberg, and their net income attributable to the company, revenue and total number of employees, as of each company’s most recent fiscal year-end as reported in SEC filings.

Compensation Objectives and Elements of Compensation

Compensation Objectives

The primary objectives of Verizon’s compensation program are to:

  • Align executives’ and shareholders’ interests through the use of performance-based compensation; and
  • Attract, retain and motivate high-performing executives.

To promote a performance-based culture that further links the interests of management and shareholders, the Committee has developed a compensation program that focuses extensively on variable, performance-based compensation. As detailed below under “Elements of Compensation,” the largest portion of our executives’ total compensation opportunity is based on performance against challenging pre-established metrics, while fixed compensation in the form of base salary constitutes only a relatively small percentage of each executive’s total compensation opportunity. In addition, our executive compensation 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 help ensure that the interests of executives remain closely aligned with the interests of shareholders, target long-term compensation opportunities represent more than three times the target compensation opportunities related to short-term performance.

The Committee has adopted a pay strategy that is designed to motivate executives by paying median compensation for market performance, above median compensation for above market performance, and below median compensation for below market performance. As described above, the Committee implements this policy by targeting compensation for executive officers at levels that generally correspond to the 50th percentile of compensation levels for similar positions at the Related Dow Peers, with actual performance of the Company determining the amounts of compensation actually paid. This approach is designed to provide strong alignment between our executive pay and shareholder value creation.

Additionally, to attract and retain executives, the Company’s compensation program is designed to provide compensation opportunities that the Committee believes are competitive with Verizon’s peer companies, and features three-year long-term incentive awards, including RSUs that vest based on the executive’s continued employment through the end of the three-year performance cycle, to 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 principal elements of Verizon’s executive compensation program and the approximate percentage that each element represents of the named executive officers’ total compensation opportunity.

Pay Element

Primary Objective

% of Targeted
Compensation
Opportunity
(Approximate)

Base salary

Attract and compensate high-performing and experienced executives

10%

Short-term 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. The named executive officers are also eligible for certain other benefits that are described under “Other Elements of the Total Compensation Program” on pages 40-42.

2011 Annual Base Salary

To determine an executive’s base salary, the Committee, in consultation with the Consultant, reviews the competitive pay practices of the Related Dow Peers for comparable positions and considers the scope of the executive’s responsibility and experience. In particular, the Committee focuses on how base salary levels may impact the market competitiveness of an executive’s total compensation opportunity. The Committee also discusses its assessment of the other named executive officers with the CEO. Based on its assessment, the Committee approved a base salary increase for Mr. Milch effective in January 2011, from $575,000 to $625,000. No other named executive officer received a base salary increase in 2011. In determining not to increase the base salaries of the other named executive officers, the Committee also considered that it had last reviewed the base salaries for Messrs. McAdam, Shammo and Mead in November 2010 in connection with their promotions.

2011 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 required to achieve these opportunities.

The Committee sets the values of the Short-Term Plan award opportunities as a percentage of an executive’s base salary. The applicable percentage for each named executive officer is based on the scope of the executive’s responsibility and on the competitive pay practices of the Related Dow Peers for comparable positions. These award opportunities are established at threshold, target and maximum levels, each of which is dependent on achieving different performance goals. 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 46.

The following chart shows the 2011 Short-Term Plan target award opportunity for each of the named executive officers.


Named Executive Officer

2011 Short-Term Plan
Target Award Opportunity

Mr. McAdam

$

2,625,000

Mr. Mead

$

815,625

Ms. Ruesterholz

$

787,500

Mr. Shammo

$

759,375

Mr. Milch

$

703,125

Mr. Seidenberg

$

3,937,500

The 2011 target award opportunities for our named executive officers did not increase from the target levels established for their 2010 award opportunities. The 2011 target award opportunity for Mr. Milch increased over his 2010 target award opportunity solely as a result of his base salary increase identified above (i.e., his target opportunity, expressed as a percentage of his base salary, did not change). 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 at the beginning of the year.

Determination of Annual Performance Measures

The Committee reviews and establishes the performance measures for the Short-Term Plan on an annual basis to help ensure that the program design appropriately motivates executives to achieve challenging financial and operational performance goals. In the first quarter of 2011, the Committee reviewed and approved the following annual financial and operating performance measures for all corporate executives, including the named executive officers, and ascribed to each the weighting shown below.

Performance Measure

% of Total Award at Target

Adjusted EPS

50%

Revenue

25%

Free Cash Flow

20%

Diversity

5%

The Committee based the Short-Term Plan award opportunities for all corporate executives, including the named executive officers, primarily on three Company-wide financial performance measures, as determined by specific goals for adjusted EPS, revenue and free cash flow. Using these measures provides balance within the Short-Term Plan because executives can only achieve a maximum total award when there is significant profitability, significant revenue and significant free cash flow. The Committee also recognized that the executives must successfully manage the challenges for each business segment to create revenue, segment operating earnings and free cash flow in order to achieve the overall Company performance goals. As a result, the Committee believes that these performance measures are appropriate to motivate the Company’s executives to achieve outstanding short-term results and to build long-term value for shareholders and are reflective of the Company’s strategic goals of encouraging profitable operations, overall growth in the Company and efficient use of capital.

Adjusted EPS.  The Committee views adjusted EPS as an important indicator of Verizon’s success. The Committee assigns the greatest weight to adjusted EPS in determining awards under the Short-Term Plan because it is broadly used and recognized by investors as a significant indicator of Verizon’s ongoing operational performance and is a clearly defined indicator of the Company’s profitability. Adjusted EPS excludes non-recurring and non-operational items, including but not limited to impairments and gains and losses from discontinued operations, business combinations, changes in accounting principles, the net impact of pension and post-retirement benefit costs, 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.

Revenue.  The Committee also views achievement of consolidated total revenue goals as an important indicator of the Company’s growth and success in managing its capital investments. This measure also reflects the level of penetration of Verizon’s products and services in key markets.

Free Cash Flow.  The Committee views consolidated free cash flow as another important indicator of Verizon’s success in delivering shareholder value, because investors often consider free cash flow as part of their equity valuation models. Free cash flow is determined by subtracting capital expenditures from cash flow from operations. The Committee believes that this type of cash flow measure is relevant for Verizon because Verizon’s businesses require significant capital investment, and the level of free cash flow reflects how efficiently a business is managing its capital expenditures. Free cash flow also provides an indication of the amount of cash that the Company has available to return to shareholders in the form of dividends and to reduce its outstanding debt, which is an important financial goal.

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 2011 performance measures also include a diversity measure. For 2011, the Committee determined that the diversity target would be measured for these purposes by the percentage of new hires and promotions at and above the manager level consisting of minority and female candidates and the levels of supplier spending at the corporate level to minority- and female-owned or operated firms.

The value of the Short-Term Plan award opportunity with respect to each performance measure varies depending on the Company’s performance with respect to that measure. The Committee also has the discretion to modify awards based on other factors that it deems appropriate. If the Company’s performance is below the required 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 (ROE), does not exceed 8%, even if some or all of the performance measures are achieved.

2011 Annual Performance Measures

The 2011 annual performance measures for the named executive officers were:

  • An adjusted EPS target range of $2.08 to $2.21;
  • A consolidated total revenue target range of $112.7 billion to $113.4 billion;
  • A consolidated free cash flow target range of $13.8 billion to $15.4 billion; 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 13% of the overall supplier spending at the corporate level to minority- and female-owned or operated firms.

2011 Company Results and Annual Performance Awards

In 2011, Verizon reported generally strong results. Verizon’s 2011 performance results2 included:

  • ROE of 15.4%, which exceeded the required performance measure;
  • Adjusted EPS of $2.15, which was within the target performance measure;
  • Consolidated total revenue of $110.9 billion, or 1.6% below the target performance measure range as described above;
  • Consolidated free cash flow of $13.536 billion, or 1.9% below the target performance measure range as described above; and
  • Diversity in new hires and promotions and supplier spending levels which exceeded the target performance measures.

After considering the level of performance, the Committee and, for Messrs. McAdam and Seidenberg, the independent members of the Board, approved payment of Short-Term Plan awards at 90% 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
2011 Short-Term Plan Award

Mr. McAdam

$

2,362,500

 

Mr. Mead

$

734,063

 

Ms. Ruesterholz

$

708,750

 

Mr. Shammo

$

683,438

 

Mr. Milch

$

632,813

 

Mr. Seidenberg

$

3,543,750

 

Long-Term Incentive Compensation

The Verizon Long-Term Incentive Plan, which is referred to as the Long-Term Plan, is intended to reward 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.

Currently, long-term incentive awards consist of PSUs and RSUs. Consistent with the 2010 awards, the 2011 PSUs are payable in cash and the 2011 RSUs are payable in Verizon shares. The Committee, in consultation with the Consultant, determined that paying the 2011 RSU awards in shares would be consistent with Verizon’s policy of requiring a significant level of equity ownership by our named executive officers, that paying PSUs in cash and RSUs in shares creates an appropriate balance between the potential impact on shareholder dilution from paying awards in shares and cash flow considerations, and that both types of awards further align executives’ interests with those of Verizon’s shareholders as the ultimate values of the awards are based on the value of Verizon’s common stock.

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 total 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 TSR as compared to the Related Dow Peers as constituted on the grant date of the award over the three-year performance cycle. The final value of each PSU is based on the closing price of Verizon’s common stock on the last trading day of the year that the performance cycle ends. As a result, awarding PSUs provides a strong incentive to executives to deliver value to Verizon’s shareholders.

On the date the long-term incentive is awarded, the Committee also establishes the number of RSUs that may be earned based on the executive’s continued employment with the Company through the end of the three-year 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 2011 RSU awards are payable in shares at the end of the three-year award cycle and provide both a retention incentive and a performance incentive as the value of the award depends on Verizon’s stock price.

2011 Long-Term Plan Award Opportunities

For 2011, each of the named executive officers received 60% of their 2011 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 executive team. Mr. Seidenberg’s awards in prior years consisted of PSUs with a separate opportunity to earn an additional payout based upon the Company’s performance relating to certain pre-established strategic initiatives over the three-year performance cycle. In determining the 2011 Long-Term Plan award opportunity for Mr. Seidenberg, the Committee and the independent members of the Board considered Mr. Seidenberg’s anticipated retirement in late 2011 and his anticipated transition from the role of Chairman and CEO to Chairman in 2011 and determined that his 2011 Long-Term Plan award would not include a separate opportunity with respect to the achievement of strategic initiatives over the three-year performance cycle and would consist of the same mix of PSUs and RSUs as the other named executive officers.

The Committee generally establishes an executive’s Long-Term Plan target award opportunity as a percentage of the executive’s base salary. The Long-Term Plan target award opportunity for each of the named executive officers in 2011 was: 625% of base salary for Messrs. McAdam and Seidenberg, 525% of base salary for Messrs. Mead and Shammo and Ms. Ruesterholz and 500% of base salary for Mr. Milch. These target award opportunities are the same as the target award opportunities for the prior year. The target award opportunity for an executive is allocated between PSUs and RSUs as noted above, and the target award opportunity allocated to each type of award is converted into a target number of shares using the closing price of Verizon’s common stock on the grant date. For the 2011 awards, the Committee considered Verizon’s improved stock performance in 2010 and restored the target value of the 2011 awards, eliminating the approximately 15% reduction in the target value of awards that it had applied to the 2010 and 2009 awards as a result of its consideration of the overall economic conditions at the time that those awards were made.

The following table shows the target value of the awards granted to the named executive officers during 2011 in connection with the annual long-term incentive compensation opportunity. Additional detail regarding the 2011 PSU awards, including the performance requirements, follows the table.


Named Executive Officer

2011 Long-Term Plan
Target Award Opportunity

Mr. McAdam

$

8,750,000

 

Mr. Mead

$

3,806,250

 

Ms. Ruesterholz

$

3,675,000

 

Mr. Shammo

$

3,543,750

 

Mr. Milch

$

3,125,000

 

Mr. Seidenberg

$

13,125,000

 

Terms of 2011 PSU Awards

The following table shows the percentage of PSUs awarded for the 2011-2013 performance cycle that can be earned based on a range of Verizon’s 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

Corresponding Relative
TSR Percentile
Ranking Among the
Companies in the
Related Dow Peers



Percentage of
Awarded PSUs
that will be Earned

1

4

91st

to

100th

200%

5

8

79th

to

88th

175%

9

12

67th

to

76th

150%

13

16

55th

to

64th

100%

17

21

39th

to

52nd

75%

22

25

27th

to

36th

50%

26

34

0

to

24th

0%

Verizon’s TSR during the three-year performance cycle must rank at least 16th, or at the 55th percentile (above median), 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 in the Related Dow Peers, which corresponds to the 91st percentile or higher. If Verizon’s TSR during the three-year performance cycle is below approximately the 27th percentile of the companies in the Related Dow Peers, none of the PSUs will be earned.

2009 PSU Awards Earned in 2011

With respect to the PSUs awarded in 2009, the Committee determined the number of PSUs a participant earned based on Verizon’s TSR for the 2009-2011 three-year performance cycle relative to the TSRs of the Related Dow Peers as constituted on the date the award was granted. The percentage of the awarded PSUs that would be earned based on different levels of Verizon’s relative TSR performance under the 2009-2011 awards were the same as those described above with respect to the 2011 awards.

Over the three-year performance cycle ending on December 31, 2011, Verizon’s TSR ranked in the 48th percentile when compared to the Related Dow Peers. As a result, the Committee approved in 2012 a payment to all participants of 75% of the number of PSUs awarded for the 2009-2011 performance cycle, plus dividend equivalents credited on those PSUs earned pursuant to the terms of the award. This payout reflects the pay-for-performance design of the PSU awards because approximately median performance for the performance cycle resulted in the forfeiture of 25% of the number of units awarded for the performance cycle.

Mr. Seidenberg’s 2009 PSU Award.  As a participant in the Long-Term Plan, Mr. Seidenberg earned the same percentage of the 2009 PSUs as all other participants in the plan based on the Company’s TSR performance relative to the Related Dow Peers. In addition, pursuant to the terms of Mr. Seidenberg’s 2009 PSU award, he had the opportunity to earn an additional amount up to the amount he would have received if 200% of his 2009 PSU award vested based on the Company’s TSR performance relative to the Related Dow Peers, including any dividend equivalents that would have been paid on those PSUs, based on the Company’s performance during that three-year period with respect to the following strategic initiatives: (i) developing Verizon’s executive talent pool and preparing for Verizon’s succession plan; (ii) maintaining Verizon Wireless’ market leadership position; (iii) sustaining Verizon’s top line consolidated total revenue growth at 3-5%; (iv) producing double-digit consolidated earnings growth; (v) participating in and providing leadership to various industry forums and policy initiatives; and (vi) achieving synergies from the acquisition of Alltel Corporation. These strategic initiatives were established at the start of the three-year performance period, and the Committee did not assign any specific weighting to each strategic initiative. After the end of the performance period, in assessing whether an increased payment was appropriate, the Committee and the independent members of the Board reviewed each strategic initiative and considered Mr. Seidenberg’s leadership, guidance and contribution to the following achievements. The Committee and the independent members of the Board placed particular emphasis on the successful culmination of a multi-year succession planning process.

  • During the three-year performance period, Mr. Seidenberg guided a CEO succession process that has culminated in the Board naming Lowell C. McAdam as CEO in August 2011 and Chairman at the end of 2011 upon Mr. Seidenberg’s retirement. As part of that process, a number of other key executives were identified and elevated to new positions in order to position the Company’s management for the future.
  • During a period of considerable change in the industry, as data-intensive devices changed the wireless communications landscape, Verizon Wireless maintained its industry leadership with industry-leading revenue, customers and retail postpaid churn throughout the performance period. As of December 31, 2011, Verizon Wireless held a nearly 40% market share based on the number of postpaid customers. Verizon Wireless postpaid customers increased over the period by 30.5% from 67.0 million to 87.4 million. Retail postpaid churn remained the lowest in the industry at .94% at the end of the three-year period. Wireless data revenues more than doubled over the period, increasing by $13.0 billion. Verizon Wireless developed a successful smartphone franchise around the Android operating system and rounded out its smartphone offerings with the Apple iPhone. In addition, Verizon Wireless was the first company to launch a 4G broadband network with significant national coverage based on long-term evolution technology – a standard which is expected to be the predominant standard worldwide. By the end of the performance period, Verizon Wireless’ 4G LTE network was available in 190 markets and covered 200 million people, as compared to the nearest competitor’s coverage of 26 markets and 74 million people.
  • During the three-year performance period, Verizon achieved average annual top line revenue growth of 4.4% notwithstanding the fact that the Company faced a recessionary economy and significant competition and secular changes to the industry.
  • Adjusted average annual earnings growth was approximately negative 6.4%3 over the performance period due primarily to the divestiture of non-strategic wireline assets in a total of fourteen states, the required disposition of overlapping wireless properties in connection with the Alltel transaction and lower revenue in the wireline segment. Over the three-year performance period, resources have been devoted to higher growth markets in wireless and enterprise versus traditional wireline voice markets, and non-strategic wireline assets in a total of 14 states have been divested. During the period, revenues from FiOS have grown to $8.3 billion or over 60% of consumer revenue, and revenues from enterprise strategic services have grown to $7.6 billion, or 48.7% of enterprise revenues.
  • During the period, Mr. Seidenberg served as the Chairman of the Business Roundtable, an influential association of CEOs of major companies. He also served on the President’s Export Council, which advises the President on how to promote U.S. exports, jobs and growth, to which he was appointed by President Barack Obama, and on the National Security Telecommunications Advisory Committee, to which he was appointed by former President George W. Bush.
  • During the performance period, the Company acquired Alltel Corporation and realized synergies from the acquisition that exceeded the Company’s expectations.

Based on the successful achievement of these strategic initiatives, the Committee recommended and the independent members of the Board approved paying Mr. Seidenberg approximately $6.4 million under the terms of his 2009-2011 PSU award agreement in addition to the amount that was payable to him based solely on Verizon’s relative TSR performance over the 2009-2011 performance cycle. This level reflects the Committee’s and the independent Board members’ evaluation that Mr. Seidenberg achieved very strong performance against the strategic initiatives over the three-year period.

As discussed above, the Committee encourages a pay-for-performance environment by linking long-term compensation opportunities to the creation of sustained shareholder value. For the three-year period ending on December 31, 2011, under Mr. Seidenberg’s leadership, Verizon’s stock delivered a total return of 51.1%4 as a result of the increase in Verizon’s stock price from $31.68 to $40.12 and a total of $5.77 of dividends declared per share (reflecting an average annual increase of 3.5%) during this period. In addition, during this period Verizon made significant capital investments in its business to help facilitate future growth opportunities in its most strategic areas. The Committee recommended and the Board concluded that the total payment to Mr. Seidenberg was consistent with the level of value created for shareholders over this three-year period.

Special One-Time Equity Award to Mr. McAdam

In connection with Mr. McAdam’s appointment to CEO, the Committee recommended, and the independent members of the Board approved, a special one-time equity award to Mr. McAdam under the Long-Term Plan to provide an additional one-time incentive to create long-term shareholder value. The award was granted on August 1, 2011, with 70% of the award opportunity in the form of PSUs and 30% in the form of RSUs.

The PSUs represent shares of Verizon common stock that may become payable after the completion of a five-year performance cycle ending on July 31, 2016, provided that Mr. McAdam remains actively employed throughout the cycle, subject to the terms of the award agreement. The number of PSUs that vest at the end of the five-year performance cycle will be determined based on Verizon’s average annual ROE during the performance cycle. No PSUs will vest unless Verizon’s average annual ROE meets the minimum threshold percentage of 10%. If Verizon’s average annual ROE meets the target percentage of 15%, 100% of the nominal number of the PSUs granted will vest and a maximum of two times the nominal number of PSUs granted will vest if Verizon’s average annual ROE is at least 20% at the conclusion of the performance cycle. If Verizon’s average annual ROE during the five-year performance cycle is greater than 10% but less than 15%, or is greater than 15% but less than 20%, the Committee will determine the extent to which the PSUs will vest, provided that the vested percentage must be between 50% and 100% and between 100% and 200%, respectively.

The RSUs represent shares of Verizon common stock that become payable at the end of the five-year performance cycle ending on July 31, 2016, provided that Mr. McAdam remains actively employed throughout the cycle, subject to the terms of the award agreement.

The PSUs and RSUs that vest at the end of the five-year performance cycle, including accrued dividend equivalents on the vested portion of the grant, will be settled in shares of Verizon common stock. To the extent any Verizon common stock is issued, the award agreements require that Mr. McAdam hold such shares for at least two years following the vesting date unless he dies or becomes disabled. The grant date fair values of the PSU award and the RSU award were approximately $7 million and approximately $3 million, respectively.

Other Elements of the Total Compensation Program

The Company also provides the named executive officers with certain limited personal benefits as generally described below. The Committee believes that these programs provide an important recruiting and retention tool that is a valuable component of Verizon’s overall compensation plan.

Transportation

The Company provides certain aircraft and ground transportation benefits to enhance the safety and security of the Chairman and CEO. These transportation benefits, even when classified as a perquisite, also serve business purposes as they frequently enhance the ability of the executive to attend to business matters while in transit. Additional information on Company-provided transportation is included in footnote 4 to the Summary Compensation Table on page 45.

Executive Life Insurance

The Company offers the named executive officers and other executives 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 executives who elect to participate in the executive life insurance program own the life insurance policy, and the Company provides an annual cash payment to the executives to defray a portion of the annual premiums. Additional information on this program is provided in footnote 4 to the Summary Compensation Table on page 45.

Financial Planning

The Company provides a voluntary Company-sponsored financial planning benefit program for the named executive officers and other executives. Additional information on this program is provided in footnote 4 to the Summary Compensation Table on page 45.

Retirement Benefits

Effective June 30, 2006, Verizon froze 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 under the section entitled “Pension Plans” on pages 48-50.

During 2011, all of Verizon’s named executive officers were eligible to participate in the Company’s tax-qualified and nonqualified retirement savings plans. These plans are described in the section entitled “Defined Contribution Savings Plans” on pages 50-52.

Severance and Change in Control Benefits

The Committee believes that maintaining a competitive level of separation benefits is appropriate as part of an overall program designed to attract, retain and motivate the highest quality management team. However, the Committee does not believe that named executive officers should be entitled to receive cash severance benefits merely because a change in control transaction occurs. Therefore, the payment of cash severance benefits is triggered only by an actual or constructive termination of employment.

The Company was not a party to an employment agreement with any of the named executive officers in 2011. All senior managers of the Company (including each of the named executive officers other than the Chairman and CEO) are eligible to participate in the Verizon Senior Manager Severance Plan, which provides certain separation benefits to participants whose employment is involuntarily terminated without cause from the Company.

The severance plan is generally consistent with the terms and conditions of Verizon’s broad-based severance plan that is provided to all of Verizon’s management employees. Under the severance plan, if a participant has been involuntarily terminated without cause or, in the case of a named executive officer, if the independent members of the Board determine that there has been a qualifying separation, the participant is eligible to receive a lump-sum cash separation payment equal to a multiple of his or her base salary and target short-term incentive opportunity, along with continuing medical coverage for the applicable severance period. To the extent that a senior manager is eligible for severance benefits under any other arrangement, that person will not be eligible for any duplicative benefits under the severance plan. The plan does not provide for any severance benefits based upon a change in control of the Company.

Under the plan, the named executive officers (other than the Chairman and CEO) are eligible to receive a cash separation payment based on a formula equal to two times the sum of their base salary and target short-term incentive opportunity. Other senior manager participants are eligible to receive a cash separation payment based on a formula equal to between 0.75 and two times their base salary and target short-term incentive opportunity depending on their position at the time of their separation from employment. In order to be eligible for any severance benefits, participants must execute a release satisfactory to Verizon and agree not to compete or interfere with any Verizon business for a period of one year after their separation from employment.

Mr. Seidenberg retired from the Company effective December 31, 2011. Mr. Seidenberg was not eligible to participate in the severance plan nor was he eligible to receive any other cash separation payments from the Company upon his retirement. See the section entitled “Potential Payments Upon Termination or Change in Control – Retirement of Mr. Seidenberg” on pages 56-57 for a description of the benefits that Mr. Seidenberg became entitled to receive upon his retirement.

Consistent with the Committee’s belief that named executive officers should not be entitled to receive cash severance benefits merely because a change in control transaction occurs, in 2009 the Long-Term Plan was amended to eliminate “single trigger” accelerated vesting and payment of outstanding awards in connection with a change in control of Verizon. Under the amended plan, if, in the twelve months following a change in control the participant’s employment is terminated by Verizon without cause, all then-unvested PSUs will fully vest at target level performance, all then-unvested RSUs will fully vest and PSUs and RSUs (including accrued dividend equivalents) will become payable on the regularly scheduled payment date after the end of the applicable award cycle.

None of the named executive officers is eligible for any tax gross-up payment with respect to the excise tax liability under Internal Revenue Code Section 4999 related to any Section 280G excess parachute payments.

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.

  • The guidelines require the CEO to maintain share ownership equal to at least seven times his base salary and require the other named executive officers to maintain share ownership equal to at least four times their base salaries.
  • 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 tax-qualified savings plan or the Verizon nonqualified savings plan and other deferred compensation plans and arrangements that are valued by reference to Verizon’s stock. The calculation does not include any unvested PSUs or RSUs.

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 and cancel certain incentive payments received by an executive who has engaged in financial misconduct. The Committee reviews this policy from time to time and will refine the current policy to take into account changes in applicable law, including, for example, any changes that may be required under the Dodd-Frank Act.

Shareholder Approval of Certain Severance Arrangements

Because the Committee believes that shareholders should have input in the Company’s executive compensation program, the Committee has maintained a policy, last revised in 2007, of seeking 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 target opportunity. The policy defines severance pay broadly to include 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.

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. 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 considered the desirability of tax deductibility for performance-based executive compensation in determining to submit the Long-Term Plan to the shareholders for approval in 2009.

Compensation paid to the named executive officers under the Short-Term Plan is intended to meet the performance-based exception for deductibility under the tax laws. Any compensation paid to a named executive officer (other than the chief financial officer) with respect to the 2009-2011 performance cycle under the Long-Term Plan would not be deductible because at the time the awards were granted, the categories of performance measures under the Long-Term Plan had not been approved by Verizon’s shareholders. Management has advised the Committee that not having a tax deduction for payments to the named executive officers (other than the chief financial officer) under the Long-Term Plan for this performance cycle is not expected to be material to Verizon’s overall tax liability. With shareholder approval of Verizon’s Long-Term Plan in 2009, the Company believes the Long-Term Plan once again meets the performance-based exception, and future performance-based awards paid to a named executive officer (other than the chief financial officer) under the Long-Term plan will be deductible until such time as shareholder approval of the Long-Term Plan is once again required under the tax laws.

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. The Committee has been advised by management that the impact of the variable accounting treatment required for long-term incentive awards that are payable in cash (as opposed to fixed accounting treatment for awards that are payable in shares) will depend on future stock performance.

2

A reconciliation of non-GAAP measures to the most directly comparable GAAP measures may be found in Appendix C to this proxy statement.

3

A reconciliation of non-GAAP measures to the most directly comparable GAAP measures can be found in Appendix C to this proxy statement.

4

As reported by Bloomberg.