SOURCE: Verizon Shareowners

April 03, 2007 10:15 ET

Verizon Shareowners Go to Battle With the Company in Proxy Over Executive Pay & Limiting Corporate Directorships

NEW YORK, NY -- (MARKET WIRE) -- April 3, 2007 -- Retirees of Verizon Corporation (NYSE: VZ) have come back again, as they have every year since 1998, to the communications giant's board of directors to demonstrate how to shape up and fly right.

This is the tenth year that members of the Association of BellTel Retirees Inc. (www.BellTelRetirees.org) have proposed shareowner proxies to force corporate governance changes at their former employer. During that time period the over 100,000 member retiree group has served up shareowner victories over the Fortune 50 Company in 2003, 2004 and 2005. The non-profit retiree group was started in 1996 by seven NYNEX retirees to protect the pensions and benefits of company retirees and surviving spouses.

For the 2007 shareowner proxy the retirees are back with two more ballot proposals: Allowing Shareholders an Advisory Vote on Executive Compensation (Item # 6 on Verizon Proxy); and Limit Service on Outside Boards (Item #7 on Proxy).

According to the proposer of the Executive Compensation Proxy, C. William Jones, who also serves as President of the retiree association, "As long-term shareholders, we believe that the owners of the company should be able to express their approval or disapproval of the Board's compensation package for the CEO and the other senior executives, just as shareholders do at public companies in the U.K. and Australia. An advisory vote would provide useful feedback and encourage shareholders to scrutinize the new, more extensive disclosures required by the SEC."

This proxy asks the Verizon Board of Directors to include, as a voting item at future annual meetings, an advisory resolution allowing shareholders to approve or disapprove the executive compensation package of the company's senior executive officers, as disclosed in the proxy.

The Associated Press reports say that according to a company filing, Verizon Chairman and CEO Ivan Seidenberg's 2006 compensation was valued at $20.2 million, including salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. Over the five fiscal years through 2005, Mr. Seidenberg received $75.1 million in total expected compensation, while total shareholder return was negative 26.8%, according to the Corporate Library.

According to Institutional Shareholder Services, in the U.K. the required shareholder advisory vote on compensation policies, "has proven a valuable tool in encouraging companies to improve their practices...[and] has contributed to a significant increase in constructive dialogue between companies and directors."

Limiting Number of Corporate Boards A Verizon Director Can Serve on:

Robert Rehm and the Association of BellTel Retirees Inc., proposers of the proxy to limit the number of corporate boards a Verizon director can serve on, said, "Serving competently as a director of a Fortune 500 company is an increasingly demanding, time consuming and deservedly well compensated job." Mr. Rehm also doubles as the retiree association's volunteer Chief Financial Officer. His proposal (# 7 on the Verizon Proxy Ballot) would require the company to adopt a policy prohibiting the nomination of a candidate for director who is employed full-time and serves on the board of more than three for-profit corporations, including Verizon.

A 2005 survey by the National Association of Corporate Directors (NACD) found that outside directors spend an average of 191 hours on board duties for each company they serve -- a time commitment equivalent to nearly five 40-hour work weeks.

Mr. Rehm added, "We believe too many Verizon directors serve on too many boards in addition to their primary occupation."

Ten of Verizon's 15 directors (66%) serve on at least two other company boards and four serve on four or more boards. By comparison, a survey of board practices at 1,275 large U.S. companies by the Investor Responsibility Research Center in 2005 found that 66% of directors at these companies serve on no more than one other board, while 87% serve on no more than two others. The NACD survey suggests that the two-thirds of Verizon's directors serving on three or more boards would need to dedicate at least three working months each year to board service alone. Mr. Rehm's proposal would limit directors with full-time jobs to just three corporate directorships (including Verizon).

This proposal also reflects the policy of the Council of Institutional Investors, which recommends that, "absent unusual, unspecified circumstances, directors with full-time jobs should not serve on more than two other boards."

After this proposal was submitted last fall by Mr. Rehm, Verizon changed its Corporate Governance Guidelines to "provide that a Director who serves as an executive officer of a public company should not serve on more than three public company boards," and that other directors "should not serve on more than six public company boards." While the proposer applauds the Board for adopting the proposed policy in part, he still maintains that the company's policy falls short in several important respects.

1) Verizon's policy exempts current directors who exceed the limit, even if they are re-nominated in future years; 2) The limitation on board service applies only to directors who are "executive officers" of a "public company." If a director has full-time job responsibilities, it shouldn't matter whether his company is public or privately held or whether he ranks as an executive officer or not. Verizon's policy would allow the CEO of a privately held firm to serve on six public company boards; 3) Verizon's policy limits only public company directorships -- meaning that the CEO of a public company could sit on six or more for-profit boards provided that no more than three are public companies. The policy proposed in item 7 would close these loopholes.

History of BellTel Retiree Proxy Victories:

In 2003 -- The retirees won 59% of the shareowner vote with their Executive Severance Agreement proposal. The non-binding proposal was to limit what retirees call overly generous executive compensation packages and golden parachutes. At the time it was the first proxy loss by Verizon or any other Bell System company in its 100-year history.

In 2003 -- Verizon agreed to implement another retiree proposal prior to its annual shareholders meeting to exclude pension credits from the calculation of executive compensation, which had gained 43 percent of shareholder votes the previous year.

In 2004 -- The retirees were forced to come back at the company on the Executive Severance Agreement proposal after Verizon executives and its board of directors failed to follow shareholders' mandate to limit overly generous executive compensation packages and golden parachutes. This time, when the retirees authored a binding proxy proposal mandating the board to implement the change, Verizon relented, agreeing that the company will seek shareholder approval for any future Executive Severance Agreement more than 2.99 times an executive's base salary and bonus.

In 2005 -- Before the company's proxy ballot went out to shareowners, Verizon agreed to a retiree proxy's demand to reign-in Supplemental Executive Retirement Plan (SERP) income for senior executives. The year before the retirees rounded up 37% of shareholder vote and then in early 2005 won a pledge of support from major municipal and state pension funds. Before this change, executives received SERP contributions equal to 32 percent of their combined base salary plus bonus for every dollar above $210,000 during their first 20 years in the plan. After the first 20 years, the SERP contribution rate reduced to 7 percent. In 2004 the payout amounted to $161 million and more than $400 million over three years, according to Verizon estimates. The agreement negotiated by retiree leaders reduced these excessive amounts including the 32 percent level down to a range of 4 to 7 percent.

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