Science & Technology
Science and Technology
Science and Technology
Tue, April 14, 2009
Mon, April 13, 2009
Fri, April 10, 2009
Thu, April 9, 2009 Association of BellTel Retirees : Update: Verizon Retirees to Shareowners: Vote Nay on Pay
COLD SPRING HARBOR, NY--(Marketwire - April 9, 2009) - In March, the Association of BellTel Retirees sent a letter to shareowners urging them to vote contrary to Verizon management's recommendation on two proxy proposals on the ballot for the Annual Meeting in Louisville on May 7th. After that letter was sent, it was brought to the Association's attention that there was some misinformation in that letter which was also included in a press release. While our positions on the ballot are unchanged, we have included the correct information in this press release and in a revised letter sent to shareowners.
The Association of Bell Tel Retirees, an advocacy group representing the retirees of Verizon (
Verizon is the largest publicly held company to have a "say on pay" proxy proposal on their ballot. In 2007 the Association of BellTel Retirees ([ www.BellTelRetirees.org ]) led the movement, which successfully passed the company's "say on pay" proxy.
In a letter sent to thousands of shareowners, retiree association president C. William Jones said, "Shareholders want enhanced accountability and compensation policies better aligned with shareholder interests," in calling for more challenging performance hurdles and fewer windfall termination benefits. They are also seeking to end what Mr. Jones calls, "the contradictory practice of the same person serving as CEO and Board Chairman, in effect making someone their own boss."
"A no vote on executive compensation is the only way to nudge the board towards a more realistic pay structure that benefits shareowner," said Mr. Jones. "The compensation structure for the company's senior executives has to be more closely related to how the company is performing for its stockholders. While returns were above average for last year, we believe the company's compensation structure should include more challenging performance hurdles."
A study by the Corporate Library has singled out Verizon for two consecutive years as one of 12 "Pay for Failure Companies" with the worst combination of excessive pay and negative shareholder returns over the most recent five year period ("Pay for Failure II," May 2007). In its shareowner letter the retiree group details numerous faults it finds with Verizon's executive pay plans:
Performance Shares: The Corporate Library's 2008 update on America's worst Pay for Failure companies extended its criticism of Verizon's compensation policies: "Verizon's performance stock units continue to pay out for TSR performance below the median [for the 2006-08 performance cycle]... [I]n 2007, it achieved 44th and 46th percentile performance against the S&P 500 and its industry peers, respectively, and paid out 76 percent of target." For the 2008-2010 cycle, the company has made some improvement, but we think the bar is still set too low: 100% of the target PSU award is paid out for median performance -- that is, if Verizon is ranked as low as 16th among the 34 "Related Dow Peers" (Proxy Statement at p. 35).
Golden Parachutes: If CEO Ivan Seidenberg terminates after a change in control he receives $30.5 million, more than five times his base salary plus bonus. President & COO Dennis Strigl would receive an even larger $40 million if he terminates after a change in control -- a platinum parachute that is 13 times his base salary plus bonus. (See Proxy pp. 47-48). Most of these payments ($25.3 million for Seidenberg, $18.4 million for Strigl) come from the immediate vesting and waiver of the performance-based conditions attached to their 3-year PSU and RSU grants. While we believe performance restrictions should not be waived, at a minimum these amounts should be counted in the total value of severance that triggers shareholder approval if it exceeds 2.99 times salary plus bonus. The Board's current policy excludes these payments.
Golden Coffins: Upon termination of employment due to death, Strigl could receive a total of $50.8 million, including $31.8 million in severance and company-paid executive life insurance in addition to short- and long-term incentive payouts. (Proxy at p. 48).
Executive Pensions: In 2006 Verizon froze its defined benefit SERP, which gave senior executives annual contributions equal to 32% of base salary and bonus. While not as generous, the new nonqualified defined contribution plan continues to be very costly but is calculated using the same formula as other management employees.
Tax Gross-Ups: Since Verizon executives apparently find it burdensome that the IRS treats company payments for personal travel and life insurance as income, the shareholders reimburse them for taxes as well -- a widely-criticized practice known as "tax gross-ups." (Proxy pp. 41, 51).
The retirees are also calling on Verizon shareowners to vote for proxy item 8 to separate the roles of Board Chairman and CEO, asking that future board chairmen be selected from independent directors who have not served as an executive officer of the company.
"We believe that separating the roles of Chairman and CEO is fundamental to sound corporate governance," said Mr. Jones. "When the CEO is also the Chairman of the Board the lines of accountability get blurred, compensation is less tightly aligned with shareholder returns and the decision to replace a poorly performing CEO can be skirted or delayed."
Numerous studies have found that shareholder returns are higher on average at firms with non-executive chairmen. A Booz Allen Hamilton study of the world's 2,500 largest public companies (CEO Succession 2005: The Crest of the Wave) found that in North America over the preceding three years, non-chairman CEO's produced shareholder returns three times as high as those of CEO/chairmen.
