Verizon Communications Inc. shareholders will vote Thursday on a proposal that could make it more difficult for senior executives to receive huge equity awards worth millions of dollars.
The 128,000-member Association of BellTel Retirees, which introduced the proxy proposal, contends senior execs can obtain half of their target award even if the New York-based telecommunications titan performs below the 30th percentile in its group of peers.
The criteria measured is return on equity for shareholders with Verizon compared to large Dow Jones companies as diverse as American Express, Coca-Cola, Exxon Mobil and McDonald’s.
Under the proposal, Verizon senior executives only would be entitled to the long-term incentive awards in the form of Performance Share Units “if Total Shareholder Return (TSR) equals or exceeds the median performance of the Related Dow Jones Peers, or whatever peer index the Board deems appropriate.”
Verizon’s annual shareholder meeting takes place Thursday, May 3, at 10:30 a.m. CT, in Huntsville, Ala.
Verizon’s board is recommending shareholders vote no on the proposal, and even if passed by a majority, it’s just an advisory vote. That means the board wouldn’t be required to enact the measure. The proposal was introduced last year and received 30 percent of shareholders’ votes, according to the Association of BellTel Retirees.
“You could say, well these guys at the top certainly earn their money. Really. If they come in nine from the bottom of their peer group, which is how they measure whether or not they are going to get incentive pay or not … at that low level, if you are in school, that would be a D or F,” C. William Jones, president of the Association of BellTel Retirees, told Channel Partners. “That’s subpar. We don’t believe they should get a cent of incentive pay if they aren’t at least average. That would be a C.”
Verizon’s board’s Human Resources Committee contends the proposal would “have the effect of severing the link between pay and performance and delivering compensation that is not competitive with Verizon’s peer companies,” according to Verizon’s proxy statement.
“The Human Resources Committee also believes that the proposal, which would require the Committee to use relative total shareholder return as the sole performance measure for all future awards of PSUs, is overly prescriptive and would unduly restrict the Committees ability to establish different types of performance measures for these awards,” Verizon asserted in the filing.
Jones acknowledged the challenges in obtaining shareholders’ votes in favor of the measure.
“It’s hard to win one of these things because most people don’t really understand the proxies and they don’t want to make a mistake when they’re voting so they tend to vote with the company,” said the 73-year-old Jones, who retired from Verizon’s predecessor NYNEX in 1990. “I think the shareholders are probably a pretty happy group of people. They are getting a good return on their investment and the stock is pretty solid.”
Verizon asserted it delivered an 18.2 percent return to shareholders last year, ranking ninth among its Related Dow Peers. It also increased its quarterly dividend by 2.6 percent, representing the fifth consecutive year with a dividend increase. The company reported $2.15 in adjusted earnings per share. During the three-year period ending Dec. 31, Verizon’s stock delivered a total return of 51.1 percent, the company said, citing Bloomberg.
Shareholder proposals often fail. Just ask the Association of BellTel Retirees, which has a filed a total of 31 proposals that have covered 10 different subjects. Only two proposals received a majority vote while the rest were defeated. But six more proposals that were filed repeatedly led Verizon to align its policy or corporate governance with the proposal, Jones said.
The most recent proposal that received shareholders’ blessing dates back to 2007 when shareholders narrowly voted 50.18 percent in favor of a “Say on Pay” advisory vote on executive compensation. Jones said his association filed a proposal the following year that would have required the board to take action if it passed, but withdrew the proposal after Verizon agreed to enact the measure in 2009.
“Any shareholder proposal that passes not simply those involving executive compensation is advisory in nature,” Verizon spokesman Robert Varettoni said in an email. “The board has final say on corporate governance policies and practices but, in the past, when a shareholder proposal has passed, the board has responded with an action based on the advisory vote.”
Since 2009, Verizon shareholders have given an advisory vote on whether to approve executive pay. In the proxy statement, Verizon also noted federal law now requires companies provide shareholders with a non-binding advisory vote to approve executive compensation at least once every three years. Varettoni said shareholders have approved the company’s overall executive company policy and plans by an average vote of 90 percent in each of the past three years. At last year’s shareholders meeting, for example, 92 percent of votes cast on the executive proposal voted in favor of it.
The Human Resources Committee “believes this affirms shareholders’ support of the Company’s approach to executive compensation,” Verizon declared in the proxy statement.
Verizon doesn’t disclose the actual proposed compensation for its executives because their total award is based largely on the performance of the company over the previous year and the performance of the stock over a number of years. Last year, its 57-year-old CEO, Lowell McAdam, received $23.1 million in total compensation, including nearly $18.8 million in stock awards. Ivan Seidenberg, the former chief executive and chairman of Verizon, had a better year financially than McAdam with total compensation of nearly $26.5 million.