SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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VERIZON COMMUNICATIONS, INC.
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(Name of Registrant as Specified in Its Charter)
ASSOCIATION OF BELLTEL RETIREES, C. WILLIAM JONES, MICHAEL S.
MICHAEL S. KUCKLINCA, EILEEN T. LAWRENCE, JOHN SELLEN,
JOHN M. BRENNAN, JAMES E. CASEY, JR., LOUIA MIANO,
JOHN A. PARENTE, ROBERT E. REHM AND JOSEPH A. RISTUCCIA
- -----------------------------------------------------------------
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BELLTEL RETIREE
The Official Newsletter of NYNEX and Bell Atlantic Retirees
Spring 2003 (logo) Volume 25
KEEP THE BALL ROLLING IN PROXY FIGHT!
Last year, members of the Association of BellTel Retirees
took a giant leap forward in their battle against Verizon when
their Calculation of Incentive Compensation shareholder proposal
scored a record 42.7 percent of the yes-and-no vote cast by
shareholders at Verizon's annual meeting.
Prior to the vote, the proposal won backing from the
prestigious Institutional Shareholder Services, one of the most
influential proxy advisory firms in the country. This, along
with increased support from shareholders generally and members in
the Association, helped boost its support from the 18.7 percent
it received its first year.
"That was a tremendous increase," said C. William Jones in a
story to the Dow Jones News Service. "We're looking forward to
winning it next year. I think we're close."
Five years ago, members of the Association of BellTel
Retirees began taking on Bell Atlantic - now Verizon - through
resolutions that are voted by shareholders in the proxy materials
they receive prior to each annual meeting. As the years have
passed, these proposals have received increasing shareholder
support and a great deal of media attention.
The Association and its members once again will take three
proposals to a shareholder vote this spring. The proposals will
deal with the following subjects: "Calculation of Incentive
Compensation," "Board Composition" and "Executive Severance
Agreements."
"This is the year that your vote can get these proxies over
the top. If we vote together, along with support that's
previously been demonstrated by large institutional investors, we
can improve not only the interests of shareholders, but retirees
and others who care about the company as well," Jones said. "A
large "FOR" vote should help persuade management and the Board to
take seriously the issues being raised by Association members
again this year."
Last year, all three proposals received strong support. As
mentioned above, the "Calculation of Incentive Compensation"
resolution received 42.7 percent. This proposal is aimed to
disallow the company from including projected earnings from the
retirees' $48 billion pension fund as net income for the purpose
of calculating officers' incentive pay.
The "Executive Severance Agreements" proposal, which
received 30.9 percent, is designed to fight what we see as the
overly generous "golden parachutes" given to executives in some
instances when they leave the company.
The "Board Composition" proposal, which received 27.2
percent, asks Verizon to amend the company by-laws to require a
majority of independent directors on its Board of Directors, and
to appoint only independent directors to its compensation and
nominating committees.
Therefore, the Officers and the Board of Directors of the
Association of BellTel Retirees Inc. ask you to do your part by
exercising one of the following options and encouraging your
friends and family who own shares of Verizon to do the same:
OPTION 1.) Mark the proxy card you receive from Verizon by
voting on the various proposals as recommended below. Vote on
other matters presented on the proxy card as you choose. Sign
and date your proxy card and send it to the Association to be
voted, as a block, at the Annual Meeting.
OPTION 2.) Mark the proxy card you receive from Verizon by
voting on the various proposals as recommended below. Vote on
other matters presented on the proxy card as you choose. Sign,
date, and return it in the self-addressed envelope that
accompanied your proxy card when you received it. This option
MUST be used when your Verizon shares are held in a brokerage
account.
If you choose OPTION 1.):
Sign and date the Proxy and send it to:
Association of BellTel Retirees
(Continued on page 6)
PROXY VOTE INCREASE
DATA POINTS IN PERCENTAGES ASSOCIATION VERIZON
- - - - - - - - - - - - - - - - - - - - - - - -
2001 18.7% 81.3%
2002 42.7% 57.3%
2003 ?
6 BellTel Retiree Spring 2003
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PROXY 2003 PROXY ROUND-UP
EXCLUDE PENSION CREDITS FROM PAY FORMULAS
Association Executive Director Bill Jones and Board Member
Joe Ristuccia, and his wife, Ann, will resubmit a proxy
resolution to stop Verizon executives from computing their
performance-based benefits through using the pretax pension
credits in the company's earnings.
In its only its second run last year, the proxy received a
record 42.7% of shareholder yes-and-no votes, and just 7.4% from
passing.
While retirees have seen their healthcare benefits
periodically cut back over the years, and their pension buying
power erode due to lack of regular cost of living adjustments,
Verizon executives have been able to earn record high bonuses
partially as a result of projections of income generated by the
retiree pension fund, which was valued at $48 billion at the end
of 2001. If such "pension credits" are excluded from
performance-based pay formulas, executive bonuses could be lower
and more in line with their true value to the corporation. We
believe that this change could give the executives less incentive
to hoard the pension fund - when there is a surplus - and could
encourage management to use any surplus for its intended purpose:
paying benefits, including much needed and long overdue cost-of-
living adjustments to retirees.
In the past years a large share of Verizon's reported
earnings was not cash flow from ordinary operations, but rather
accounting income from "pension credits." In 2001, the company
would have reported a material net loss had it not included $1.85
billion in pension income in its calculation of reported
earnings. Because pension credits potentially turn even
operating losses into reported gains, we believe they should not
factor into performance-based compensation.
In 2001, the $1.85 billion credit amounted to two-thirds of
Verizon's pretax net income. Instead of reporting $389 million
in net income (after-tax), the company would have reported a
substantial loss without the non-cash pension income.
How can Verizon do this? "An accounting rule lets companies
take their assumed rate of return on pension assets into account
in calculating the "bottom line," reported Pensions & Investments
magazine. "Then, the company used this inflated net income as
the basis for calculating incentive pay for top management."
("Accounting Trick: Companies Under Fire for Incentive Pay
Calculations," April 15, 2002).
Accounting rule income is simply not a good measure of top
management's operating performance. Indeed, Standard & Poor's
(S&P's) excludes pension income from its new measure of Core
Earnings, adopted last year to promote transparency and
consistency in reported earnings. According to S&P's Core
Earnings Market Review (Oct. 24, 2002): "Since [pension income]
is based on the expected, not the actual, return [on pension
assets]. This money may not even exist. Further, if there is
income, it remains in the pension fund and is not available to
the corporation."
Verizon is among the most widely cited examples of the
disparity between "expected" pension income and actual returns.
Management estimated that the return on plan assets would be $4.8
billion in 2001. "The only trouble is that Verizon's pension
plan was really swimming in red ink . . . dropping $3.1 billion,"
reported the New York Times (Pension Folly: How Losses Become
Profits," April 26, 2002).
The practice continued in 2002. During the first six
months, Verizon added $657 million in pension income to earnings,
yet Merrill Lynch projects that the actual return on plan assets
will be negative $4.7 billion (Pension Update," Oct. 15, 2002).
Because the company retains a great degree of discretion in
selecting the assumptions used to measure pension expense, we
believe that excluding pension credits from the calculation of
performance-based executive pay would help assure shareholders
that this discretion will not lead to a conflict of interests.
This proxy proposal is important to Verizon shareholders and
to the economic futures of our members because we believe that
the pension funds should be administered for their original
purpose - to provide retirement benefits to the company's
employees, and not be used as a yardstick to justify higher
personal bonuses for executives. We urge all of our members to
support this proxy proposal by voting FOR excluding pension
credits from performance-based pay formulas.
(Note: Consent to use the quotes cited in this article has
not been sought or obtained).
KEEP THE BALL ROLLING IN PROXY FIGHT!
P.O. Box 33
Cold Spring Harbor, NY 11724
Voting Recommendations:
a.) Vote "FOR" the proposition "Board Composition,"
recommending a change in the corporate by-laws to provide that
the Board consist of a majority of independent directors and to
appoint only independent directors to serve on the board's
compensation and nominating committees.
b.) Vote "FOR" the proposition, "Executive Severance
Agreements," which requires the company's Board of Directors to
seek shareholder approval for certain future or renewed severance
agreements with the company's top executive officers, which
provide more generous pay-outs than the Senior Management
Retirement Plan available to other senior managers.
c.) Vote "FOR" the proposition, "Calculation of Incentive
Compensation,"to exclude pension credits from performance-based
pay formulas, which would prevent executives from earning
inflated bonuses because of phantom earnings gained from
projected profits on the pension fund.
d.) Vote on the other propositions according to your own
conscience.
If you have any questions regarding this matter, call us at:
(631) 367-3067.
This newsletter is prepared by and paid for entirely by the
Association of BellTel Retirees, which is the only participant in
the solicitation of proxies discussed in the articles herein.
The Association, its officers and directors are the only
participants in the solicitation of proxies discussed in this
newsletter, and their individual share holdings are as follows:
Association of BellTel Retirees (214); Pam Harrison (0); C.
William Jones (116); Michael S. Kucklinca (288); Eileen T.
Lawrence (17); John Sellen (285); John M. Brennan (0); James E.
Casey, Jr. (45); Louis Miano (0); John A. Parente (7514); Robert
A. Rehm (4418); Joseph A. Ristuccia (436) and Thomas Sisti
(950).
Spring 2003 BellTel Retiree 7
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PROXY 2003 PROXY ROUND-UP
"GOLDEN PARACHUTE" AGREEMENTS
Association Board Member Bob Rehm and the Association of
BellTel Retirees again will co-sponsor the proxy proposal to
require shareholder approval for future severance agreements with
senior executives, including so-called "golden parachutes" and
"golden good-bye" severance agreements, that provide benefits
exceeding 2.99 times the sum of the executive's base salary plus
bonus. The proxy proposal garnered 30.9% of the yes-and-no vote
last year.
"Golden parachutes" or "golden good-bye" agreements - which
we regard as among the most costly, wasteful and anti-shareholder
forms of executive compensation - grant multi-million dollar
provisions - in addition to extremely generous retirement
benefits - to executives, primarily when there is a "change of
control" situation. We believe this is contrary to stockholder
interests, as this amount of generosity can frustrate long-term
shareholders, who believe that executive pay should be more
closely aligned with shareholder interests.
In our view, Verizon's post-merger severance agreements are
unjustifiably costly. Executive officers can resign and receive
the liquidated value of their multi-year employment agreements -
tens of millions of dollars in the case of CEO Ivan Seidenberg
and Chairman Charles Lee - if there is a "change of control" that
is defined to include situations where another person or entity
acquires as little as 20 percent of the company's voting stock,
even if the person never makes a tender offer or takes control.
We believe that severance packages promised to the company's
chairman and CEO are indefensible since these executives would
receive nearly the same compensation whether they decide to stay
or leave. For example, if Seidenberg is terminated or
"constructively discharged" under this broad "change of control"
definition, the 2002 proxy statement indicates that he would
receive most of his pay package for a period of three years - a
payout well in excess of $50 million.
Compare this to the treatment of company retirees, many with
30 or more years of loyal service. In a break with company
tradition, most retirees have not received a pension cost-of-
living adjustment in more than a decade, allowing inflation to
steadily erode the purchasing power of their fixed pension
income. Although the lump sum payments to some retirees in 2000
(neither a pension increase, nor inflation-related) were a step
in the right direction, the company's retirement benefits policy,
as a whole, is inadequate and unfair to most retirees.
If this proxy proposal receives a majority vote and is
implemented by the board, certain compensation packages would
need approval from the Verizon shareholders in the future.
Giving shareholders a vote could help curb unduly generous pay
packages that drain money from operating funds. We are asking
all of our members to vote FOR this proxy resolution.
PROXY 2003 ELECT A MAJORITY OF INDEPENDENT DIRECTORS
John Parente and John Sellen, Association Board Members,
will be resubmitting a proxy resolution asking Verizon to amend
the company bylaws to provide that the board shall nominate
director candidates such that, if elected, a substantial majority
of directors would be independent, and shall appoint only
independent directors to serve on the board's compensation and
nominating committees. We ask that our Association membership
vote for the proxy proposal, which we believe will improve
decision-making by the Verizon Board.
This proxy resolution garnered a 27.2% showing last year,
which is a slight increase from two years ago. Three years ago,
this proxy proposal brought this issue of board composition into
focus, and Verizon eliminated some board members who were not
independent and reduced the number of senior executives on its
board from six to two.
Even with that reduction, we are concerned that the majority
of the board still is comprised of directors who may be swayed
through their ties to management. Independent directors would
lessen what we view as the disproportionate influence of
corporate management on the board, thus allowing it to act as a
more independent board.
Currently, no more than half of the 16 members of the Board
of the Directors are truly independent of management. In
addition to CEO Seidenberg and Chairman Lee, seven outside
directors may be considered non-independent due to board
interlocks or because their own employer receives substantial
grants, fees or business from the company, or did in the recent
past. An example of an interlock is that CEO Seidenberg sits on
the board that employs and sets the salary of board member
Stafford.
Our company has one of the least independent boards among
large U.S. companies. The boards of 88 percent of S&P 500
companies have a majority of independent directors, according to
a 2001 study by the impartial Investor Responsibility Research
Center. We believe that Verizon should bring itself up to the
standards of independence of these other corporations by updating
the Board's composition to include a majority of independent
directors.
We believe that such a change in policy could help retirees
receive a fairer and more open-minded hearing than is possible
with a Board composed disproportionately of Verizon executives
and directors with direct ties to Verizon management. We urge
all of our members to support this proxy proposal by voting FOR
the proposal named "Board Compensation" on the proxy-voting card.