Verizon Communications Inc.
Summary:
Verizon has a very in-depth system for awarding both bonuses and performance-based stock. Although the amount given out in stock was high in 2007, this is justified by the strong performance of the company. The rest of the compensation is right on par with their DOW Jones Industrial Index peer group. Factor in $0 in option awards, and the executive compensation program comes out looking very fair and well-aligned with stockholder interests. Maybe the "Can you hear me now" guy is the one getting all the money…
Analysis:
Verizon Communications is in a tough industry. The Telecommunications Services industry is being hurt by the slumping economy, while having to fend off fierce competition from each other. This has set off a race to see who can become the biggest, in the least amount of time. Through a series of mergers and acquisitions, Verizon has pulled to the head of the pack. By recently acquiring Alltel for $28 billion, Verizon became the largest wireless communications provider in the United States, going from 67 million subscribers to 80 million.
Verizon is becoming the biggest, and perhaps the best, in the business, all while pulling in a hefty profit. Their recent success is mirrored by the increase in stock price over 2006 and 2007, going from the low $30s in 2006 to a high of $46.20 at the end of 2007. So how do you reward executives when the stock goes up 150% over two years? Pay them in stock, of course.
So… What Are They Paid?
Although salaries for the CEO and the NEOs are some of the highest in the DOW Jones Index (CEO = $2.1 million and NEO Average = $929,000), it is the stock awards that make your jaw drop. $19.2 million in stock awards for the CEO. Not enough? How about an average of $9.5 million for the NEOs? I heard of incentive, but sheesh…
The option awards given out to executives were non-existent, literally! There were no options granted, which is very unusual. As the executives are holding on to a lot of options, this would appear to be a policy shift towards awarding more stock instead of options.
Bonuses were just average and were well-deserved. The CEO received a non-equity incentive bonus of $4.2 million and the NEOs averaged payments of $1.3 million. Perquisites were also average, the highest payment being the incremental costs from plane usage by the CEO ($150,000) and one of the NEOs ($140,000).
Finally we took a look at the termination and change in control clauses. After poking around a little bit, we liked what we discovered. Although the CEO can be awarded as much as $38 million for being let go, most of the payment is from performance-based stock awards that vest immediately upon termination.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $2,100,000 | $928,750 |
| Bonus | $0 | $0 |
| Stock | $19,198,033 | $9,473,989 |
| Options | $0 | $0 |
| non-Equity Incentives | $4,200,000 | $1,257,500 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report