Corporate Governance

The Director Compensation Project: Verizon

By Randall Peterson

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009's Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $120,000 in direct compensation, other than director's fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Verizon (VZ-NYSE) 2009 Proxy Statement. According to the proxy statement, the company paid the directors the following amounts:

* Chairman and CEO Ivan Seidenberg is not entitled to director compensation as an employee-director

**Verizon does not give its directors 'other compensation,' with the exception of directors who were elected before 1992. Those directors are eligible for a charitable giving program where Verizon will contribute an aggregate of $500,000 to charities designated by the director.

*** Mr. Storey resigned in May, 2008, and his fees were prorated for services rendered.

Director Compensation. The board met eleven times in 2008 with an average attendance of 96%, with no individual director attending less than 75% of the meetings. All non-employee directors received an annual $85,000 cash retainer along with a grant of Verizon shares equivalent to $130,000. Verizon requires directors to credit their share equivalents to their deferred compensation account, then invest in a hypothetical Verizon stock fund which is paid in a lump-sum after the director leaves. Stock awards and options exercised from the annual share equivalents range from $26,709 to $72,169 for former Treasury Secretary John Snow, who serves on Verizon's board. When combining stock awards and deferred pension compensation, director earnings ranged from a low of $119,776 to a high of $170,363.

Director Tenure. The tenure of Verizon's board is diverse. Board tenure ranges from two years to twenty-two years of service, with four directors serving at least twelve years. Eleven directors serve on multiple boards, with five of the twelve directors simultaneously serving on the boards of three or more corporations. Primary among these are Dr. Sandra O. Moose, who also serves as a director of Rohm and Haas Company, The AES Corporation, Natixis Advisor Funds, and Loomis Sayles Funds.

CEO Compensation. Ivan Seidenberg serves as Chairman and CEO. In 2008, Mr. Seidenberg's total compensation was $18,573,638, down from the $26,553,576 earned in 2007. Total compensation for 2008 included a $2,100,000 salary, more than $11,000,000 in stock awards, and $3,740,625 in a non-equity incentive plan. In total, $946,754 of Mr. Seidenberg's compensation is classified as 'all other.' These included the personal use of company aircraft and company vehicle together totaling $158,000.

William Barr was Executive Vice-President until his retirement on December 31, 2008. In 2008, Mr. Barr's total compensation was $15,911,560. Mr. Barr also served as Verizon's general counsel until November 6, 2008. Mr. Barr's compensation included $863,077 in salary, $3,000,000 in stock awards, and $10,380,000 in his retirement agreement and bonus structure.

Without Mr. Barr's retirement, Dennis Strigl, the President and COO, would be second in total compensation earning $11,062,661. The lion's share of Mr. Strigl's compensation was a $1,319,231 salary coupled with $7,075,305 in stock awards. Mr. Strigl also received $657,410 in company perquisites including $138,182 in personal use of company aircraft and $14,496 for personal use of a company vehicle.

Full post as published by The Race to the Bottom on June 03, 2009 (boomark / email).