Verizon retirees push for clawback policy change

A group of Verizon Communications retirees is lobbying for the company’s executives to be held accountable via a beefed-up compensation clawback policy, ahead of the annual meeting due to take place on May 4 in Dallas.

The shareholder proposal was introduced by Jack Cohen, chairman of the Association of BellTel Retirees. According to the association, it has 134,000 members and has since 1998 made shareholder proposals that have resulted in 11 changes to Verizon’s corporate governance and executive compensation policies. ‘As the largest individual group of shareholders, Verizon retirees want and expect a voice in the corporate governance of our company, and we have our finger on the pulse,’ BellTel president Jack Brennan says in a statement.

According to the company’s proxy statement posted March 20, Jack and Ilene Cohen have proposed that the board of directors amend the company’s compensation clawback policy to ‘provide that the human resources committee will review and determine whether to seek recoupment of incentive compensation paid, granted or awarded to a senior executive officer if, in the committee’s judgment, there has been conduct resulting in a violation of law, regulation or Verizon policy that causes significant financial or reputational harm to Verizon.’

This would apply to a senior executive if he/she either ‘engaged in the conduct or failed in his or her responsibility to manage or monitor conduct or risks.’ In such circumstances, the company would then ‘disclose to shareholders the circumstances of any recoupment and of any decision not to pursue recoupment.’ The clawback provision would apply to compensation already paid, as well as to the forfeiture, reduction or cancellation of remuneration or unvested equity awards over which Verizon retains control.

The proposal states that Verizon’s human resources committee has adopted a clawback policy that extends to executives who have ‘engaged in financial misconduct’. But it argues that ‘a clawback policy limited to financial misconduct is too narrow. We believe recoupment is an important remedy for other conduct that does not cause a restatement of financial results, but may harm Verizon’s reputation and prospects in addition to any financial penalties or loss. Recent high-profile regulatory fines paid by Verizon underscore the need for a stronger policy.’

For example, the proposal notes, the company in May 2015 entered into a consent decree with the Federal Communications Commission under which it would pay $90 million in fines, payments and restitution to resolve allegations that Verizon charged consumers for third-party products and services that the consumers did not authorize, a practice known as cramming.

‘Why reward unscrupulous behavior?’ Jack Cohen says in a statement. ‘If executives behave badly, unethically or fail to maintain legally appropriate standards, hold them accountable.’

The board opposes the measure. It argues in the proxy that Verizon’s existing clawback policies sufficiently address the proposal’s objectives because they empower the company to hold executives accountable for actions or omissions that result in major reputational or financial harm to the company. It also argues, among other things, that Verizon’s clawback policies are ‘part of a cohesive set of policies designed to encourage executives to focus on the long-term interests of Verizon’s shareholders and discourage excessive risk-taking that could cause significant harm to the company.’


MATCHING CONTRIBUTIONS
The association has also introduced a proposal calling on the board to adopt a policy that would limit the matching contributions made on behalf of senior executive officers to the company’s tax-qualified and non-qualified defined contribution savings plans. Specifically, the group wants a policy under which compensation eligible for the 6 percent company-matching contribution is limited to 100 percent of eligible base salary and does not include short-term or long-term incentive compensation.

‘Verizon continues to offer senior executive officers far more generous retirement saving benefits than rank-and file managers and other employees receive under the tax-qualified saving plans,’ the proposal states, arguing that their structures generate a disproportionately large company match for senior executives who make voluntary contributions. ‘In our view, such gross disparities between retirement benefits offered to senior executives and other employees create potential morale problems and reputational risk,’ it adds.

The board urges shareholders to vote against this proposal. ‘The board strongly objects to the proponent’s claim that Verizon offers its senior executives ‘far more generous’ retirement savings benefits than other management employees by providing ‘disproportionately’ large company-matching contributions to them,’ it states.

Rather, the board argues, Verizon provides the same matching opportunity to all of its management employees as it does to its senior executives. All management employees are eligible to receive a matching contribution equal to 100 percent of the first 6 percent of eligible pay – which for rank-and-file management employees and executives includes both base salary and short-term incentive compensation – that they contribute into a savings plan, the board writes. ‘The board believes the proponent’s assertion that there is a ‘gross disparity between retirement benefits’ is just plain wrong,’ it adds.

A Verizon spokesperson declined to comment beyond the board’s responses to the proposals in the proxy.