Shareholders Hit Verizon

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Other Cos May Follow Executive-Pay Moves At GE, Verizon
Friday February 21, 5:43 pm ET

By Allison Bisbey Colter and Lingling Wei
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Moves by Verizon Communications and General Electric Co. (NYSE:GE - News) to exclude income or profit from their pension plans when calculating bonuses for senior executives are likely to put pressure on other companies to follow suit.

Both GE and Verizon adopted the measures in response to shareholder proposals from groups representing retired employees. A number of large companies, including International Business Machines Corp. (NYSE:IBM - News) and Qwest Communications International Inc. (NYSE:Q - News) , face similar shareholder proposals.

As investor fury over exorbitant executive paychecks has boiled over in the past year, "it would be unusual for a Fortune 500 company not to take a hard look" at the issue, said Jean FitzSimon, a corporate-governance specialist at consultancy Bridge Associates LLC.

However, FitzSimon added, companies tend to be slow to act when it comes to transparency. "Unless they receive a push from shareholders, they are unlikely to jump on the bandwagon," she said.

Declining pension assets may help make these measures more palatable. Although pension plans still generate big profits at some companies, their contribution to earnings is declining as the stock market takes a toll on returns and the costs of benefits rise.

GE's pension plan contributed $1.5 billion to income in 2002. But that was down from $2 billion a year earlier.

Verizon expects pension income to contribute between three and five cents to earnings per share this year, down from 35 cents a share in 2002.

That means top executives will have less to lose by excluding the impact of pension-plan income or profits from the calculations used to determine their pay.

Both GE and Verizon plan to spell out their new compensation systems in their 2003 proxies, due out next month.

Activist investors are targeting excessive executive compensation as the number one problem requiring shareholder action this year. Executive pay issues, ranging from expensing stock options to abolishing options completely, have drawn more shareholder resolutions than any other topic.

"The executive pay issue is capturing the focus of a lot of shareholders," said William Patterson, head of the AFL-CIO's (News - Websites) Office of Investments.

Last year, Verizon received three shareholder proposals from the Association of BellTel Retirees, one on the calculation of executive compensation, one on executive severance agreements and one on the composition of the board of directors. While all three were defeated, the proposal to disallow Verizon from including earnings on its $55 billion pension fund for the purposes of calculating officers pay received the widest margin of support, at 43%.

The company subsequently decided to adopt the measure. "We wanted to be responsive to shareholders," spokesman Bob Varettoni said.

IBM is facing a similar proposal on this year's proxy ballot, but the company remains opposed to such a move.

"We strongly believe that compensation of executives should be based on a company's performance as reported to stockholders," spokesman Bill Hughes said.

"We don't see any merit to the contention that IBM administers its pension plan in a manner other than in the best interest of company employees and retirees," he said.

Qwest Communications spokesman Chris Hardman said the company is also facing another shareholder proposal on excluding pension income from calculations of executive pay this year, but declined to comment further.

AT&T Corp. was also the subject of an unsuccessful shareholder proposal to exclude pension income from calculations of executive pay last year, but the company wouldn't indicate whether such a proposal would appear on this year's proxy ballot. "We're not going to speculate on what we may or may not do in future on executive compensation," spokesman Dan Lawler said.

-By Allison Bisbey Colter, Dow Jones Newswires

Also See below last years the industry pension magazine report of the BellTel 43% proxy showing. It take time, money and persistence to achieve these results.

Plan Sponsor is an Industry News Letter that keeps up with Corporate News regarding Pension Funds and Benefits.

Shareholders Hit Verizon, Raytheon Exec Comp Rules

April 25, 2002 (PLANSPONSOR.com) - Shareholders at two prominent US companies have turned away efforts to keep pension gains from further boosting executive pay and bonuses, but the fight at one firm appears to be getting much closer to its goal.

According to a Dow Jones news report, supporters of the executive compensation initiative at Verizon Communications walked away with 42.7% of the vote - up sharply from the 18.7% of supporting votes they won last year. The BellTel Retirees' Associates, an activist retiree group, sponsored the proposal

Meanwhile, retirees at the Lexington, Massachusetts-based Raytheon Co. also lost their bid to calculate executive compensation without pension income - in Raytheon's case, the formula for awarding stock options.

According to the Boston Globe, a few dozen Raytheon retirees demonstrated at the defense contractor's Wednesday's annual meeting. The Raytheon retirees haven't received a pension increase since 1993, the Globe said.

Verizon's Pension Fund Posted a Gain

Currently, pension fund gains are included in Verizon's annual income and are among several factors used to determine executive compensation.

Although Verizon's pension fund actually lost money last year, the fund posted a gain in keeping with the accounting rules that made Verizon profitable for the year, Dow Jones said.

The retirees argued that pension income should be separated from income generated by the company's operating performance. Once separated, the retirees argued, it should be kept out of financial metrics used to figure out how much top executives get.

In its proxy statement, Verizon countered that the proposal would arbitrarily limit the discretion of the board, and the proposal is "contrary to generally established compensation practices."

That the proposal was defeated this week "shows that most shareholders want to evaluate executive performance using the same measures that Wall Street uses," Verizon spokesman Peter Thonis told Dow Jones.

However, C. William Jones, president of the retirees' association, was optimistic that most shareholders will vote with his association next year. "That was a tremendous increase," he said. "We're looking forward to winning it next year. I think we're getting close."

Raytheon Pension Overfunded

Meanwhile, in the Raytheon controversy, protestors contended that the company had used pension plan gains to fund a new generous executive pension as well as stock option payouts for executives. The Raytheon plan was overfunded for much of the 1990s, according to the Globe.

"We're all hurting ... while they're taking care of themselves," retiree Charles Eliot, said at the shareholders meeting, according to the Globe.

Raytheon, which says it has 42,000 retirees, reiterated that the requested retiree pension increases would cost too much, about $50 million a year. Raytheon chief executive Daniel Burnham noted the company had no obligation to increase pension payments and said competitors haven't done so for their own retirees.

- Fred Schneyer

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