The Association of BellTel Retirees says that pension income has nothing to do with the company’s operating performance and therefore should not be used to determine executive compensation.
Patrick McGurn of ISS said the firm switched its position due to the increased information available on the issue, according to Dow Jones. In addition, McGurn sited the ‘material size of the pension gains in Verizon’s earnings at this point.’
It’s not the first such attempt by the BellTel Retirees, a nonprofit organization that represents retirees of the various companies that merged to form Verizon. A year ago the group had recommended excluding gains in the company’s pension fund from performance-based compensation for executives. However, then ISS recommended voting against the proposal, which eventually drew 18.7% of the shareholder vote.
Not surprisingly, Verizon’s board of directors is recommending a vote against the proposal, noting that it would ‘arbitrarily’ limit the discretion of the board in setting compensation levels. The proxy statement also asserts Verizon’s belief that such a change would be contrary to generally accepted compensation practices.
ISS recommended voting against a similar proposal for GE and hasn’t yet issued recommendations for other companies where similar proposals have been put forth – including AT&T, IBM and Qwest Communications, according to the report. While supporting the basic premise that pension income should not be used to boost executive pay, ISS said that pension fund credits represented a far smaller portion of GE’s net income than Verizon’s.
Verizon recorded $1.3 billion in pretax pension income, net of ‘post-retirement benefit’ costs, in 2001. Verizon’s pension fund actually lost money last year – some $3.1 billion, according to Dow Jones, citing Michael Calabrese, a lawyer at the New America Foundation, which advised the BellTel Retirees on the proposal. However, while the pension surplus decreased to $12.2 billion from $22 billion last year, accounting rules still resulted in a pension credit boost to Verizon’s net income.
ISS has, however, recommended voting against two other proposals submitted by the BellTel Retirees this year:
– to subject certain executive severance packages to
– to require that a majority of the company’s directors be independent.
Investors will meet to vote on the proposal and other proxy items at Verizon’s annual shareholder meeting April 24 in Minneapolis.