Verizon Retirees Almost Force a Change in Pay
Retired Verizon Communications Inc. workers came unusually close this
week to forcing the regional Bell phone giant to stop including income
generated by its pension plan in its formula for setting executive pay.
The same issue has been raised at several large companies this year,
including General Electric Corp. and International Business Machines Corp,
as scandals like the one at Enron Corp. put the spotlight on workers who
lost their retirement savings while executives profited.
Despite management opposition, an item proposed by the Association of
BellTel Retirees Inc. won 43% of the vote at Verizon's annual meeting in
Minneapolis, up from 19% the year before. Both the company and the
71,000-member group's president attributed the jump to the support of
Institutional Shareholder Services, an influential proxy adviser among
Many companies, including the regional Bells, have significant pension
plans that contribute substantially to their net income. A Credit Suisse
First Boston study in 2001 said 30% of the companies in the Standard &
Poor's 500-stock index reported pension income that added an average of
12% to pretax earnings.
In February, McDermott International Inc., an energy company based in
New Orleans, set a precedent when it excluded pension gains from its
executive compensation formula in response to a shareholder proposal from
Amalgamated Bank of New York.
Verizon retirees object to pension gains being part of the calculation
for tallying bonuses and incentive pay because they don't reflect
management's skill or operating performance and can, in fact, compensate
for operating losses. Verizon would have posted a loss in 2001 if it
hadn't been for $1.8 billion in pension income, according to the
Institutional Shareholder Services analysis. Verizon spokesman Peter
Thonis said that 2001 results included substantial noncash charges that
also weren't related to operating performance.
Despite the increased show of support from shareholders, Verizon has
"no plans to change our policy at the present time," Mr. Thonis
Including pension gains in executive compensation formulas "does provide a disincentive for the executives to give pension increases to the retirees," said Bill Jones, president of BellTel Retirees. The less a company spends on workers' benefits, the more the pension fund adds to the bottom line.
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