Verizon Retirees Urge Change to Executive Pay

Unlikely activists want the wireless carrier to end an investment option the company doesn’t offer to rank-and-file employees

for The Wall Street Journal, published on April 30, 2019

Jack Cohen, chairman of the Association of BellTel Retirees
on of BellTel Retirees,

An effort by former Verizon Communications Inc. employees to push for governance changes at the wireless carrier will face another test this week, highlighting the retirees’ reputation as unlikely corporate activists.

Since 1998, the Association of BellTel Retirees, a group of former Verizon employees and current shareholders, has used the proxy voting process to effect 11 major changes in the company’s corporate-governance practices. These have included trimming the use of so-called golden parachutes for executives, allowing holders to nominate directors and putting pay practices to an annual investor vote.
Now, Verizon shareholders will vote at the company’s annual meeting this Thursday on a group proposal that the retirees hope will persuade Verizon to stop offering executives an investment option in their company-sponsored savings plans that generates above-market returns. Verizon doesn’t offer this option to rank-and-file workers.

This is the second year the retirees have asked shareholders to vote against what it calls Verizon’s above-market retirement-savings plan. At last year’s annual meeting, the proposal won a respectable 28% of the votes cast.

“This is not a vendetta on the part of irate ex-employees,” said the association’s chairman, Jack Cohen, 74 years old, who spent 26 years at Verizon. “We try to focus on what is beneficial to all shareholders. We want the company to succeed.”

Bob Varettoni, Verizon’s director of corporate communications, said of the BellTel retirees: “We value their input and appreciate all that they do just as we value the input of all of our shareholders.”

Proposals aimed at bringing about change in a corporation’s governance practices are generally put forward by activist investors or big institutional shareholders, such as public pension funds. It is unusual for former employees of a company to band together to force such shifts, said Ken Bertsch, executive director at the Council of Institutional Investors, a nonprofit organization that focuses on corporate governance and shareholder rights.

The practice of providing executives above-market earnings on investment options is uncommon, according to Institutional Shareholder Services, a proxy-advisory service. At Verizon, it added $73,949 to the $13 million value of Chief Executive Lowell McAdam’s retirement-plan assets in 2017, the association said. The company’s proxy reported no above-market earnings for executives in 2018. Mr. McAdam retired from Verizon at the end of last year.

Verizon has urged shareholders to vote against the retirees’ proposal on above-market earnings, regulatory filings show. The company says it is inaccurate to characterize the investing option available to executives as “above-market” because it tracks the long-term, high-grade corporate bond yield average. It also says the investing option doesn’t increase the cost of executives’ retirement plans.

The idea for the association grew out of Verizon’s refusal to increase pension payouts to retirees in the mid-1990s, said Robert Rehm, a co-founder along with three other retirees. They formed a corporation, wrote bylaws and received a nonprofit designation.

“We each threw in $350 of our own money,” said Mr. Rehm, 78. “We started going around to luncheons we knew people were having and within about six to eight months we had 1,500 retiree names and addresses. By the end of the second year we had 10,000.”

The retiree association’s more than 134,000 members are split evenly between former high-ranking executives and lower-level union workers; the group is overseen by a 10-person volunteer board that keeps members up-to-date with quarterly newsletters.

The former union and management employees might have been adversaries during their work years, but in retirement they “are all rowing in the same direction,” Mr. Cohen said. “We’re a very cohesive group, which was totally out of character when we were active employees.”

In the early days, Verizon executives ignored the association’s inquiries, Mr. Rehm said. Now, company officials respond quickly to the association’s representatives, he said, and meet with them each fall to discuss issues.

The association’s first big win came in 2003 when a proposal to limit golden parachutes—payouts for departing executives when control of a company changes—passed with 59% support. “This was the first time in the history of the Bell System that any shareholder proposal ever won by majority vote,” Mr. Rehm said.

Securities and Exchange Commission rules allow any holder of at least $2,000 worth of a company’s stock or 1% of the company for one year to submit a proposal to be included on its annual proxy statement and put to a vote of shareholders. The SEC requires companies to include such proposals on proxies unless it permits the company to exclude them based on regulations.

Since 2005, Verizon has asked the SEC for permission to exclude from its proxies 14 of the association’s 26 proposals, said Cornish Hitchcock, a lawyer for the association. The SEC ruled that 10 should be included on the proxies and two excluded. The association withdrew the other two proposals.

At Verizon’s annual meetings, representatives of the retiree group present its proposals, often with support from outside shareholders. Verizon agreed to make three of the 11 changes after a majority of its shareholders favored the association’s proposals. Verizon made the other eight changes suggested by the association before the proposals went to a shareholder vote.

Among the proposals that won majority support: one in 2007 called for a shareholder vote on pay practices and another in 2013 allowed shareholders to nominate company directors.

“Verizon certainly doesn’t love us and they don’t agree with us, even though they’ve accepted 11 of our governance changes,” Mr. Rehm said. “But we’ve found they do respect us.”

By Gretchen Morgenson

Robert Rehm, a co-founder of the Association of BellTel Retirees