VZ » Topics » Determination of Annual Performance Measures

This excerpt taken from the VZ DEF 14A filed Mar 23, 2009.

Determination of Annual Performance Measures

The Committee reviews and establishes the performance measures for the Short-Term Plan on an annual basis to ensure that the program design appropriately motivates executives to achieve challenging financial and operational performance goals.

 

In the first quarter of 2008, the Committee reviewed and approved the following annual financial and operating performance measures for all of Verizon’s executives, including the named executive officers, and ascribed to each the weighting shown below.

 

Performance Measure    % of Total Award at Target  

Adjusted EPS

   60 %

Revenue Growth

   35 %

Diversity

   5 %

 

As discussed previously, because the Committee believes that shareholders and the investment community primarily evaluate Verizon based on its consolidated performance, the Committee based the Short-Term Plan award opportunities for all of the named executive officers on two Company-wide financial performance measures, as determined by top line revenue growth and bottom line Adjusted EPS. The Committee also recognized that the executives must successfully manage the challenges for each business segment to create revenue growth and segment operating earnings in order to achieve the overall Company performance goals.

 

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Adjusted EPS.  The Committee views Adjusted EPS as an important indicator of Verizon’s success. The Committee has selected Adjusted EPS as one of the performance measures under the Short-Term Plan because it is broadly used and recognized by investors as a significant indicator of Verizon’s ongoing operational performance. Adjusted EPS excludes non-recurring and non-operational items, such as impairments and gains and losses from discontinued operations, business combinations, changes in accounting principles, extraordinary items and restructurings. As a result, Adjusted EPS is not positively or negatively impacted from period to period by these types of items, so it better reflects the relative success of the Company’s ongoing business.

 

In setting the Adjusted EPS target for 2008 and in evaluating the Company’s success in meeting that target, the Committee took into account that the Company’s stock repurchases were within the limits of the stock repurchase plan approved by the Board at the time the Adjusted EPS target was established.

 

In addition, the Committee’s policy requires the exclusion of the effect of any net impact from pension income and other postretirement benefit costs. For 2008, the Committee reviewed the net contribution of pension income and postretirement benefit costs to Adjusted EPS and determined the Adjusted EPS measure for compensation purposes after excluding the impact of any net benefit from pension income and other postretirement benefit costs.

 

Revenue Growth.  The Committee also views consolidated adjusted total revenue growth as another important indicator of the Company’s success in managing its capital investments. This measure reflects the level of penetration of products and services in key market segments. Using this measure provides balance within the Short-Term Plan because executives can only achieve a maximum total award when there is both significant revenue growth and significant profitability.

 

Diversity.  The Company is committed to promoting diversity among its employees and to recognizing and encouraging the contribution of diverse business partners to the Company’s success. To reflect that important commitment, the 2008 performance measures also include a diversity measure.

 

The value of the Short-Term Plan award opportunity for each performance measure varies depending on the Company’s performance with respect to that measure. For each measure, (i) if performance exceeds the target performance, the value of the opportunity for that measure will be greater than the target opportunity but not above the maximum award opportunity for that measure; (ii) if performance is below the target but exceeds the threshold performance, the value of the opportunity for that measure will be between the target and threshold values for that measure; and (iii) if performance is below the threshold performance, no value will be paid with respect to that measure. If the Company’s performance is below the threshold for all of the performance measures, no award will be paid under the Short-Term Plan for that year.

 

In addition, under the Short-Term Plan no awards may be paid if Verizon’s return on equity for the plan year, calculated based on adjusted net income, does not exceed 8%, even if some or all of the performance measures are achieved.

 

The Committee believes that these performance measures are appropriate to motivate the Company’s executives to achieve outstanding short-term results and to build value for shareholders.

 

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