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Wall Street Journal, April 25, 2007 column


The Wall Street Journal  

April 25, 2007





How Verizon Might Avoid
Ruckus Over CEO's Pay

April 25, 2007; Page A2

Verizon Chief Executive Ivan Seidenberg has reason to worry. Some of the same shareholder activists who targeted former Pfizer chief Henry McKinnell and former Home Depot chief Robert Nardelli for excessive pay last year now have the telecom boss at the top of their hit list.

Messrs. McKinnell and Nardelli lost their jobs largely as a result. Will Mr. Seidenberg go as well?

In today's tumultuous corporate environment, that's not an easy question to answer. Nor is this one: Who runs the corporation? A decade ago, most chief executives were firmly ensconced at the top of a corporate hierarchy, and only the grossest misdeeds were likely to dislodge them. Today, they seem susceptible to the judgments of a host of outsiders.



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Do you think Verizon Chief Executive Ivan Seidenberg is worth the $23 million he made last year? Share your thoughts.2

Then there's this thorny question: What's a CEO worth? Executive pay has emerged as the Achilles' heel of the corporate elite. The scandals and turmoil of the past half-decade have taught corporate chieftains that they need the goodwill of the public to survive and thrive. But persuading Joe Six-Pack that a chief executive needs to make $20 million a year for ho-hum performance is no easy task.

Which brings us back to Mr. Seidenberg. His total compensation last year was $23,669,100. Included was $173,378 for personal use of the corporate jet and $10,000 to pay a financial planner to help keep track of all that money.

For investors, that pay was for mixed performance. Anyone who bought the stock when Mr. Seidenberg became sole CEO in April 2002 has lost money. Anyone who bought it at the start of 2006 earned a 34% return last year -- well above the average for S&P 500 companies, but below others in the telecommunications industry. By contrast, AT&T provided a 52% return to shareholders last year -- and Chief Executive Edward Whitacre took in $36 million in pay.

Mr. Seidenberg's critics tend to focus on the lousy five-year track record. "Verizon this year is the poster child for pay for failure," says AFL-CIO Secretary-Treasurer Richard Trumka. The AFL-CIO is trying to convince shareholders to withhold votes for six directors at Verizon's annual meeting on May 3. That's threatening because the company last year bowed to another shareholder demand and adopted a rule requiring directors to win a majority of votes cast. Before that, directors could be elected with a simple plurality.

The unions have considerable clout in these elections. They not only control their own pension funds, but have outsize influence with the large public-employee pension funds. And even without majority support, they can have a big impact. Last year, only a third of shareholders withheld votes from targeted Home Depot directors, and only a quarter withheld votes from targeted Pfizer directors. But those "no" votes were large enough to send a message the boards subsequently heeded.

Dan Pedrotty, who runs the AFL-CIO's Office of Investment, says another big issue is the fact that Verizon "took conflicted advice from a compensation consultant who was doing an enormous amount of business with the company itself." The Verizon board dumped that consultant, Hewitt Associates, last year, after an article in the New York Times highlighted the conflict.

But the union has its own conflicts. Mr. Pedrotty argues the campaign against Mr. Seidenberg is about getting better returns for pensioners. But the Communications Workers of America also slated a rally in Pittsburgh for May 3 -- the same day as the Verizon annual meeting there -- which it says will "set the stage for 2008 Verizon bargaining."

Mr. Seidenberg declined comment. His defenders argue he is a transitional CEO, who has had to make costly investments in fiber-optic lines and other technology that hurt earnings in the short term to enable it to win in the long run.

Moreover, two proxy advisory services have come out at least partly defending Mr. Seidenberg in the battle. Institutional Shareholder Services has recommended to most of its clients that they oppose the effort to dump Verizon directors. And Glass Lewis has recommending withholding votes from just two, not all six directors.

So will he survive? At the end of the day, that's a decision shareholders have to make. After all, it's their money paying his salary. The battle will give them a chance to express their views, albeit in a very messy and indirect way.

Verizon shareholders will also have a chance next month to vote on a proposal to give shareholders an advisory vote each year on executive pay - an idea that's already in place in Britain, and that was backed recently by the House of Representatives.

You have to wonder: Wouldn't that be a simpler way to get shareholders involved?

Alan Murray welcomes reader questions and will respond at

Write to Alan Murray at Alan.Murray@wsj.com4

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