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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.     )

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VERIZON COMMUNICATIONS INC.

 

(Name of Registrant as Specified in Its Charter)

 

          

 

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Our innovations are

building a connected

world – a better future for everyone.

 

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				Time and date   Thursday, May 4, 2017 8:30 a.m., local time   Place   Dallas Marriott Las Colinas 223 West Las Colinas Boulevard Irving, Texas 75039

 

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Proxy Statement

We are mailing this proxy statement to our shareholders beginning on March 20, 2017. It is also available online at www.edocumentview.com/vz or, if you are a registered holder, at www.envisionreports.com/vz. Our Board of Directors is soliciting proxies in connection with the 2017 Annual Meeting of Shareholders and encourages you to read this proxy statement and vote your shares promptly.

Governance

Commitment to good governance

Our Board of Directors believes that high standards of corporate governance increase value for Verizon’s shareholders and enhance our reputation. All of our Directors stand for election each year, and 11 of our 12 Directors standing for re-election this year are independent. Our rigorous Director nomination process identifies candidates with the time, skills and experience to contribute to Verizon and to engage with management about all aspects of our business. Collectively, our Board embodies a range of viewpoints, backgrounds and expertise because our Board believes that diversity is an important attribute of a well-functioning board.

The Board conducts its oversight responsibilities through four standing committees: Audit, Corporate Governance and Policy, Finance, and Human Resources. Each committee has a written charter that defines its specific responsibilities. The committees are discussed beginning on page 16.

The Corporate Governance and Policy Committee ensures that the membership, structure, policies and practices of our Board and its committees promote the effective exercise of the Board’s role in the governance of Verizon. In addition, our Corporate Governance Guidelines provide a framework for the Board’s operation and address key governance practices. The Corporate Governance and Policy Committee monitors best practices and developments in corporate governance, considers the views of Verizon’s shareholders, and periodically recommends changes to the Board’s policies and practices, including the Guidelines.

 

				Where to find more information on governance at Verizon   You can find Verizon’s Corporate Governance Guidelines, Code of Conduct and other corporate governance materials, including Verizon’s certificate of incorporation, bylaws, committee charters and policies, on the Corporate Governance section of our website at www.verizon.com/about/investors. You can request copies of these materials from the Assistant Corporate Secretary at the address given under “Contacting Verizon.”

 

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Proxy Statement  |  Business conduct and ethics

 

Business conduct and ethics

We are committed to operating with the highest level of integrity, responsibility and accountability. To that end, we have adopted a Code of Conduct that applies to all employees, including the CEO, the Chief Financial Officer and the Controller. The Code of Conduct describes each employee’s responsibility to conduct business with the highest ethical standards and provides guidance about preventing, reporting and remediating potential compliance violations in key areas. Directors are expected to act in the spirit of the Code of Conduct, and to comply with the specific ethical provisions of the Corporate Governance Guidelines. Our Board is strongly predisposed not to waive any of the business conduct and ethics provisions applicable to Directors or executive officers. In the unlikely event of a waiver, we will promptly disclose the Board’s action on our website.

Related person transactions

The Board has adopted the Related Person Transaction Policy that is included in the Guidelines. The Corporate Governance and Policy Committee reviews transactions between Verizon and any of our Directors or executive officers or members of their immediate families to determine if any participants have a material interest in the transaction. If the Committee determines that a material interest exists, based on the facts and circumstances of each case, the Committee may approve, disapprove, ratify or cancel the transaction or recommend another course of action. Any Committee members who are involved in a transaction under review do not participate in the Committee’s deliberations.

From time to time Verizon has employees who are related to our executive officers or Directors. Lowell McAdam, Chairman and CEO, has a child who is employed by a Verizon subsidiary and earned approximately $133,367 in 2016. Francis Shammo, former Executive Vice President and Chief Financial Officer, has an in-law who is employed by a Verizon subsidiary and earned approximately $392,305 in 2016. John Stratton, Executive Vice President and President of Operations, has a child who is employed by a Verizon subsidiary and earned approximately $191,615 in 2016, and an in-law who is employed by a Verizon subsidiary and earned approximately $180,820 in 2016. In each case, the amount of compensation earned was comparable to that of other employees in similar positions. These employees also participate in Verizon’s welfare and benefit plans that are made available to all employees.

 

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Proxy Statement  |  Key corporate governance features

 

Key corporate governance features

 

		Shareholder rights
		Majority voting in Director elections		Verizon’s bylaws provide for the election of Directors by a majority of the votes cast in an uncontested election. This provision can only be changed by a majority vote of the shareholders.
		Call a special meeting		Any shareholder owning at least 10% (or any group of shareholders owning at least 25%) of Verizon’s outstanding common stock may call a special meeting of shareholders. Our bylaws include requirements relating to special meetings.
		Proxy access		Any shareholder (or any group of up to 20 shareholders) owning at least 3% of Verizon’s outstanding common stock for at least three years may include a specified number of director nominees in our proxy materials for the annual meeting of shareholders. Our bylaws specify qualifying stock ownership, the number of permitted nominees, and other requirements relating to proxy access.
		Approve poison pill		Verizon does not have a shareholder rights plan, commonly referred to as a “poison pill.” Any shareholder rights plan adopted by our Board must be approved by shareholders within one year and then re-approved every three years.
		Ratify executive severance agreements		Shareholders must ratify any employment or severance agreement with an executive officer that provides for severance benefits exceeding 2.99 times the sum of the executive’s base salary plus non-equity incentive plan payment. This policy is described on page 47.

 

		Board governance
		Director independence		All of our non-employee Directors are independent, and the standards that our Board uses to assess independence are more stringent than those of the New York Stock Exchange (NYSE) or The Nasdaq Stock Market (Nasdaq). For more information about the independence of the non-employee Directors, see “Independence” on page 6.
		Board leadership		Currently, the CEO serves as Chairman of the Board, in consultation with the Lead Director. You can read about the respective roles and responsibilities of the Chairman and the Lead Director, and why our Board believes Verizon’s shareholders are best served by this leadership structure, under “Board leadership” on page 14.
		Limits on board service		To ensure that our Directors have sufficient time to devote to their responsibilities on Verizon’s Board, our Corporate Governance Guidelines provide that Directors with full-time roles in for-profit businesses may not serve on more than three public company boards, and other Directors may not serve on more than four public company boards. Members of our Audit Committee may not serve on more than two other audit committees.
		Stock ownership		Within three years of their election, Directors must hold Verizon stock with a value equal to three times the cash component of the annual Board retainer. Shares held in any deferral plan are included when calculating the number of shares held.
		Director retirement		Directors must retire from the Board the day before the annual meeting of shareholders that follows their 72nd birthday. The size of the Board will be reduced by one for each such retirement.

 

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Item 1: Election of Directors

Election process

Verizon’s Directors are elected annually for a term of one year. We believe annual elections are consistent with good corporate governance because they foster director accountability and increase shareholder confidence. Verizon’s bylaws require Directors to be elected by a majority of the votes cast in an uncontested election.

Director nominations

The Corporate Governance and Policy Committee considers and recommends candidates for our Board. The Committee reviews all nominations submitted to Verizon, including individuals recommended by shareholders, Directors or members of management. The Committee also retains executive search firms from time to time to help identify and evaluate potential candidates.

Any shareholder who wishes to recommend a Director candidate to the Committee for its consideration should write to the Corporate Secretary at the address given under “Contacting Verizon.” A recommendation for a Director candidate should include the candidate’s name, biographical data and a description of the candidate’s qualifications in light of the requirements described below. If we make any material changes to the Committee’s procedure for considering and nominating candidates, we will file a report with the SEC and post the information on the Corporate Governance section of our website at www.verizon.com/about/investors.

The Committee specifically reviews the qualifications of each candidate for election or re-election. For incumbent Directors, this review includes the Director’s understanding of Verizon’s businesses and the environment within which Verizon operates, attendance and participation at meetings, and independence. After the Committee evaluates all candidates for Director, it presents its recommendation to the Board. The Committee also discusses with the Board any candidates who were considered by the Committee but not recommended for election or re-election.

Before they are nominated, each candidate for election and each incumbent Director standing for re-election must consent to stand for election or re-election and provide certain representations required under Verizon’s bylaws. Each candidate who is standing for election must also submit an irrevocable resignation, which will only become effective if (i) our Board or any Committee determines that any of the required representations were untrue in any respect or (ii) the candidate does not receive a majority of the votes cast at the annual meeting of shareholders and the independent members of our Board decide to accept the resignation. Any decision about a resignation following an incumbent Director’s failure to obtain a majority of the votes cast will be disclosed within 90 days after the election results are certified.

Shareholders wishing to nominate a Director should follow the procedures set forth in Verizon’s bylaws and described on page 94.

Director criteria, qualifications and experience

To be eligible for consideration, any proposed candidate must:

 

 

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Item 1: Election of Directors  |  Director criteria, qualifications and experience

 

Our Board’s commitment to refreshment and succession planning is at the core of its ability to maintain independence of thought and action. Key factors the Committee considers when selecting Directors and refreshing the Board include:

 

•

Diversity – The Committee recognizes that a diverse set of viewpoints and practical experiences enhances the effectiveness of our Board. In evaluating candidates, the Committee considers how a candidate’s particular background, experience, qualifications, attributes and skills may complement, supplement or duplicate those of other prospective candidates.

 

•	Experience – The Committee strives to maintain a Board with a wide range of leadership experience and skills relevant to Verizon’s strategic vision.

 

•

Age and tenure – Under the Corporate Governance Guidelines, Directors must retire from the Board the day before the annual meeting of shareholders that follows their 72nd birthday. The Committee also considers the tenure of each incumbent Director and the average tenure of the Board in an effort to maintain a Board that balances the fresh perspective and ideas of newer Directors with the deep insight into the Company that longer tenured Directors have developed.

 

•	Board size – Verizon’s Board currently has 12 members. The Committee periodically evaluates whether a larger or smaller board would be preferable, depending on the Board’s needs and the availability of qualified candidates.

 

•	Board dynamics – The Committee considers each Director candidate’s individual contribution or potential contribution to the Board as a whole and strives to maintain one hundred percent active and collaborative participation.

 

 

 

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Item 1: Election of Directors  |  Independence

 

Independence

Verizon’s Corporate Governance Guidelines establish standards for evaluating Director independence and require that a substantial majority of the Directors be independent. The Board determines the independence of each Director under NYSE and Nasdaq governance standards, as well as the more stringent standards included in the Guidelines. These standards identify the types of relationships that, if material, could impair independence, and fix monetary thresholds at which the relationships are considered to be material. The Guidelines are available on the Corporate Governance section of our website at www.verizon.com/about/investors. The Corporate Governance and Policy Committee conducts an annual review of any relevant business relationships that each Director may have with Verizon and reports its findings to the full Board. Based on the Committee’s recommendation, the Board has determined that all of the incumbent non-employee Directors who are standing for election are independent: Shellye Archambeau, Mark Bertolini, Richard Carrión, Melanie Healey, M. Frances Keeth, Karl-Ludwig Kley, Clarence Otis, Jr., Rodney Slater, Kathryn Tesija, Gregory Wasson and Gregory Weaver. The Board also determined that Donald Nicolaisen, who resigned from the Board on December 31, 2016, was independent.

The employers or former employers of Ms. Archambeau, Mr. Bertolini, Mr. Carrión, Dr. Kley, Mr. Slater and Ms. Tesija all made payments to Verizon for telecommunications services and solutions during 2016. In addition, Verizon made payments to Mr. Bertolini’s employer under an administrative services contract for employee healthcare benefits. Verizon also made payments to Ms. Tesija’s former employer in connection with sales of Verizon’s products and services at that company’s stores, and Verizon received payments from that company for cybersecurity services. Applying the independence standards above, the Board considered all of the foregoing payments and determined that these general business transactions and relationships are not material and did not impair the ability of the applicable Directors to act independently.

 

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Item 1: Election of Directors  |  Nominees for election

 

Nominees for election

Our Board has nominated the 12 candidates below for election as Directors, all of whom currently serve as Directors of Verizon. After completing the evaluation process described above, the Corporate Governance and Policy Committee and our Board concluded that each of the incumbent Directors should be nominated for re-election. We describe their respective experience, qualifications, attributes and skills below. The Committee and the Board assessed these factors in light of Verizon’s strategy and businesses, which provide a broad array of communications, information and entertainment products and services to individuals, businesses, governments and wholesale customers in the United States and around the world.

Each candidate has consented to stand for election, and we do not anticipate that any candidate will be unavailable to serve. If any candidate were to become unavailable before the election, the proxy committee could vote the shares it represents for a substitute named by the Board.

Each candidate has submitted an irrevocable, conditional letter of resignation that our Board will consider if that candidate fails to receive a majority of the votes cast.

 

		Our Board of Directors recommends that you vote for each of the following candidates.

 

 

Director since 2013   Age 54   Independent   Committees   •    Audit   •    Corporate Governance      and Policy		Shellye L. Archambeau   Ms. Archambeau is Chief Executive Officer of MetricStream, Inc., a leading provider of governance, risk, compliance and quality management solutions to corporations across diverse industries. Prior to joining MetricStream in 2002, Ms. Archambeau served as Chief Marketing Officer and Executive Vice President of Sales for Loudcloud, Inc., Chief Marketing Officer of NorthPoint Communications, and President of Blockbuster Inc.’s e-commerce division. Before she joined Blockbuster, she held domestic and international executive positions during a 15-year career at IBM. Ms. Archambeau has served on the board of Nordstrom, Inc. since 2015 and, in the past five years, she has served on the board of Arbitron, Inc.   Qualifications: Ms. Archambeau provides our Board with valuable knowledge of technology, e-commerce, digital media and communications platforms. Her experiences in the Silicon Valley emerging company community, as well as her prior experience at IBM, provide her with global perspectives on developing and marketing emerging technology applications and solutions.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2015   Age 60   Independent   Committee   •    Finance		Mark T. Bertolini   Mr. Bertolini is Chairman and Chief Executive Officer of Aetna Inc., a Fortune 100 diversified healthcare benefits company. Prior to assuming the role of Aetna’s CEO in 2010 and Chairman in 2011, Mr. Bertolini served as President from 2007, responsible for all of Aetna’s businesses and operations across the company’s range of healthcare products and related services. He also served as Executive Vice President and head of Aetna’s regional businesses. Mr. Bertolini joined Aetna in 2003 as head of Aetna’s Specialty Products after holding executive positions at Cigna, NYLCare Health Plans and SelectCare, Inc.   Qualifications: Mr. Bertolini’s experience at a large, multinational corporation provides our Board with valuable operational and management expertise, as well as critical perspective on strategic planning. His role as Chairman and CEO of Aetna provides our Board with additional insights into the healthcare industry.

 

 

Director since 1997   Age 64   Independent   Committees   •    Corporate Governance        and Policy   •    Finance (Chair)   •    Human Resources		Richard L. Carrión   Mr. Carrión has served for over 20 years as Chairman and Chief Executive Officer of Popular, Inc., a diversified bank holding company. He served as a director of the Federal Reserve Bank of New York – a government-organized financial and monetary policy organization – from 2008 to 2015. He also served as a director of NYNEX Corporation, one of Verizon’s predecessor companies, from 1995 to 1997.   Qualifications: Mr. Carrión provides our Board with financial, operational and strategic expertise developed during his long tenure as Chairman and CEO of Popular, Inc. This experience, combined with his board service at the Federal Reserve Bank of New York, also provides our Board with deep risk management expertise.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2011   Age 55   Independent   Committees   •    Finance   •    Human Resources		Melanie L. Healey   Ms. Healey was Group President of The Procter & Gamble Company, one of the leading providers of branded consumer packaged goods, from 2007 to 2015. During her tenure at Procter & Gamble beginning in 1990, Ms. Healey held a number of other positions of responsibility, including Group President and advisor to the Chairman and CEO, Group President of North America and Group President for the Global Feminine and Health Care Sector. Ms. Healey has served as a director of PPG Industries, Inc. since July 2016 and Target Corporation since 2015.   Qualifications: Ms. Healey provides our Board with valuable strategic, branding, distribution and operating experience on a global scale obtained over her 32-year career in the consumer goods industry. Her deep experience in marketing and operations, including her 18 years outside the United States, provides our Board with strategic and operational leadership and critical insights into brand building and consumer marketing trends globally.

 

 

Director since 2006   Age 70   Independent   Committees   •    Audit   •    Corporate Governance        and Policy (Chair)   •    Finance		M. Frances Keeth (Lead Director)   Ms. Keeth was Executive Vice President of Royal Dutch Shell plc, a global energy company, from 2005 to 2006, and was President and Chief Executive Officer of Shell Chemicals LP from 2001 to 2006. During her long tenure at Royal Dutch Shell, Ms. Keeth served in a number of other positions of responsibility, including Executive Vice President, Finance and Business Systems, and Executive Vice President, Customer Fulfillment and Product Business Units. Before holding these positions, Ms. Keeth was controller and principal accounting officer of Mobil Corporation. Ms. Keeth has served as a director of Arrow Electronics, Inc. since 2004 and, in the past five years, she has served as a director of Peabody Energy Corporation.   Qualifications: Ms. Keeth’s career with Shell has provided her with substantial experience in managing worldwide operations and strategic partnerships in a capital-intensive business. Her expertise provides our Board with critical skills in the areas of financial oversight, aligning financial and strategic initiatives, and risk management.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2015   Age 65   Independent		Karl-Ludwig Kley   Dr. Kley was Chairman of the Executive Board and Chief Executive Officer of Merck KGaA, a leading producer of high-tech products in healthcare, life science and performance materials, from 2007 to 2016. Before joining Merck KGaA, Dr. Kley was a member of the Executive Board of Deutsche Lufthansa AG from 1998 to 2006, where he served as Chief Financial Officer. From 1982 to 1998, Dr. Kley worked for Bayer AG in a variety of positions, including as head of corporate finance and investor relations. Dr. Kley has served as vice chairman and a member of the supervisory board of BMW AG since 2010 and 2008, respectively. He has also served as a member of the supervisory board of Deutsche Lufthansa AG since 2014 and as chairman of the supervisory board of E.ON SE since 2016.   Qualifications: Dr. Kley brings to our Board significant leadership experience as CEO of an innovative, global operation that is navigating a highly competitive, complex and rapidly changing ecosystem. His extensive expertise in corporate finance combined with his director roles on the boards of other public companies, provides our Board with a unique global perspective and critical capabilities in strategic oversight and corporate governance.

 

 

Director since 2011   Age 62   Chairman since 2012		Lowell C. McAdam (Chairman)   Mr. McAdam is Chairman (since 2012) and Chief Executive Officer (since 2011) of Verizon Communications Inc. Prior to becoming CEO, Mr. McAdam served in numerous positions of responsibility, including President and Chief Operating Officer of Verizon Communications Inc., President and CEO of Verizon Wireless, and Executive Vice President and Chief Operating Officer of Verizon Wireless. Before Verizon Wireless was formed, Mr. McAdam held executive positions with PrimeCo Personal Communications, AirTouch Communications and Pacific Bell. Mr. McAdam spent six years in the U.S. Navy Civil Engineer Corps and became a licensed professional engineer in 1979. He has served as a director of General Electric Company since April 2016.   Qualifications: Mr. McAdam provides our Board with substantial and wide-ranging expertise in the telecommunications industry as well as a deep focus on innovation developed during his pivotal role in the formation and growth of Verizon Wireless. As CEO of Verizon Communications Inc., he provides our Board with in-depth knowledge of Verizon’s business, industry, challenges and opportunities.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2006   Age 60   Independent   Committees   •    Audit   •    Finance   •    Human Resources      (Chair)		Clarence Otis, Jr.   Mr. Otis was Chairman (from 2005 to 2014) and Chief Executive Officer (from 2004 to 2014) of Darden Restaurants, Inc., the largest company-owned and operated full-service restaurant company in the world. After joining Darden in 1995 as Vice President and Treasurer, Mr. Otis served in a number of positions of responsibility, including Chief Financial Officer, Executive Vice President, and President of Smokey Bones Barbeque & Grill, a restaurant concept formerly owned and operated by Darden. Mr. Otis also served as a director of the Federal Reserve Bank of Atlanta – a government-organized financial and monetary policy organization – from 2010 to 2015. Mr. Otis has served as a director of VF Corporation since 2004.   Qualifications: Mr. Otis provides our Board with valuable insight into consumer services, retail operations and financial oversight. His experience over his 20 years at Darden Restaurants provides him with relevant perspectives on operations, strategy and management of a complex organization and a large-scale workforce, and his board service at the Federal Reserve Bank of Atlanta provides deep risk management expertise.

 

 

Director since 2010   Age 62   Independent   Committees   •    Corporate Governance      and Policy   •    Human Resources		Rodney E. Slater   Mr. Slater has been a Partner at the law firm Squire Patton Boggs LLP practicing in the areas of transportation, infrastructure and public policy, since 2001. Previously, Mr. Slater served as the U.S. Secretary of Transportation from 1997 to 2001 and as the Administrator of the Federal Highway Administration from 1993 to 1997. Mr. Slater has served as a director of Kansas City Southern since 2001 and Transurban Group since 2009. In the past five years, Mr. Slater has also served as a director of Atkins plc.   Qualifications: Mr. Slater has substantial regulatory and public policy experience at the federal and state levels. Mr. Slater provides our Board with valuable insights on public policy issues and leadership on matters involving multiple stakeholders. He also provides our Board with perspectives on strategic partnerships and legal issues.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2012   Age 54   Independent   Committees   •    Audit   •    Corporate Governance      and Policy		Kathryn A. Tesija   Ms. Tesija was Executive Vice President and Chief Merchandising and Supply Chain Officer of Target Corporation, the second largest discount retailer in the United States, from 2008 to 2015. During her tenure at Target beginning in 1986, Ms. Tesija served in numerous positions of responsibility, including Director, Merchandise Planning, Senior Vice President, Hardlines Merchandising and Strategic Advisor. Ms. Tesija has served on the board of Woolworths Limited since May 2016.   Qualifications: Ms. Tesija provides our Board with valuable large-scale global merchandising and supply chain experience, as well as operational perspectives and strategic planning expertise. Her tenure as an executive at Target Corporation provides our Board with additional insights into the retail industry and consumer behavior.

 

 

Director since 2013   Age 58   Independent   Committees   •    Audit   •    Human Resources		Gregory D. Wasson   Mr. Wasson was President and Chief Executive Officer of Walgreens Boots Alliance, Inc., the first global pharmacy-led health and wellbeing enterprise. From 2009 through 2014 he was Director, President and Chief Executive Officer of Walgreen Co. A registered pharmacist, he joined Walgreen in 1980 and served in a number of positions of responsibility, including President of Walgreens Health Initiatives, Senior Vice President, Executive Vice President, and President and Chief Operating Officer. Mr. Wasson has served on the board of The PNC Financial Services Group, Inc. since 2015 and, in the past five years, he has served on the boards of Walgreen Co. and AmerisourceBergen Corporation.   Qualifications: Mr. Wasson provides our Board with valuable global operational and management experience, as well as extensive knowledge of the retail and healthcare industries. His tenure as CEO of a large publicly-held company provides our Board with additional in-depth perspective in organizational management.

 

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Item 1: Election of Directors  |  Nominees for election

 

 

Director since 2015   Age 65   Independent   Committee   •    Audit (Chair)		Gregory G. Weaver   Mr. Weaver was Chairman and Chief Executive Officer of Deloitte’s audit and enterprise risk services firm, Deloitte & Touche LLP, from 2012 to 2014 and from 2001 to 2005. From 2006 to 2012, he served on the Board of Directors of Deloitte’s U.S. organization and on its Governance, Compensation and Succession Committees. During Mr. Weaver’s 40 years of experience at Deloitte, including 30 years as a partner, he served as lead client service partner, audit partner and advisory partner for several of Deloitte & Touche’s largest clients. Mr. Weaver has served on the board of trustees of the Goldman Sachs Trust since 2015.   Qualifications: Mr. Weaver provides our Board with significant expertise in the areas of public accounting, risk management and related regulatory matters, which he developed over a long career with a leading audit firm. He also brings to the Board valuable experience with the operational and governance issues faced by a large, complex organization like Verizon.

 

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Board and Committees

Board leadership

 

Each year, our Board evaluates whether its leadership structure is appropriate to effectively address the specific needs of our business and the long-term interests of our shareholders. Given the dynamic and competitive environment in which Verizon operates, the Board believes that Verizon and our shareholders are best served by a Chairman who has broad and deep knowledge of Verizon’s business operations and the competitive landscape, the ability to identify strategic issues, and the
vision to create sustainable long-term value for shareholders. Based on these considerations, the Board has determined that, at this time, our CEO, Lowell McAdam, is the Director best qualified to serve in the role of Chairman.   To maintain an appropriate level of independent checks and balances in its governance, and consistent with the Corporate Governance Guidelines, the independent members of the Board have elected an independent Lead Director who has the authority to call Board meetings and executive sessions. M. Frances Keeth currently serves as Lead Director.		Lead Director responsibilities   •  Chairs executive sessions, including those held to evaluate the CEO’s performance and compensation   •  Chairs any meeting of the Board if the Chairman is not present   •  Approves the schedule and agenda for all Board meetings, in consultation with the Chairman   •  Acts as principal liaison with the Chairman   •  Leads the Board’s annual self-evaluation

Any shareholder or interested party may communicate

directly with the Lead Director.

All Directors play an active role in overseeing Verizon’s business at both the Board and committee level. Every Director may review the agenda for each Board and committee meeting in advance and can request changes. In addition, all Directors have unrestricted access to the Chairman and the senior leadership team at all times.

The Board believes that shareholders are best served by this current leadership structure because it features an independent Lead Director who provides independent and objective oversight and who can express the Board’s positions in a forthright manner, as well as independent Directors who are fully involved in the Board’s operations and decision making.

Board meetings and executive sessions

In 2016, our Board of Directors held nine meetings, including seven regularly scheduled meetings and two special meetings. No Director standing for election attended fewer than 75% percent of the total number of meetings of our Board and the committees to which the Director was assigned.

Directors standing for re-election are expected to attend the annual meeting of shareholders. In 2016, all Directors standing for re-election attended the annual meeting.

The Corporate Governance Guidelines require the independent Directors to meet in executive session without any members of management present at least twice a year to review and evaluate the performance of the Board and to evaluate the performance and approve the compensation of the CEO. In practice, our Board typically meets in executive session during each regular Board meeting.

 

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Board and Committees  |  Board meetings and executive sessions

 

	Beyond the boardroom   Engagement outside of Board meetings provides our Directors with additional insight into our business and our industry, and gives them valuable perspective on the performance of our Company, the Board, our CEO and other members of senior management, and on the Company’s strategic direction.
				Our individual Directors have discussions with each other and with our CEO, and have informal individual and small group meetings with high potential members of our senior management team in order to gain insight into the Company’s management development program and succession pipeline.
				Our Committee Chairs and Lead Director meet and speak regularly with each other and with members of our management in connection with planning for meetings.
				Our Directors regularly attend “deep dives” on current topics of interest and technology training as part of their ongoing Director education program.
				Our Directors receive weekly updates on recent developments, press coverage and current events that relate to our business.
				Several Board members attended the 2016 Mobile World Congress in Barcelona, Spain, where they learned about the contemporary and future mobile industry, the latest technology trends affecting Verizon’s business, and developments among Verizon’s business partners, industry peers and competitors.
				Several Board members attended the 2016 Consumer Electronics Show in Las Vegas, Nevada, where they learned about trends and innovations in the business of consumer technologies and gained insights into where Verizon’s business is headed.

Annual Board and committee evaluations

Our Board conducts an annual self-assessment aimed at enhancing its effectiveness. As part of the assessment, each Director completes a written questionnaire that is designed to gather suggestions for improving Board effectiveness and to solicit feedback on a range of issues, including Board operations, Board and committee structure and dynamics, the flow of information from management, and agenda topics. In addition, the Lead Director conducts individual interviews with each of the independent Directors to discuss these topics. The feedback received from the questionnaires and interviews is discussed during an evaluation session.

Each of the four standing committees also conducts its own annual self-assessment, which includes a written questionnaire and evaluation session. Evaluation sessions are led by the committee chairs and generally include a review of the committee charter, the annual agenda, and the committee’s overall effectiveness.

In addition to these annual self-assessments, the Board evaluates and modifies its oversight of Verizon’s operations on an ongoing basis. During their executive sessions, the independent Directors consider agenda topics that they believe deserve additional focus and raise new topics to be addressed in future meetings.

The Corporate Governance and Policy Committee annually appraises the framework for our Board and committee evaluation processes.

 

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Board and Committees  |  The 2016 Board Self-Assessment Process

 

 

The 2016 Board Self-Assessment Process
								Questionnaire   Written questionnaires for the Board and for each committee solicit Director feedback on an unattributed basis
								One-on-one discussions   Candid, one-on-one discussions between the Lead Director and each independent Director elicit further color on the Director’s observations and suggestions
								Reporting   Summary of self-assessment results are provided to the Board
								Private sessions of independent Directors   Closed session discussion of Board self-evaluation facilitated by our Lead Director, and committee self-evaluation discussions facilitated by our independent committee chairs
								Feedback incorporated   Policies and practices updated as appropriate per self-assessment observations and suggestions
								Ongoing   Director suggestions for improvements to self-assessment questionnaire and process incorporated the following year

Board committees

Our Board of Directors has established four standing committees: the Audit Committee, the Corporate Governance and Policy Committee, the Finance Committee, and the Human Resources Committee. Each committee has a written charter that defines its specific responsibilities. The chair of each committee approves the agenda and materials for each meeting. Each committee has the authority to retain independent advisors to assist it in carrying out its responsibilities.

 

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Board and Committees  |  Board committees

 

In addition, committee meetings are not held concurrently, which enables our Directors to sit on multiple committees. Our newly appointed Directors also attend all committee meetings for six months to a year prior to being appointed to any particular committee, which allows them to understand the inner workings of all committees.

 

Audit Committee
Meetings in 2016 11   Members* Gregory Weaver** (Chair) Shellye Archambeau M. Frances Keeth Clarence Otis, Jr. Kathryn Tesija Gregory Wasson   *Mr. Nicolaisen served as Chair of the Audit Committee until he resigned from the Board on December 31, 2016.   **Mr. Weaver joined the Audit Committee on June 2, 2016 and was appointed as Chair on January 9, 2017.   The Board has determined that each of Ms. Archambeau, Ms. Keeth, Mr. Otis, Mr. Wasson and Mr. Weaver is an audit committee financial expert, and that each member of the Audit Committee meets the independence requirements of applicable law, the NYSE, Nasdaq and Verizon’s Corporate Governance Guidelines. The Board also determined that Mr. Nicolaisen was an audit committee financial expert and met the same independence requirements during his tenure on the Audit Committee in 2016.   The Audit Committee Report is included on page 27.		Key responsibilities:   •  Assess Verizon’s significant business risk exposures (including those related to data privacy, bribery and corruption, and network security) and oversee the risk management program   •  Assess the adequacy of Verizon’s overall control environment   •  Oversee financial reporting and disclosure matters   •  Appoint, approve fees for, and oversee work of the independent registered public accounting firm   •  Oversee Verizon’s internal audit function   •  Assess Verizon’s compliance processes and programs   •  Review the Chief Compliance Officer’s annual report regarding anti-corruption compliance, compliance with significant regulatory obligations, export controls, and data protection   •  Assess policies and procedures for executive officer expense accounts and perquisites, including the use of corporate assets   •  Assess procedures for handling complaints relating to accounting, internal accounting controls or auditing matters

 

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Board and Committees  |  Board committees

 

Corporate Governance and Policy Committee
Meetings in 2016 7   Members* M. Frances Keeth (Chair) Shellye Archambeau Richard Carrión Rodney Slater Kathryn Tesija   *Mr. Nicolaisen served on the Corporate Governance and Policy Committee until he resigned from the Board on December 31, 2016.   The Board has determined that each member of the Corporate Governance and Policy Committee meets the independence requirements of applicable law, the NYSE, Nasdaq and Verizon’s Corporate Governance Guidelines. The Board made the same determination of Mr. Nicolaisen for 2016.		Key responsibilities:   •  Evaluate the structure and practices of our Board and its committees, including size, composition, independence and operations   •  Recommend changes to our Board’s policies or practices or the Corporate Governance Guidelines   •  Identify and evaluate the qualifications of Director candidates   •  Recommend Directors to serve as members of each committee and as committee chairs   •  Review potential related person transactions   •  Review Verizon’s position and engagement on important public policy issues that may affect our business and reputation, including direct and indirect political contributions, lobbying activities and corporate social responsibility

 

 

Finance Committee
Meetings in 2016 4   Members Richard Carrión (Chair) Mark Bertolini Melanie Healey M. Frances Keeth Clarence Otis, Jr.   Our Board has determined that each member of the Finance Committee meets the independence requirements of applicable law, the NYSE, Nasdaq and Verizon’s Corporate Governance Guidelines.		Key responsibilities:   •  Monitor Verizon’s capital needs and financing arrangements and ability to access the capital markets   •  Monitor expenditures under the annual capital plan approved by our Board   •  Review and approve Verizon’s derivatives policy and monitor the use of derivatives   •  Review Verizon’s insurance and self-insurance programs   •  Oversee the investment of pension assets and the funding of pension and other postretirement benefit obligations

 

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Board and Committees  |  Board committees

 

Human Resources Committee
Meetings in 2016 6   Members Clarence Otis, Jr. (Chair) Richard Carrión Melanie Healey Rodney Slater Gregory Wasson   Our Board has determined that each member of the Human Resources Committee meets the independence requirements of applicable law, the NYSE, Nasdaq and Verizon’s Corporate Governance Guidelines.   The Compensation Committee Report is included on page 48.		Key responsibilities:   •  Oversee the development of Verizon’s executive compensation programs and policies   •  Approve corporate goals relevant to the CEO’s compensation   •  Evaluate the CEO’s performance and recommend his compensation to the Board   •  Review and approve compensation and benefits for selected senior managers   •  Review the impact of Verizon’s executive compensation policies and practices, and the performance metrics underlying the compensation programs, on Verizon’s risk profile   •  Consult with the CEO on talent development   •  Oversee succession planning and assignments to key leadership positions   •  Review and recommend non-employee Director compensation

 

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Board and Committees  |  Risk oversight

 

Risk oversight

Role of the Board

While senior management has primary responsibility for managing risk, our Board of Directors is responsible for risk oversight. The Board works with senior management to develop a comprehensive view of Verizon’s key short- and long-term business risks. Verizon has a formalized business risk management reporting process that is designed to provide visibility to the Board about critical risks and risk mitigation strategies.

The Board of Directors oversees the management of risks inherent in the operation of Verizon’s businesses and the implementation of its strategic plan by using several different levels of review. The Board addresses the primary risks associated with Verizon’s business units and corporate functions in its operations reviews of those units and functions. In addition, the Board reviews the risks associated with Verizon’s strategic plan at an annual strategic planning session and periodically throughout the year.

Role of the committees

Each of our Board committees oversees the management of risks that fall within that committee’s areas of responsibility. In performing this function, each committee has full access to management and may engage advisors.

 

		Audit Committee		•   Oversees the operations of Verizon’s enterprise risk management program, which identifies the primary risks to Verizon’s business.   •   Periodically monitors and evaluates the primary risks associated with particular business units and functions.   •   Works with Verizon’s Senior Vice President of Internal Auditing, who helps identify, evaluate and implement risk management controls and methodologies to address identified risks and who functionally reports directly to the Committee.   •   Meets privately at each Audit Committee meeting with representatives from the independent registered public accounting firm, the Senior Vice President of Internal Auditing, and the Executive Vice President of Public Policy and General Counsel.
		Corporate Governance and Policy Committee		•   Reviews business and reputational risks relating to Verizon’s position and engagement on important public policy issues, including political contributions and corporate social responsibility.   •   Oversees business and reputational risks relating to Verizon’s products and services.
		Finance Committee		•   Assists our Board in its oversight of financial risk management.   •   Monitors Verizon’s capital needs and financing plans and oversees the strategy for managing risk related to currency and interest rate exposure.   •   Reviews and approves Verizon’s derivatives policy and monitors the use of derivatives.   •   Reviews Verizon’s insurance and self-insurance programs, as well as pension and other postretirement benefit obligations.
		Human Resources Committee		•   Considers the impact of the executive compensation program and of the incentives created by the compensation awards on Verizon’s risk profile.   •   Oversees management’s annual assessment of compensation risk arising from Verizon’s compensation policies and practices.   Based on management’s review, Verizon has concluded that our compensation policies and procedures are not reasonably likely to have a material adverse effect on Verizon because they are appropriately structured and discourage employees from taking excessive risks.

 

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Board and Committees  |  Risk oversight

 

		What about cybersecurity risk?   While the Audit Committee has primary responsibility for overseeing Verizon’s risk management program relating to privacy and network security, the full Board participates in an annual review and discussion led by our Chief Information Security Officer dedicated to Verizon’s cyber risks and threats and cyber protections.

Management succession planning and development

Verizon’s Board of Directors recognizes that one of its most important duties is to ensure continuity in our senior leadership by overseeing the development of executive talent and planning for the efficient succession of the CEO. Our Board has delegated primary oversight responsibility for succession planning to the Human Resources Committee, which oversees assignments to key leadership positions. The Human Resources Committee reports on its activities to the full Board, which addresses succession planning during executive sessions that typically occur in connection with each regularly scheduled meeting.

To ensure that the succession planning and management development process supports and enhances Verizon’s strategic objectives, the Board and Human Resources Committee regularly consult with the CEO on Verizon’s organizational needs and competitive challenges, the potential of key managers, and plans for future developments and emergency situations. As part of this process, the Board and the Human Resources Committee also routinely seek input from the Chief Administrative Officer, as well as advice on related compensation issues from the Human Resources Committee’s independent compensation consultant.

Our Board generally conducts an in-depth review of senior leader development and succession planning at least once a year. Led by the CEO and the Chief Administrative Officer, this review addresses Verizon’s management development initiatives, assesses senior management resources, and identifies individuals who should be considered as potential future senior executives.

Our goal is to develop well-rounded and experienced senior leaders. High potential executives are challenged regularly with additional responsibilities, new positions or promotions to expose them to our diverse operations. These individuals are often positioned to interact more frequently with the Board, both in full Board meetings and in less formal settings and small groups, so the Directors can get to know and assess them.

Shareholder engagement

Ongoing communication with our shareholders helps the Board and senior management gain useful feedback on a wide range of subjects and understand the issues that matter most to our shareholders. Verizon views accountability to shareholders as both a mark of good governance and a critical component of our success. In 2016, management and our Directors spent a great deal of time in meetings and discussions with our shareholders on a variety of issues, including:

 

The information learned in these discussions serves as the foundation for our policies and informs our business strategy on an ongoing basis.

 

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Board and Committees  |  Communicating with Directors

 

Communicating with Directors

Our Board of Directors believes that communication with shareholders and other interested parties is an important part of the governance process, and has adopted the following procedure to facilitate this communication.

 

 

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Director Compensation

In 2016, each non-employee Director of Verizon received an annual cash retainer of $100,000. The Chairs of the Corporate Governance and Policy Committee and the Finance Committee received an additional annual cash retainer of $15,000, and the Chairs of the Audit Committee and the Human Resources Committee, as well as the Lead Director, each received an additional annual cash retainer of $25,000. In 2016, each non-employee Director also received a grant of Verizon share equivalents valued at $150,000 on the grant date. No meeting fees were paid if a non-employee Director attended a Board or Committee meeting on the day before or the day of a regularly scheduled Board meeting. Each non-employee Director who attended a Board or Committee meeting held on any other date received a meeting fee of $2,000.

Each non-employee Director who joins our Board receives a one-time grant of 3,000 Verizon share equivalents valued at the closing price on the date the new Director joins our Board.

All share equivalents that non-employee Directors receive are automatically credited to the Director’s deferred compensation account under the Verizon Executive Deferral Plan, and invested in a hypothetical Verizon stock fund. Amounts in a Director’s deferred compensation account are paid in a cash lump sum in the year following the year the Director leaves our Board.

Non-employee Directors may choose to defer all or part of their annual cash retainer and meeting fees (if any) under the Verizon Executive Deferral Plan. A non-employee Director may elect to invest these amounts in a hypothetical cash account that earns a return rate equal to the long-term, high-grade corporate bond yield average as published by Moody’s Investor Services, or in the other hypothetical investment options available to participants in Verizon’s Management Savings Plan.

One of our non-employee Directors who served as a director of a predecessor company is a participant in a charitable giving program. Under this program, when a participant retires from the Board or attains age 65 (whichever occurs later) or dies, Verizon will make one or more charitable contributions in the aggregate amount of $1,000,000, payable in ten annual installments. This program, which is closed to future participants, is financed through the purchase of insurance on the life of each participant. In 2016, the aggregate cost of maintaining and administering this program for the participant was $15,000.

The non-employee Directors are eligible to participate in the Verizon Foundation Matching Gifts Program. Under this program, which is open to all Verizon employees, the Foundation matches up to $5,000 per year of charitable contributions to accredited colleges and universities, $1,000 per year of charitable contributions to any non-profit with 501(c)(3) status, and $1,000 per year of charitable donations to designated disaster relief campaigns.

In 2016, based on the recommendation of the Human Resources Committee after its review of the Verizon compensation program and the programs of the Related Dow Peers, and in consultation with its independent compensation consultant, the Board determined to increase the annual cash retainer paid to non-employee Directors to $125,000 and to increase the value of the Verizon share equivalents granted annually to non-employee Directors to $175,000, effective January 1, 2017. Prior to 2016, no changes had been made to the annual cash retainer or the annual equity grant value since 2012.

 

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Director Compensation  |  Director compensation in 2016

 

Director compensation in 2016

 

Name (a)		Fees Earned or Paid in Cash2 ($) (b)				Stock Awards3 ($) (c)				Option Awards ($) (d)				Non-Equity Incentive Plan Compensation ($) (e)				Change in Pension Value and Nonqualified Deferred Compensation Earnings4 ($) (f)				All Other Compensation5 ($) (g)				Total ($) (h)
Shellye Archambeau			110,000				150,000				0				0				4,553				0				264,553
Mark Bertolini			104,000				150,000				0				0				0				0				254,000
Richard Carrión*			119,000				150,000				0				0				11,531				0				280,531
Melanie Healey			104,000				150,000				0				0				0				6,000				260,000
M. Frances Keeth*			152,000				150,000				0				0				0				5,000				307,000
Karl-Ludwig Kley			106,000				150,000				0				0				996				0				256,996
Donald Nicolaisen*1			137,000				150,000				0				0				0				0				287,000
Clarence Otis, Jr.*			137,000				150,000				0				0				20,721				0				307,721
Rodney Slater			104,000				150,000				0				0				0				0				254,000
Kathryn Tesija			110,000				150,000				0				0				6,645				0				266,645
Gregory Wasson			112,000				150,000				0				0				0				0				262,000
Gregory Weaver			112,000				150,000				0				0				0				0				262,000

 

*	Denotes a chair of a standing committee during 2016. Ms. Keeth also served as Lead Director during 2016.

 

1	Mr. Nicolaisen retired from the Board on December 31, 2016.

 

2	This column includes all fees earned in 2016, whether the fee was paid in 2016 or deferred.

 

3

For each non-employee Director, this column reflects the grant date fair value of the non-employee Director’s 2016 annual stock award computed in accordance with FASB ASC Topic 718. The following reflects the aggregate number of share equivalent awards outstanding as of December 31, 2016 for each person who served as a non-employee Director during 2016: Shellye Archambeau, 13,675; Mark Bertolini, 9,321; Richard Carrión, 113,325; Melanie Healey, 22,544; M. Frances Keeth, 53,878; Karl-Ludwig Kley, 6,695; Donald Nicolaisen, 62,133; Clarence Otis, Jr., 61,422; Rodney Slater, 32,981; Kathryn Tesija, 17,555; Gregory Wasson, 16,646; and Gregory Weaver, 7,324.

 

4

This column reflects above-market earnings on nonqualified deferred compensation plans. The above-market earnings consist of earnings on amounts that the individual has elected to invest in a hypothetical investment option offered to all participants under the nonqualified deferred compensation plans that earns a return rate equal to the long-term, high-grade corporate bond yield average as published by Moody’s Investors Services. The earnings are considered above market in accordance with SEC rules because the interest crediting rate for this investment option (which for 2016 was approximately 4.18% annually) exceeded 120% of the corresponding applicable federal long-term rate established by the Internal Revenue Service (IRS) (which for 2016 was 2.25%). Non-employee Directors do not participate in any defined benefit pension plan.

 

5	This column reflects matching contributions made on the non-employee Directors’ behalf under the Verizon Foundation Matching Gift Program.

 

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Audit Matters

Item 2: Ratification of Appointment of

Independent Registered Public Accounting Firm

The Audit Committee considered the performance and qualifications of Ernst & Young LLP, and has reappointed that independent registered public accounting firm to examine the financial statements of Verizon for fiscal year 2017 and to examine the effectiveness of internal control over financial reporting. Ernst & Young has been retained as Verizon’s independent registered public accounting firm since 2000.

Verizon paid the following fees to Ernst & Young for services rendered during fiscal years 2016 and 2015.

 

Audit fees

Audit-related fees

Tax fees

All other fees

2016

$28.6 million

$20.6 million

$3.7 million

$0.0 million

2015

$27.4 million

$17.1 million

$3.8 million

$0.1 million

Audit fees include the financial statement audit, the audit of the effectiveness of Verizon’s internal control over financial reporting required by the Sarbanes-Oxley Act, and financial statement audits required by statute for our foreign subsidiaries or by regulatory agencies in the United States. Audit-related fees primarily include audits of other subsidiaries, employee benefit plan audits and reviews of controls over services provided to customers, as well as other audit and due diligence procedures performed in connection with acquisitions or dispositions. Tax fees primarily consist of federal, state, local and international tax planning and compliance. All other fees primarily consist of support services to certain Verizon expatriate employees. The Audit Committee considered, in consultation with management and the independent registered public accounting firm, whether Ernst & Young’s could provide these services while maintaining independence.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm that performs audit services. In considering Ernst & Young’s appointment for the 2017 fiscal year, the Committee reviewed the firm’s qualifications and competencies, including the following factors:

 

•

Ernst & Young’s historical performance and its recent performance during its engagement for the 2016 fiscal year;

 

•

Ernst & Young’s capability and expertise in handling the breadth and complexity of Verizon’s operations;

 

•

the qualifications and experience of key members of the engagement team, including the lead engagement partner, for the audit of Verizon’s financial statements;

 

•

the quality of Ernst & Young’s communications with the Committee regarding the conduct of the audit, and with management with respect to issues identified in the audit;

 

•

external data on audit quality and performance, including recent Public Company Accounting Oversight Board reports, on Ernst & Young;

 

•

the appropriateness of Ernst & Young’s fees for audit and non-audit services, on both an absolute basis and as compared to its peer firms; and

 

•

Ernst & Young’s reputation for integrity and competence in the fields of accounting and auditing.

In addition, in order to ensure continuing auditor independence, the Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. The Committee ensures that the mandated rotation of Ernst & Young’s personnel occurs routinely and is directly involved in the selection of Ernst & Young’s lead engagement partner.

 

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Audit Matters  |  Item 2: Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Committee has established policies and procedures regarding pre-approval of services provided by the independent registered public accounting firm and is responsible for negotiating the audit fees associated with the engagement. At the beginning of the fiscal year, the Committee pre-approves the engagement of the independent registered public accounting firm to provide audit services based on fee estimates. The Committee also pre-approves proposed audit-related services, tax services and other permissible services based on specified project and service details, fee estimates, and aggregate fee limits for each service category. The Committee receives a report at each meeting on the status of services provided or to be provided by the independent registered public accounting firm and approves the related fees.

The affirmative vote of a majority of the shares cast at the annual meeting is required to ratify the reappointment of Ernst & Young for the 2017 fiscal year. The Committee believes that continuing to retain Ernst & Young to serve as Verizon’s independent registered public accounting firm is in the best interests of Verizon and our shareholders. If this appointment is not ratified by the shareholders, the Committee will reconsider its decision.

One or more representatives of Ernst & Young will be at the 2017 Annual Meeting of Shareholders. They will have an opportunity to make a statement and will be available to respond to appropriate questions.

 

				Our Board of Directors recommends that you vote for ratification.

 

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Audit Committee Report

In the performance of our oversight responsibilities, the Committee has reviewed and discussed with management and the independent registered public accounting firm Verizon’s audited financial statements for the year ended December 31, 2016, and the effectiveness of Verizon’s internal controls over financial reporting as of December 31, 2016.

The Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the Securities and Exchange Commission, the New York Stock Exchange, The Nasdaq Stock Market and Statement on Auditing Standards No. 1301, as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

The Committee has received written disclosures and a letter from the independent registered public accounting firm consistent with applicable Public Company Accounting Oversight Board requirements for independent registered public accounting firm communications with audit committees concerning independence, and has discussed with the independent registered public accounting firm its independence.

The Committee discussed with the internal auditors and the independent registered public accounting firm the overall scope and plans for their respective audits. The Committee met with the internal auditors and the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of Verizon’s internal controls and the overall quality of Verizon’s financial reporting.

The Committee has overseen the operation of Verizon’s enterprise risk management program, including the identification of the primary risks to Verizon’s business. The Committee also periodically monitored and evaluated the primary risks associated with particular business units and functions.

Based on the reviews and discussions referred to above, in reliance on management and the independent registered public accounting firm, and subject to the limitations of our role, the Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the financial statements referred to above in Verizon’s Annual Report on Form 10-K for the year ended December 31, 2016.

The Committee reviewed the independent registered public accounting firm’s performance, qualifications and tenure, the qualifications of the lead engagement partner, management’s recommendation regarding retention of the firm, and considerations related to audit firm rotation, as discussed further on page 25. Based on that review, the Committee approved the reappointment of the independent registered public accounting firm for fiscal year 2017.

Respectfully submitted,

The Audit Committee

Gregory Weaver, Chair

Shellye Archambeau

M. Frances Keeth

Clarence Otis, Jr.

Kathryn Tesija

Gregory Wasson

March 3, 2017

 

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Compensation Discussion and Analysis  |  Roles and responsibilities

 

Roles and responsibilities

Human Resources Committee

The Human Resources Committee of the Board of Directors oversees the development and implementation of the compensation program for Verizon’s named executive officers. The CEO’s compensation is determined by the independent members of the Board after receiving the Committee’s recommendation. References to the Committee in this section with respect to the CEO’s compensation reflect that process.

Management

The Committee may consult with the Executive Vice President and Chief Administrative Officer about the design, administration and operation of the compensation program. The Committee has delegated administrative responsibility for implementing its decisions on compensation and benefits matters to the Chief Administrative Officer, who reports to the Committee on the actions taken under this delegation.

The Committee seeks the CEO’s views on whether the existing compensation policies and practices continue to support Verizon’s business and performance objectives, utilize appropriate performance targets, and appropriately reward the contributions of the other named executive officers. While the Committee values the CEO’s insight, ultimately the Committee makes an independent determination on all matters related to the compensation of the named executive officers.

Independent compensation consultant

The Committee has the sole authority to retain and terminate a compensation consultant and to approve all terms of the engagement, including fees. The Committee has retained Pearl Meyer as its compensation consultant (Consultant) based on the firm’s independence and expertise in representing the compensation committees of large corporations. The Consultant advises the Committee on all matters related to the compensation of our named executive officers and our non-employee Directors. This includes providing benchmarking data and helping the Committee interpret this data, as well as helping the Committee interpret data gathered by the Company. The Consultant participates in all Committee meetings and confers regularly with the Committee in executive session at those meetings.

Committee policy prohibits the Consultant from doing any work for the Company during its engagement. Neither Pearl Meyer nor its affiliates have performed any work for the Company or any Company affiliate since the Committee first retained the Consultant in 2006.

The Committee has considered the independence of Pearl Meyer in light of SEC rules and NYSE and Nasdaq listing standards. At the Committee’s request, Pearl Meyer provided a letter addressing its independence, including the following factors:

 

 

The Committee has concluded that no conflict of interest exists that would prevent Pearl Meyer from serving as an independent consultant to the Committee.

 

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Compensation Discussion and Analysis  |  Shareholder feedback on compensation

 

Shareholder feedback on compensation

Our Board, the Committee and our management team value shareholder perspectives on our executive compensation program. As part of the Committee’s annual review of the program, it considers the outcome of Verizon’s annual shareholder advisory vote on executive compensation – the “say-on-pay.” At our Annual Meeting in May 2016, the compensation of our named executive officers was approved by approximately 92% of votes cast, demonstrating a high level of shareholder support for our compensation program and policies.

Management and Directors engaged with our institutional shareholders in meetings and calls throughout the year. In Verizon’s 2016 fall outreach, management, along with the Consultant, engaged with our institutional shareholders concerning executive compensation. In particular, we discussed the Committee’s choice of performance metrics for awards issued under the Long-Term Incentive Plan (Long-Term Plan), the rationale for the peer group utilized for compensation benchmarking and performance measurement, proposed changes to the Long-Term Plan and recent SEC compensation disclosure initiatives. Our investors continued to voice support for our overall compensation program, believing it to be well-structured and aligned with the Company’s performance. Based on this feedback, the results of our 2016 say-on-pay vote, and the history of strong shareholder support in prior say-on-pay votes, the Committee believes our shareholders continue to strongly support Verizon’s executive compensation program.

Peer group

The Committee uses the same peer group to benchmark executive pay opportunities and to evaluate Verizon’s relative stock performance under the Long-Term Plan. This peer group, which we call the Related Dow Peers, includes the 29 companies (other than Verizon) in the Dow Jones Industrial Average, plus Verizon’s five largest industry competitors that are not included in the Dow Jones Industrial Average. This group of companies is appropriate for the dual purpose of benchmarking executive pay opportunities and evaluating relative stock performance under the Long-Term Plan because it is comprised of companies similar to us in market capitalization, net income, revenue and total employees, as well as Verizon’s five other largest industry competitors. These companies represent Verizon’s primary competitors for executive talent and investor dollars. Moreover, this peer group is self-adjusting so that changes in the companies included in the Dow Jones Industrial Average are also reflected in the Related Dow Peers over time. For these reasons, the Committee believes that use of the Related Dow Peers provides a consistent measure of Verizon’s performance and makes it easier for shareholders to understand, evaluate and monitor Verizon’s compensation program.

 

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Compensation Discussion and Analysis  |  Peer group

 

Related Dow Peer information

The following chart shows the companies included in the Related Dow Peers, as constituted on March 4, 2016, the date of the 2016 PSU grant. The chart includes each company’s market capitalization as of December 31, 2016 as reported by Bloomberg, as well as net income attributable to the company, revenue and total number of employees as of each company’s most recent fiscal year-end as reported in SEC filings.

 

Company			Market Capitalization ($ Millions)				Net Income Attributable to the Company ($ Million)				Revenue ($ Millions)				Total Employees
3M			$107,404				$5,050				$30,109				91,584			Verizon’s rank among Related Dow Peers (35 companies)   10th      Market capitalization   6th      Net income   6th      Revenue   11th      Total employees
American Express			$67,802				$5,408				$33,823				56,400
Apple			$617,588				$45,687				$215,639				116,000
AT&T			$261,177				$12,976				$163,786				268,000
Boeing			$96,080				$4,895				$94,571				150,500
Caterpillar			$54,260				($67	)			$38,537				95,400
Charter Communications*			$89,539				$3,522				$29,003				91,500
Chevron			$222,190				($497	)			$103,310				55,200
Cisco Systems			$151,697				$10,739				$49,247				73,700
Coca-Cola			$178,815				$6,527				$41,863				100,300
Comcast			$165,225				$8,695				$80,403				159,000
Du Pont			$63,810				$2,513				$24,594				46,000
Exxon Mobil			$374,281				$7,840				$197,518				71,100
General Electric			$279,546				$8,831				$119,687				295,000
Goldman Sachs Group			$99,960				$7,398				$37,712				34,400
Home Depot			$163,331				$7,957				$94,595				400,000
IBM			$157,832				$11,872				$79,919				380,300
Intel			$171,884				$10,316				$59,387				106,000
Johnson & Johnson			$313,432				$16,540				$71,890				126,400
JPMorgan Chase			$308,768				$24,733				$105,486				243,355
McDonald’s			$101,082				$4,687				$24,622				375,000
Merck			$162,313				$3,920				$39,807				68,000
Microsoft			$483,160				$16,798				$85,320				114,000
Nike			$84,654				$3,760				$32,376				70,700
Pfizer			$197,100				$7,215				$52,824				96,500
Procter & Gamble			$224,997				$10,508				$65,299				105,000
Sprint Corporation			$33,522				($1,995	)			$32,180				30,000
T-Mobile US			$47,389				$1,460				$37,242				50,000
Travelers			$34,774				$3,014				$27,625				30,900
UnitedHealth Group			$152,329				$7,017				$184,840				230,000
United Technologies			$90,262				$5,055				$57,244				202,000
VISA			$181,545				$5,991				$15,082				14,200
Wal-Mart			$212,419				$13,643				$485,873				2,300,000
Walt Disney			$165,862				$9,391				$55,632				195,000
Verizon			$217,611				$13,127				$125,980				160,900

 

*	Charter Communications is the successor company to Time Warner Cable as a result of a merger that occurred in May 2016.

 

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Table of Contents

Compensation Discussion and Analysis  |  Peer group

 

Benchmarking total compensation opportunity

The Committee evaluates whether the compensation opportunities for our executives are appropriate and competitive by comparing each named executive officer’s total compensation opportunity – which represents the sum of the executive’s base salary and target award amounts under the Short-Term Plan and the Long-Term Plan – to the total compensation opportunities for executives in comparable positions at peer companies. The Committee references the 50^th percentile of the Related Dow Peers when making this comparison. The Committee believes that the 50^th percentile is an appropriate targeted level of total compensation opportunity because of Verizon’s size relative to the Related Dow Peers. A named executive officer’s total compensation opportunity may be higher or lower depending upon the executive’s tenure and overall level of responsibility. The total amount of compensation an executive actually receives may vary from the targeted opportunity based on Verizon’s annual and long-term performance results.

Compensation objectives and elements of compensation

Compensation objectives

Verizon’s executive compensation program supports the creation of shareholder value through four key objectives:

 

 

Our compensation program has two features the Committee believes promote a performance-based culture that links the interests of management and shareholders. First, the compensation program focuses extensively on variable, performance-based compensation, with fixed compensation (base salary) constituting only approximately 10% of each named executive officer’s total compensation opportunity. Second, we do not offer guaranteed defined benefit pension or supplemental pension benefits.

In establishing the mix of incentive pay for the named executive officers, the Committee balances the importance of meeting Verizon’s short-term business goals with the need to create shareholder value over the longer term. To that end, long-term target compensation opportunities are more than double the annual base salary and short-term incentive target compensation opportunities. Moreover, since the Long-Term Plan features three-year performance cycles, with awards consisting of PSUs subject to both performance-based and time-based vesting requirements and RSUs subject to time-based vesting requirements, we reward sustained performance and also encourage high-performing executives to remain with Verizon.

 

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Compensation Discussion and Analysis  |  Compensation objectives and elements of compensation

 

Elements of compensation

The Committee determines the appropriate balance between fixed and variable pay elements, short- and long-term pay elements, and cash and equity-based pay elements when setting total compensation opportunity at competitive levels.

 

Pay element		Characteristics		Primary objective
Base salary		Annual fixed cash compensation		Attract and retain high-performing and experienced executives
Short-term incentive opportunity		Annual variable cash compensation based on the achievement of predetermined annual performance measures		Motivate executives to achieve challenging short-term performance targets
Long-term incentive opportunity		Long-term variable equity awards granted annually as a combination of PSUs and RSUs		Align executives’ interests with those of shareholders, encourage efforts to grow long-term value, and retain executives

While the Committee does not benchmark each individual element of compensation by targeting each such element to a specified market level, it does review market data with respect to the mix of annual cash and long-term equity components for similarly situated executives among the Related Dow Peers.

Compensation mix

The Committee believes that a substantial majority of each named executive officer’s total compensation opportunity should be variable and at risk in order to emphasize a performance-based culture. Accordingly, for 2016, the Committee allocated approximately 10% of each executive’s total compensation opportunity in the form of base salary, 20% in the form of short-term incentive, and 70% in the form of long-term incentive.

The following chart illustrates the approximate allocation of the named executive officers’ 2016 total compensation opportunity between variable, performance-based elements and fixed pay.

 

		The named executive officers are also eligible to receive medical, disability and savings plan benefits that are generally provided to all management employees, as well as certain other benefits that are described under “Other elements of the compensation program” beginning on page 44.

Performance target setting

The Committee takes a holistic approach to establishing performance targets under our incentive plans. Targets are set at the time of the Board’s annual strategy session to ensure that our executives’ compensation opportunities are aligned with Verizon’s short- and long-term strategic goals. In establishing performance targets, the Committee recognizes the importance of achieving an appropriate balance between rewarding executives for strong performance over both the short- and long-term and establishing realistic goals that continue to motivate and retain executives. As a result, our Short-Term and Long-Term Plans provide for measurable, rigorous performance targets that are attainable, but challenge executives to drive business results that generate shareholder value.

 

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Compensation Discussion and Analysis  |  Performance target setting

 

In setting the performance targets, the Committee considered the following factors:

 

 

2016 annual base salary

To determine an executive’s base salary, the Committee, with assistance from the Consultant, considers the pay practices of the Related Dow Peers for comparable positions; the executive’s experience, tenure and scope of responsibility; internal pay equity; and continuity planning and management development considerations. In particular, the Committee focuses on how base salary levels may impact the market competitiveness of an executive’s total compensation opportunity.

Based on its assessment, the Committee approved base salary increases in 2016 of 2.9% for Mr. Stratton, 2.9% for Ms. Walden, 6.7% for Mr. Reed and 2.8% for Mr. Shammo. In his prior role with Verizon, Mr. Ellis received a base salary increase in 2016 of 5.88%. When Mr. Ellis was promoted to Chief Financial Officer in November 2016, the Committee approved a new base salary of $700,000, which reflects the scope and breadth of his new position. The Committee determined these adjustments were appropriate to provide these named executive officers a total compensation opportunity appropriate for each officer, in light of the Committee’s reference of the 50^th percentile for comparable executives within the Related Dow Peers and the goal of providing a compensation mix that limits base salary to approximately 10% of the total compensation opportunity. Applying this same methodology, the Committee determined that Mr. McAdam’s base salary should not be adjusted in 2016.

2016 short-term incentive compensation

The Verizon Short-Term Plan motivates executives to achieve challenging short-term performance targets. Each year, the Committee establishes the potential value of the awards under the Short-Term Plan, as well as the performance targets required to achieve these awards.

The Committee sets the values of the Short-Term Plan award opportunities as a percentage of an executive’s base salary based on both the scope of the executive’s responsibilities and the competitive pay practices of the Related Dow Peers. The Short-Term Plan award opportunities at the threshold, target and maximum levels for each of the named executive officers are shown in the “Grants of plan-based awards” table on page 51.

For the named executive officers other than Mr. Ellis, target award opportunities, expressed as a percentage of base salary, did not change for 2016. However, the dollar value of the 2016 target award opportunities for Mr. Stratton, Ms. Walden, Mr. Reed and Mr. Shammo increased from 2015 as a result of the base salary increases described above. Mr. McAdam did not receive a salary increase in 2016, so the dollar value of his 2016 target award opportunity was the same as it was in 2015. When Mr. Ellis was promoted to Chief Financial Officer in November 2016, his target award opportunity was increased from 90% to 150% of his base salary on a prorated basis. The dollar value in the “2016 Short-Term Plan target award opportunity” table on page 36 reflects this increase.

 

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Compensation Discussion and Analysis  |  2016 short-term incentive compensation

 

The following table shows the 2016 Short-Term Plan target award opportunity for each of the named executive officers.

2016 Short-Term Plan target award opportunity

 

Named executive officer		As a percentage of base salary				As a dollar value
Mr. McAdam			250%				$4,000,000
Mr. Ellis*			150%	*			$512,500
Mr. Stratton			150%				$1,350,000
Ms. Walden			150%				$1,350,000
Mr. Reed			150%				$1,200,000
Mr. Shammo			150%				$1,387,500

 

*	Mr. Ellis’ target award opportunity was 90% of his base salary prior to November 2016. The dollar value shown here reflects Mr. Ellis’ total target award opportunity for 2016 after giving effect to the prorated increase to his target award percentage in November 2016.

Annual performance measures

In the first quarter of each year, the Committee establishes financial and operational performance measures for the Short-Term Plan that are consistent with Verizon’s strategic goals. For each such measure, the Committee sets a target that is appropriate to motivate executives to achieve challenging performance levels. Verizon’s performance with respect to these measures determines the amount of the short-term incentive awards earned by the named executive officers.

The Short-Term Plan award opportunities for 2016 were based primarily on achieving specific goals under three Company-wide financial and operating performance measures: adjusted earnings per share (EPS), total revenue and free cash flow.

 

				Why these performance measures?   The Committee selected adjusted EPS, free cash flow and total revenue to reflect Verizon’s strategic goals of encouraging profitable operations, efficient use of capital and overall growth. The Committee also selected a diversity and sustainability metric to reflect Verizon’s commitment to promoting diversity among our employees and our business partners, and to reducing the environmental impact of our operations.

To better align with Verizon’s strategic plan, the Committee adjusted the weightings of the financial measures from 2015 by increasing the weighting of total revenue by 5% and by decreasing the weighting of adjusted EPS by 5%. The Committee made this adjustment to further emphasize revenue generation and our goal of driving growth in 2016.

 

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Compensation Discussion and Analysis  |  2016 short-term incentive compensation

 

The 2016 performance measures, along with the weighting ascribed to each, are shown below as a percentage of the total Short-Term Plan award opportunity at target level performance.

 

		The Committee believes that these performance measures are appropriate to motivate Verizon’s executives to achieve outstanding short-term results and, at the same time, help build long-term value for shareholders. The 2016 measures and related targets approved by the Committee are described in detail below.

 

		Adjusted EPS   Target range: $3.90 to $3.99   The Committee views adjusted EPS as an important indicator of Verizon’s success in delivering shareholder value. The Committee assigns the greatest weight to adjusted EPS in determining awards under the Short-Term Plan because this measure is broadly used and recognized by investors as a key indicator of ongoing operational performance and profitability. Adjusted EPS excludes non-operational items, such as impairments and gains and losses from divestitures, business combinations, changes in accounting principles, the net impact of pension and post-retirement benefit costs, extraordinary items and restructurings. The Committee believes this measure provides meaningful comparisons of our financial results from period to period and reflects the relative success of the ongoing business.
		Free cash flow   Target range: $8.4 billion to $9.8 billion   The Committee views free cash flow as another important indicator of Verizon’s success in delivering shareholder value because it measures our ability to generate cash from operations and is often used by investors in their equity valuation models. Free cash flow is calculated by subtracting capital expenditures from the total of cash flow from operations and cash flow from financing activities associated with device payment plan receivable securitizations. The Committee believes this measure is meaningful because Verizon’s businesses require significant capital investment, and the level of free cash flow reflects how efficiently we are managing capital expenditures. Free cash flow also indicates the amount of cash Verizon has available to return to shareholders in the form of dividends and to reduce outstanding debt. These are both important goals, especially in light of our commitment to returning to the credit rating profile the Company maintained before we acquired sole ownership of Verizon Wireless in 2014.

 

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Compensation Discussion and Analysis  |  2016 short-term incentive compensation

 

		Total revenue   Target range: $132.1 billion to $133.5 billion   The Committee views total revenue as an important indicator of Verizon’s growth and success in managing capital investments. This measure also reflects the level of penetration of Verizon’s products and services in key markets. In setting the total revenue target range for 2016, the Committee excluded revenue attributable to businesses that were to be divested during that year.
		Diversity and sustainability   Targets: At least 59.4% of U.S.-based workforce comprised of minority and female employees; direct at least $4.6 billion of our overall supplier spending to minority- and female-owned firms; reduce our carbon intensity by at least 3.5% compared to the prior year   We are committed to promoting a diverse and inclusive culture among our employees and to recognizing and encouraging the contribution of diverse business partners to our success. We are also committed to reducing the environmental impact of our operations. Our connected solutions empower industries and institutions to transform the way they work by making them more efficient. We have incorporated many of these solutions in our own business to support our goal of cutting Verizon’s carbon intensity — carbon emissions produced per terabyte of data flowing through our networks — in half by 2020.

 

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Compensation Discussion and Analysis  |  2016 short-term incentive compensation

 

The Short-Term Plan provides for performance measures to be adjusted to exclude the impact of certain types of events not contemplated at the time the performance measures were set, such as significant transactions, changes in legal or regulatory policy and other non-operational items. No awards are paid under the Short-Term Plan if Verizon’s return on equity (ROE) for the plan year, based on adjusted net income, does not exceed 8%, even if some or all of the other performance measures are achieved.

 

2016 Short-Term Plan award. After considering the level of performance with respect to each performance measure, and based on an assessment of the level of achievement of each goal individually and collectively, the Committee determines the final Short-Term Plan award as a percentage of the target level for all employees participating in the Short-Term Plan. For 2016, this payout percentage was determined to be 80% of the target level. The following table shows the amount of the Short-Term Plan awards paid to each named executive officer.

 

Named executive officer		Actual 2016 Short-Term Plan award ($)
Mr. McAdam			3,200,000
Mr. Ellis*			410,000
Mr. Stratton			1,080,000
Ms. Walden			1,080,000
Mr. Reed			960,000
Mr. Shammo			1,110,000

 

*	Reflects Mr. Ellis’ total award payout for 2016 after giving effect to the prorated increase to his target award percentage in November 2016.

 

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Compensation Discussion and Analysis  |  Long-term incentive compensation

 

Long-term incentive compensation

The Verizon Long-Term Plan is intended to align executives’ and shareholders’ interests and to reward participants for creating long-term shareholder value. The Committee determined that a three-year performance cycle is appropriate for the Long-Term Plan awards because a multi-year performance cycle enables the Committee to meaningfully evaluate the execution of long-term strategies and the effect on shareholder value.

Consistent with past practice, Long-Term Plan awards are made in PSUs and RSUs. The value of each PSU or RSU is equal to the value of one share of Verizon common stock. The Committee establishes an executive’s Long-Term Plan award opportunity as a percentage of base salary and determines the number of PSUs and RSUs to be awarded based on the stock price on the grant date. The Committee assumes each executive will earn 100% of the PSUs and RSUs awarded for purposes of determining the total compensation opportunity. PSUs and RSUs accrue dividend equivalents that are deemed to be reinvested in PSUs and RSUs, respectively. These dividend equivalents are paid only to the extent that the related PSUs and RSUs are actually earned.

The number of PSUs actually earned and paid is determined based upon Verizon’s achievement of pre-established performance targets over the three-year performance cycle, and the ultimate value of each PSU is based on the closing price of Verizon’s common stock on the last trading day of the performance cycle. Because the value of PSUs is linked to both stock price and performance targets, PSUs provide a strong incentive to executives to deliver value to Verizon’s shareholders. RSUs also provide a performance link as the value of the award depends on Verizon’s stock price. Both PSUs and RSUs provide a retention incentive by requiring the executive to remain employed with Verizon through the end of the three-year award cycle, subject to certain qualifying separations.

 

As in prior award cycles, the 2016 PSUs are payable in cash and the 2016 RSUs are payable in Verizon shares. The Committee believes this mix appropriately balances the potential shareholder dilution from paying awards in shares and cash flow considerations. In addition, paying the 2016 RSU awards in shares is consistent with Verizon’s policy of requiring a significant level of equity ownership by our named executive officers.

2016 Long-Term Plan award opportunities

The Long-Term Plan award is intended to drive our executives to deliver superior TSR performance and create free cash flow, and to encourage retention among our highly-qualified team. To that end, consistent with past practice, each of the named executive officers received 60% of their 2016 Long-Term Plan award in the form of PSUs and 40% in the form of RSUs. Two-thirds of the PSUs are eligible to vest based on Verizon’s relative TSR, and one-third is eligible to vest based on Verizon’s cumulative free cash flow.

 

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Compensation Discussion and Analysis  |  Long-term incentive compensation

 

				Why these performance measures?   Relative TSR. The Committee believes Verizon’s TSR as compared to the TSR of the companies in the Related Dow Peers is a critical indicator of our success because it measures our performance in returning value to our shareholders in comparison to alternative investments our shareholders could have made.   Free Cash Flow. The Committee views free cash flow as an important indicator of our success because it measures our ability to generate cash from operations, which may be reinvested in our business, used to make acquisitions or pay outstanding debt, or returned to shareholders in the form of dividends or through share repurchases.

The 2016 target award opportunities for each of the named executive officers are shown in the table below. For the named executive officers other than Mr. Ellis, target award opportunities, expressed as a percentage of base salary, did not change for 2016. The dollar value of the 2016 target award opportunities for Mr. Stratton, Ms. Walden, Mr. Reed and Mr. Shammo increased from 2015 solely as a result of the base salary increases described on page 35. The dollar value of Mr. McAdam’s 2016 target award opportunity did not change from 2015 because he did not receive a base salary increase in 2016. When Mr. Ellis was promoted to Chief Financial Officer in November 2016, his target award opportunity was increased from 300% to 500% of his base salary on a prorated basis, effective November 2016. To reflect this increase, Mr. Ellis received a prorated incremental long-term incentive award in November 2016.

The Committee sets the award levels to provide a total compensation opportunity consistent with the Company’s overall compensation philosophy as described above, while maintaining a compensation mix in which each executive’s target annual Long-Term Plan award opportunity represents approximately 70% of that executive’s compensation opportunity. The target award opportunity for an executive is allocated between PSUs and RSUs as noted above, and the target award opportunity allocated to each type of award is converted into a target number of units using the closing price of Verizon’s common stock on the grant date.

The following table shows the target value of the 2016 Long-Term Plan awards granted to the named executive officers.

2016 Long-Term Plan target award opportunity

 

Named executive officer		As a percentage of base salary				As a dollar value
Mr. McAdam			750%				$12,000,000
Mr. Ellis*			500%*				$1,708,333*
Mr. Stratton			525%				$4,725,000
Ms. Walden			500%				$4,500,000
Mr. Reed			500%				$4,000,000
Mr. Shammo			525%				$4,856,250

 

*

Mr. Ellis’ target award opportunity was 300% of his base salary prior to November 2016. The dollar value for Mr. Ellis reflects the total target award opportunity for 2016 after giving effect to the prorated incremental award granted in connection with the increase to his target award percentage in November 2016.

 

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Compensation Discussion and Analysis  |  Long-term incentive compensation

 

 

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Compensation Discussion and Analysis  |  Long-term incentive compensation

 

2014 PSU awards earned in 2016

With respect to the PSUs awarded in 2014, the Committee determined the number of PSUs that vested for a participant based on the level of achievement of the two performance metrics over the three-year performance cycle:

2014-2016 TSR PSUs. Two-thirds of the PSUs awarded were eligible to vest based on Verizon’s TSR ranking for the 2014-2016 performance cycle relative to the Related Dow Peers as constituted on the date the award was granted. The percentage of TSR PSUs awarded for the 2014-2016 performance cycle that would vest at each level of Verizon’s relative TSR positioning was identical to the percentage at each performance level for the 2016-2018 grant shown on the prior page. (For the 2014–2016 grant, there were 34 companies in the Related Dow Peers, including Verizon, compared with 35 for the 2016-2018 grant.)

Over the three-year performance cycle ending December 31, 2016, Verizon’s TSR ranked 22^nd among the Related Dow Peers, resulting in a vesting percentage of 53% for the TSR PSUs.

2014-2016 FCF PSUs. One-third of the PSUs awarded was eligible to vest based on Verizon’s cumulative free cash flow over the 2014-2016 performance cycle compared to the performance targets set by the Committee at the beginning of the three-year cycle. The following shows the percentage of FCF PSUs awarded that would vest based on Verizon’s cumulative free cash flow over the 2014-2016 performance cycle at different performance levels.

 

Verizon’s cumulative free cash flow (in billions)		Percentage of awarded FCF PSUs that vest1
Greater than $51.0			200%
$47.0			150%
$44.0			100%
$37.0			50%
Less than $37.0			0%

 

1	For achievement between the stated levels, vesting is determined by linear interpolation.

At the time the 2014-2016 award was granted, the Committee provided for free cash flow to be determined on an adjusted basis, reflecting reductions and/or increases, to preserve the intended incentives by excluding the impact of certain types of events not contemplated by our financial plan, such as significant transactions, changes in legal or regulatory policy, and other non-operational items. In determining Verizon’s free cash flow over the performance cycle, the Committee made adjustments for (i) the monetization of the Verizon Wireless cell tower portfolio in March 2015, (ii) the sale of certain properties to Frontier in 2016, and (iii) the cash flows from certain device payment plan receivable securitizations, which are presented as cash flow from financing activities, as these developments were not contemplated when the FCF PSU targets were set. These adjustments are set forth in Appendix A. In accordance with this pre-established adjustment methodology, the Committee determined that Verizon’s cumulative free cash flow over the performance cycle was $46.9 billion, which resulted in a vesting percentage of 149%. The monetization of the Verizon Wireless cell tower portfolio resulted in higher free cash flow than was anticipated at the time the FCF PSU targets were set, so free cash flow was reduced by amounts attributable to that transaction, and the sale of certain proprieties to Frontier resulted in lower free cash flow than was anticipated at the time the FCF PSU targets were set, so free cash flow was increased by amounts attributable to that transaction. In addition, the treatment of certain device payment plan receivable securitizations as cash flow from financing activities resulted in lower free cash flow than was anticipated at the time the FCF PSU targets were set, so free cash flow was increased by amounts attributable to these device payment plan receivable securitizations. These three developments ultimately resulted in a net increase in cumulative free cash flow.

 

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Compensation Discussion and Analysis  |  Long-term incentive compensation

 

2014-2016 PSU payout. As a result of the achievements described above, in the first quarter of 2017 the Committee approved a payment to all participants in the Long-Term Plan, including the named executive officers, of 85% of the PSUs awarded for the 2014-2016 performance cycle, which represents the weighted average of the two vesting percentages described above, plus dividend equivalents credited on those vested PSUs.

Mr. McAdam’s 2011 special one-time equity award earned

In connection with Mr. McAdam’s appointment to CEO effective August 1, 2011, the Committee recommended, and the independent members of the Board approved, a special one-time equity award to Mr. McAdam under the Long-Term Plan to provide an additional incentive to drive performance and create value for shareholders. The award was granted on August 1, 2011, with 70% of the award opportunity in the form of PSUs and 30% in the form of RSUs.

The RSUs represented shares of Verizon common stock that would become payable at the end of the five-year performance cycle ending on July 31, 2016, if Mr. McAdam remained employed throughout the performance cycle. The PSUs represented shares of Verizon common stock that would become payable after the completion of a five-year performance cycle ending on July 31, 2016, provided that the pre-established performance criterion was achieved and Mr. McAdam remained employed throughout the performance cycle. The number of PSUs that were eligible to vest would be determined based on Verizon’s average annual ROE during the performance cycle. No PSUs would vest unless Verizon’s average annual ROE met the minimum threshold percentage of 10%. If Verizon’s average annual ROE met the target percentage of 15%, 100% of the nominal number of the PSUs granted would vest and a maximum of two times the nominal number of PSUs granted would vest if Verizon’s average annual ROE was at least 20% at the conclusion of the performance cycle. If Verizon’s average annual ROE during the five-year performance cycle was greater than 10% but less than 15%, or was greater than 15% but less than 20%, the Committee would determine the extent to which the PSUs would vest, provided that the vested percentage must be between 50% and 100% and between 100% and 200%, respectively.

In determining Verizon’s average annual ROE during the award performance cycle, the Committee made adjustments for the acquisition of sole ownership of Verizon Wireless in February 2014, as this transaction was not contemplated when the target was set. In accordance with this pre-established adjustment methodology, the Committee determined that Verizon’s average annual ROE was 21.1% over the five-year performance cycle ending on July 31, 2016. As a result, the Committee recommended, and the independent members of the Board approved, a payment of 200% of the number of PSUs awarded, plus accrued dividends credited on those PSUs. In addition, the RSUs awarded to Mr. McAdam, plus accrued dividends credited on those RSUs, vested pursuant to the terms of the award. The PSUs and RSUs were paid in shares in accordance with the terms of the award, and Mr. McAdam is required to hold the shares he received (net of tax withholding) for at least two years following the vesting date unless he dies or becomes disabled.

Other elements of the compensation program

Verizon also provides the named executive officers with limited additional benefits as generally described below, which are subject to applicable taxes. No named executive officer is eligible for a tax gross-up payment in connection with any of these benefits, including with respect to excise tax liability arising from any Internal Revenue Code Section 280G excess parachute payments.

Personal benefits

Transportation. Verizon provides limited aircraft and ground transportation benefits to enhance the safety and security of certain named executive officers. These transportation benefits also serve business purposes, such as allowing an executive to attend to confidential business matters while in transit.

 

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Compensation Discussion and Analysis  |  Other elements of the compensation program

 

Executive life insurance. Verizon offers the named executive officers and other executives the opportunity to participate in an executive life insurance program in lieu of participating in our basic and supplemental life insurance programs. The executives who elect to participate in the executive life insurance program own the life insurance policy, and Verizon provides an annual cash payment to defray a portion of the annual premiums.

Financial planning. Verizon provides a voluntary Company-sponsored financial planning benefit program for the named executive officers and other executives. If an executive participates in the program, the cost of the financial planning benefit is included in the executive’s income.

For additional information on these benefits, see footnote 4 to the “Summary compensation table” on page 50.

Retirement benefits

Over ten years ago, the Committee determined that guaranteed pay in the form of defined benefit pension and supplemental executive retirement benefits was not consistent with Verizon’s pay-for-performance culture. Accordingly, effective June 30, 2006, Verizon froze all future pension accruals under its management tax-qualified and supplemental defined benefit retirement plans. These legacy retirement benefits that were previously provided to certain named executive officers are described in more detail under the section titled “Pension plans” beginning on page 54. In addition, effective June 30, 2006, the Committee froze eligibility for Verizon-subsidized retiree medical benefits under its legacy broad-based Wireline retiree medical plans, which provide a capped partial subsidy towards the cost of medical benefits to certain Verizon employees who met the eligibility requirements for the benefit. None of Verizon’s named executive officers other than Mr. Reed are eligible for Verizon-subsidized retiree medical benefits.

During 2016, all of Verizon’s named executive officers were eligible to participate in Verizon’s tax-qualified defined contribution savings plan, the Verizon Management Savings Plan, referred to as the Savings Plan, and Verizon’s nonqualified defined contribution savings plan, the Verizon Executive Deferral Plan, referred to as the Deferral Plan. The named executive officers participate in these plans on the same terms as other participants in the plans. Under the Savings Plan, participants may defer “eligible pay,” which includes base salary and short-term incentive, up to certain compensation limits imposed by the Internal Revenue Code, and Verizon provides a matching contribution equal to 100% of the first 6% of eligible pay deferred. The Deferral Plan is designed to “restore” benefits that are limited or cut back under the Savings Plan due to the Internal Revenue Code limits. Accordingly, under the Deferral Plan a participant may elect to defer his or her base pay and short-term incentive that could not be deferred into the Savings Plan due to the Internal Revenue Code limits. Verizon provides the same matching contribution on these deferred amounts as the participant would have received if such amounts had been permitted to be deferred into the Savings Plan. The Deferral Plan also permits participants to defer long-term incentive compensation, but these deferrals are not eligible for Company matching contributions. All participants in both the Savings Plan and the Deferral Plan are eligible for an additional discretionary profit-sharing contribution of up to 3% of eligible pay.

Severance and change in control benefits

The Committee believes that maintaining a competitive level of separation benefits is appropriate as part of an overall program designed to attract, retain and motivate the highest-quality management team. However, the Committee does not believe that named executive officers should be entitled to receive cash severance benefits merely because a change in control occurs. Therefore, the payment of cash severance benefits is triggered only by an actual or constructive termination of employment.

Verizon was not a party to any employment agreement with any of the named executive officers in 2016. All senior managers (including all named executive officers except Mr. McAdam) are eligible to participate in the Verizon Senior Manager Severance Plan, which provides certain separation benefits to participants whose employment is involuntarily terminated without cause. Mr. McAdam is not eligible to participate in the Senior Manager Severance Plan and is not entitled to receive any cash severance benefits upon his separation from the Company.

 

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The Senior Manager Severance Plan is generally consistent with the terms and conditions of Verizon’s broad-based severance plan for management employees other than senior managers. Under the Senior Manager Severance Plan, if a participant has been involuntarily terminated without cause (or, in the case of a named executive officer, if the independent members of the Board determine that there has been a qualifying separation), the participant is eligible to receive a lump-sum cash separation payment equal to a multiple of his or her base salary plus target short-term incentive opportunity, along with continuing medical coverage for the applicable severance period. To the extent that a senior manager is eligible for severance benefits under any other arrangement, that person may not receive any duplicative benefits under the Senior Manager Severance Plan. The Senior Manager Severance Plan does not provide for any severance benefits based upon a change in control of the Company.

Under the Senior Manager Severance Plan, each named executive officer (other than Mr. McAdam) is eligible to receive a cash separation payment equal to two times the sum of his or her base salary and target short-term incentive opportunity. To be eligible for any severance benefits, a participant must execute a release of claims against Verizon in the form satisfactory to Verizon and agree not to compete or interfere with any Verizon business for a period of one year after separation.

Mr. Shammo retired from Verizon effective December 31, 2016. Mr. Shammo was not entitled to separation benefits under the Senior Manager Severance Plan, but he was eligible for certain other benefits as a retiree, which are described in more detail on page 62.

Consistent with the Committee’s belief that named executive officers should not receive cash severance benefits merely because a change in control occurs, the Long-Term Plan does not allow “single-trigger” accelerated vesting and payment of outstanding awards upon a change in control. Instead, the Long-Term Plan requires a “double trigger.” Specifically, if, in the 12 months following a change in control that participant’s employment is terminated without cause, all then-unvested PSUs will fully vest at the target level performance, all then-unvested RSUs will fully vest, and PSUs and RSUs (including accrued dividend equivalents) will become payable on the regularly scheduled payment date after the end of the applicable award cycle.

Other compensation policies

Stock ownership guidelines

To further align the interests of Verizon’s management with those of our shareholders, the Committee has approved guidelines that require each named executive officer and other executives to maintain certain stock ownership levels within designated periods of assuming their leadership roles.

 

•

The CEO is required to maintain share ownership equal to at least seven times base salary.

 

•

Other named executive officers are required to maintain share ownership equal to at least four times base salary.

 

•

Executives are prohibited from hedging, short-selling or engaging in any financial activity that would allow them to benefit from a decline in Verizon’s stock price.

In determining whether an executive meets the required ownership level, the calculation includes any shares held by the executive directly or through a broker, shares held through the Verizon tax-qualified savings plan or the Verizon nonqualified savings plan and other deferred compensation plans and arrangements that are valued by reference to Verizon’s stock. The calculation does not include any unvested PSUs or RSUs. Each of the named executive officers is in compliance with the stock ownership guidelines. In addition, none of the named executive officers engaged in any pledging transaction with respect to shares of Verizon’s stock.

 

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Recovery of incentive payments (clawbacks)

The Committee believes it is appropriate to hold executives accountable for actions or omissions that result in significant reputational or financial harm to the Company. Accordingly, the Committee has adopted a policy that enables Verizon to cancel or “claw back” incentive compensation from any senior executive who has engaged in willful misconduct in the performance of the executive’s duties that results in significant reputational or financial harm to Verizon. In addition, all of Verizon’s employees who receive equity grants under Verizon’s Long-Term Plan are subject to an additional clawback policy that requires forfeiture or cancellation of incentive compensation (both short-term and long-term) if the Committee determines that Verizon was required to materially restate its financial results because of the employee’s willful misconduct or gross negligence. The Committee reviews these policies periodically.

Shareholder approval of certain severance arrangements

The Committee has a policy of seeking shareholder approval or ratification of any new employment or severance agreement with an executive officer that provides for a total cash value severance payment exceeding 2.99 times the sum of the executive’s base salary plus Short-Term Plan target opportunity. The policy defines severance pay broadly to include payments for any consulting services, payments to secure a non-compete agreement, payments to settle any litigation or claim, payments to offset tax liabilities, payments or benefits that are not generally available to similarly situated management employees and payments in excess of, or outside, the terms of a Verizon plan or policy.

Tax and accounting considerations

Federal income tax law generally prohibits a publicly-held company from deducting compensation paid to a named executive officer (other than a chief financial officer) that exceeds $1 million during the tax year unless it is based upon attaining pre-established performance measures that are set by the company’s compensation committee under a plan approved by the company’s shareholders. The Committee has the flexibility to take any compensation-related actions that it determines are in the best interests of Verizon and our shareholders, including determining when to request shareholder approval of incentive plans and when to award compensation that may not qualify for a tax deduction. Compensation paid to the named executive officers under the Short-Term Plan, as well as the PSUs awarded under the Long-Term Plan, are generally intended to meet the performance-based exception for deductibility under the tax laws. However, these rules impose a number of requirements and are subject to change, sometimes with retroactive effect. There can be no assurance that any compensation will in fact be deductible.

The Committee also considers the effect of certain accounting rules that apply to the various aspects of the compensation program for our named executive officers. The Committee reviews potential accounting effects in determining whether its compensation actions are in the best interests of Verizon and our shareholders. The Committee has been advised by management that the impact of the variable accounting treatment required for long-term incentive awards payable in cash (as opposed to fixed accounting treatment for awards that are payable in shares) will depend on future stock performance.

Committee actions taken after fiscal year 2016

The Committee approved a special equity award for Mr. Stratton for purposes of retention. The award is 100% performance-based, and the final payout of the award is predicated on driving return on equity, which is linked to shareholder value creation. The award was granted on March 14, 2017, with a grant date fair value of approximately $6 million.

Mr. Stratton’s special award was authorized by the Committee under the terms and conditions of the 2009 Long-Term Plan, with 100% of the award opportunity in the form of PSUs. The PSUs represent shares of Verizon stock that may become payable after the completion of a three-year award period ending on March 13, 2020, provided that the pre-established performance criterion is achieved and Mr. Stratton remains actively employed throughout the award period. The percentage of PSUs granted that will vest at the end of the

 

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three-year award period will be determined based on Verizon’s average annual ROE during the three-year period beginning January 1, 2017 and ending December 31, 2019. No PSUs will vest unless Verizon’s three-year average ROE meets a minimum threshold percentage of 30%. If Verizon’s three-year average ROE meets the target percentage of 45%, 100% of the PSUs granted will vest. If Verizon’s three-year average ROE is at least 60%, a maximum of 150% of the PSUs granted will vest. If Verizon’s three-year average ROE is greater than 30% but less than 45%, the percentage of PSUs that will vest will be between 50% and 100% on an interpolated basis, and if Verizon’s three-year average ROE is greater than 45% but less than 60%, the percentage of PSUs that will vest will be between 100% and 150% on an interpolated basis.

The PSUs that vest at the end of the three-year award period ending March 13, 2020, including accrued dividends on the vested portion of the grant, will be settled in shares of Verizon stock. The award agreement requires Mr. Stratton to hold such shares (net of withholding taxes) for at least one year following the vesting date unless he dies or becomes disabled.

Compensation Committee Report

The Human Resources Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, the Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the Compensation Discussion and Analysis in this proxy statement and Verizon’s Annual Report on Form 10-K.

Respectfully submitted,

The Human Resources Committee

Clarence Otis, Jr., Chair

Richard Carrión

Melanie Healey

Rodney Slater

Gregory Wasson

March 3, 2017

 

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Compensation Tables

Summary compensation

The following table provides information about the compensation paid to each of our named executive officers in 2014, 2015 and 2016.

Summary compensation table

 

Name and Principal Position (a)		Year (b)				Salary ($) (c)				Bonus ($) (d)				Stock Awards1 ($) (e)				Option Awards ($) (f)				Non-Equity Incentive Plan Compensation2 ($) (g)				Change in Pension Value and Nonqualified Deferred Compensation Earnings3 ($) (h)				All Other Compensation4 ($) (i)				Total ($) (j)
Lowell McAdam			2016				1,600,000				0				12,000,077				0				3,200,000				233,155				641,347				17,674,579
Chairman and			2015				1,661,538				0				12,000,065				0				4,000,000				83,092				598,965				18,343,660
Chief Executive Officer			2014				1,580,769				0				12,000,052				0				3,800,000				75,647				850,041				18,306,509
Matthew Ellis			2016				488,462				0				1,708,468				0				410,000				1,291				89,138				2,697,359
Executive Vice President
and Chief Financial Officer
John Stratton			2016				896,154				0				4,725,072				0				1,080,000				101,959				237,424				7,040,609
Executive Vice President and President of Operations			2015 2014				894,231 785,577				0 0				4,593,828 4,200,028				0 0				1,312,500 1,140,000				52,841 30,023				203,910 188,530				7,057,310 6,344,158
Marni Walden			2016				896,154				0				4,500,061				0				1,080,000				55,034				216,340				6,747,589
Executive Vice President and President of Product Innovation and New Businesses			2015				894,231				0				4,375,074				0				1,312,500				44,907				174,317				6,801,029
Marc Reed			2016				792,307				0				4,000,094				0				960,000				196,023				224,745				6,173,169
Executive Vice President and Chief Administrative Officer
Francis Shammo			2016				921,154				0				4,856,306				0				1,110,000				82,482				235,653				7,205,595
Former Executive Vice President and Chief Financial Officer			2015 2014				920,192 815,385				0 0				4,725,031 4,331,294				0 0				1,350,000 1,175,625				41,566 12,491				204,052 163,956				7,240,841 6,498,751

 

1

The amounts in this column reflect the grant date fair value of the PSUs and RSUs computed in accordance with FASB ASC Topic 718 based on the closing price of Verizon’s common stock on the grant date. The grant date fair value of PSUs granted to the named executive officers in the designated year as part of Verizon’s annual long-term incentive award program has been determined based on the vesting of 100% of the nominal PSUs awarded, which is the performance threshold the Company believed was most likely to be achieved under the grants on the grant date. The following table reflects the grant date fair value of these PSUs, as well as the maximum grant date fair value of these awards based on the closing price of Verizon’s common stock on the grant date if, due to the Company’s performance during the applicable performance cycle, the PSUs vested at their maximum level.

 

 

2	The amounts in this column for 2016 reflect the 2016 Short-Term Plan award paid to the named executive officers in February 2017 as described beginning on page 35.

 

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3

The amounts in this column for 2016 for Mr. McAdam, Ms. Walden and Mr. Reed reflect the sum of the change in the actuarial present value of the accumulated benefit under the defined benefit plans and the above-market earnings on amounts held in nonqualified deferred compensation plans as follows: $132,300 and $100,855 for Mr. McAdam, $1,372 and $53,662 for Ms. Walden and $7,803 and $188,220 for Mr. Reed. Messrs. Ellis, Stratton, and Shammo are not eligible for pension benefits, so amounts shown in this column reflect only above-market earnings for these executives. The above-market earnings consist of earnings on amounts that the individual has elected to invest in a hypothetical investment option offered to all participants under the nonqualified deferred compensation plans that earns a return rate equal to the long-term, high-grade corporate bond yield average as published by Moody’s Investors Services. The earnings are considered above market in accordance with SEC rules because the interest crediting rate for this investment option (which for 2016 was approximately 4.18% annually) exceeded 120% of the corresponding applicable federal long-term rate established by the Internal Revenue Service (which for 2016 was 2.25%). Verizon’s defined benefit plans were frozen as of June 30, 2006, and Verizon stopped all future benefit accruals under these plans as of that date. All accruals under the Verizon Wireless pension plan were frozen as of December 31, 2006.

 

4	The following table provides the detail for 2016 compensation reported in the “All Other Compensation” column.

 

 

a

The aggregate incremental cost of the personal use of a Company aircraft is determined by multiplying the total 2016 personal flight hours by the incremental aircraft cost per hour. The incremental aircraft cost per hour is derived by adding the annual aircraft maintenance costs, fuel costs, aircraft trip expenses and crew trip expenses, and then dividing by the total annual flight hours.

 

b

The aggregate incremental cost of the personal use of a Company vehicle is determined by (i) calculating the incremental vehicle cost per mile by dividing the annual lease and fuel costs by the total annual miles; (ii) multiplying the total 2016 personal miles by the incremental vehicle cost per mile; and (iii) adding the incremental driver cost (the 2016 driver hours for personal use multiplied by the driver’s hourly rate).

 

c

Executive life insurance is available to executives on a voluntary basis. Executives wh