Verizon’s current policy allows the company to cancel or “claw back” the cash- and equity-based compensation of senior executives who engage in “willful misconduct ... that results in significant reputational or financial harm to Verizon.” A clawback for “gross negligence” is considered only when it results in a restatement of financial results that would have lowered the executive’s compensation (2022 Proxy, page 38).

Because Verizon’s clawback policy is limited to “willful misconduct” and does not require disclosure to shareholders, we believe that policy is too narrow, too vague, and does not address situations where an executive fails to exercise oversight responsibilities that result in significant financial or reputational damage to Verizon. It should.

A clawback policy based on “conduct,” not “willful misconduct,” is consistent with a 2022 rule from the Securities and Exchange Commission that requires a clawback of erroneously awarded incentive compensation — even with no misconduct — if a company restates its financial statements owing to material errors.

Wells Fargo offers a prime example of why Verizon needs a stronger policy. After Congressional hearings in 2016, Wells Fargo agreed to pay $185 million to resolve claims of fraudulent sales practices. Wells Fargo’s board then moved to claw back $136 million from two top executives based on a policy of the sort we propose here. Wells Fargo concluded the CEO had turned a blind eye to the practice of opening fraudulent accounts without customer consent.

Like Wells Fargo, Verizon is a consumer-facing company with significant exposure to reputational and financial harm from large fines or liability for conduct alleged to violate federal or state laws.

Verizon’s record underscores the need for a stronger policy. For example, in 2020 the Federal Communications Commission proposed a $48.3 million fine against Verizon for selling customer location data without consent. The case is pending. In 2015 Verizon paid $90 million to settle a FCC investigation alleging “cramming,” which is the unauthorized placement of third-party charges on subscribers’ mobile phone bills.

Did Verizon’s board scrutinize the knowledge and actions of the executives responsible to determine if a clawback was justified?

A New York Times Sunday business section column agreed that “Verizon’s policy should also cover wrongdoing that arose because of negligence or a supervisory failure.” (Want Change? Shareholders Have a Tool for That, Gretchen Morgenson, March 24, 2017).

Incentives influence behavior. We believe stronger incentives not to take undue risks to boost short-term profitability are appropriate.