In response to shareholder pressure, Verizon Communications has agreed to hold an annual advisory vote on executive compensation in 2009.

The decision by Verizon’s board comes after shareholders of the New York-based telecommunications and Internet service company gave 50.2 percent support to a resolution asking for a non-binding vote on executive pay policies at the firm’s annual meeting in May.

Verizon is the second U.S. public company to adopt an annual pay vote, known as “say on pay,” a right given to investors by law in markets such as the United Kingdom and Australia.

Insurance company Aflac received a similar resolution, but decided to adopt “say on pay” in February before the matter went to a shareholder vote. Aflac, like Verizon, will hold the first advisory vote on executive pay policies at its 2009 annual meeting.

According to a Nov. 1 press release, Verizon’s presiding director, Sandra O. Moose, said that the board’s decision will “further strengthen Verizon’s corporate governance practices.”

A number of Verizon shareholders, including the American Federation of State, County, and Municipal Employees (AFSCME), Walden Asset Management, and the North Carolina and Connecticut state pension fund officials, co-signed an Oct. 17 letter that urged the directors to consider adopting an advisory vote policy.

“Giving shareholders an opportunity to vote on executive pay is a simple and easy way to improve Verizon’s corporate governance policies,” the investors’ letter read. “Since the vote is not binding, it will give us a voice in the process without allowing us to micromanage the [c]ompany.”

The Amalgamated Bank, which invests for labor interests through its LongView funds, sent a letter on Oct. 31 that called for an annual advisory vote. The letter criticized past pay practices at Verizon, where five directors received between 7 and 11 percent opposition in May amid an AFL-CIO “vote no” campaign over CEO Ivan Seidenberg’s compensation.

The company initially objected to the “say on pay” proposal, filed by C. William Jones, president of the Association of BellTel Retirees. Verizon argued in its proxy statement that an up-or-down vote on pay would be a blunter instrument than simply communicating grievances over pay directly to the board.

After the proposal received majority support, however, the board began a dialogue with shareholders--including Jones--according to the company’s Nov. 1 press release. Aflac went through a similar process of consulting with large investors before deciding to adopt “say on pay.”

“We believe that it is important to engage in an ongoing dialogue with shareholders and others,” Verizon presiding director Moose said in the press release.

Richard Ferlauto, AFSCME’s director of pension and benefit policy, lauds the Verizon decision as “a breakthrough.” “It’s the first time a company has moved to adopt ‘say on pay’” after a vote on a shareholder proposal, Ferlauto told Risk & Governance Weekly.

The AFL-CIO (of which AFSCME is a part) is also optimistic about the possibility for an advisory vote, but the labor federation expressed some concern about the language used by the Verizon board to describe its new pay vote policy.

The company describes the new policy as providing a shareholder advisory vote “related to executive compensation,” leaving some AFL-CIO officials nervous about whether all of the company’s pay practices will really be put to a vote and whether pay disclosure will be made in a clear and meaningful way, said Heather Slavkin, the AFL-CIO’s senior legal and policy advisor.

“As we all know, the devil is in the details,” Slavkin told Risk & Governance Weekly. “We are eager to see how it actually looks when the management proposal is submitted to shareholders.”

The Verizon board also modified its policies on compensation consultant independence and executive severance pay--both in response to high support for shareholder proposals on these issues at the annual meeting.

A new policy ensures that any firm consulting on executive pay for the board is not allowed to do any other contractual work for the company. A Communication Workers of America proposal asking the company to examine the independence of its compensation consultant won 46.9 percent support in May.

According to the press release, Verizon has also implemented a revised policy that more specifically defines the types of payments that can be used in calculating a severance payment to an executive, but regulatory filings including the exact details of the new policy have not yet been released. A shareholder proposal, which asked for severance payments to be limited to 2.99 times (or less) an executive's annual pay plus bonus, received 47 percent support at the meeting.

At least one other company where a “say on pay” resolution received majority support is considering adopting a yearly advisory vote, Ferlauto reported. AFSCME, Walden, and Connecticut and North Carolina fund officials sent a similar letter urging the board at industrial equipment manufacturer Ingersoll-Rand to hold an annual pay vote. A Unitarian Universalist Association proposal on “say on pay” received 56.7 percent support at the company’s meeting in June.

According to Ferlauto, Ingersoll-Rand’s board responded by indicating that it has begun to contact major shareholders to get their views on implementing an advisory vote on pay.

And more companies may face shareholder pressure to follow suit. “Say on pay” proposals received majority support at six other firms this year in addition to Verizon and Ingersoll Rand. The latest was a resolution at Par Pharmaceutical that received 56.8 percent support on Oct. 16, according to the proponents, the New York City Public Employees' Retirement System.