2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 452 CompensationDiscussionandAnalysis | 2017short-termincentivecompensation 25% Totalrevenue Targetrange:$123.8billionto$125.2billion TheCommitteeviewstotalrevenueasanimportantindicatorofVerizon’sgrowthandsuccessin managingcapitalinvestments.Thismeasurealsoreflectstheextenttowhichweareabletoattract andretaincustomersandthelevelofpenetrationofourproductsandservicesinkeymarkets.In settingthetotalrevenuetargetrangefor2017,theCommitteedidnottakeintoaccountcertain revenuesattributabletobusinessesthatwereacquiredduringthelatterhalfof2016orexpectedto beacquiredin2017. 5% Diversityandsustainability Targets:Atleast59.3%ofU.S.-basedworkforcecomprisedofminorityandfemaleemployees;directat least$4.9billionofouroverallsupplierspendingtominority-andfemale-ownedfirms;reduceourcarbon intensitybyatleast4.0%comparedtotheprioryear Asalarge,multinationalcompanywithahighlydiversecustomerandemployeebase,weknowthat ouroperationsarestrengthenedwhenweleveragethediversityofthoughtandculturesofour workforceandsuppliers.Wearealsocommittedtoreducingtheenvironmentalimpactofour operationsbecausewebelievethatitisimportantforustobegoodstewardsofourplanetwhilewe continuetoserveourcustomers. TheShort-TermPlanprovidesforperformancemeasurestobeadjustedtoexcludetheimpactofcertaintypesofeventsnot contemplatedatthetimetheperformancemeasureswereset,suchassignificanttransactions,changesinlegalorregulatory policyandotherspecialitems.Indeterminingfreecashflow,theCommitteemadeanadjustmentforadiscretionarypension prefundingcontributionmadeinMarch2017,setforthinAppendixA,whichwasnotcontemplatedwhenthefreecashflow targetwasset.NoawardsarepaidundertheShort-TermPlanifVerizon’sreturnonequity(ROE)fortheplanyear,basedon adjustednetincome,doesnotexceed8%(evenifsomeoralloftheotherperformancemeasuresareachieved). 2017adjustedCompanyresults 1 comparedagainsttargetperformance rangesresulting ina93%payout 1 A reconciliationofnon-GAAPmeasures to themostdirectlycomparableGAAPmeasuresmaybe found inAppendixA. 2 Adjusted from reportedROEof 115.7% inaccordancewith the termsof theShort-TermPlan toaddress the impactof the transaction toacquiresoleownershipofVerizonWireless. 3 Doesnot includecertain revenuesattributable tobusinessesacquiredduring the latterhalfof2016and2017. ROEof 21.6% 2 14.9% reduction incarbon intensity (above targetperformance) 58.5% U.S.-basedminorityand femaleemployees (below targetperformance) Over $5.0B ofouroverall supplier spendingdirected to minority-and female-owned firms (above targetperformance) $3.74 AdjustedEPS $3.87 $3.74 $3.78 target range $121.7B 3 Total revenue $123.8B $121.7B $125.2B target range $14.9B Freecash flow $14.9B $12.9B $11.5B target range Verizon 2018ProxyStatement | 35 Total of 02 pages in section EXECUTIVECOMPENSATION Bonus Opportunities Under the AIP Atthebeginningoftheyear,eachAIPparticipant, includingeachofourNEOs,wasassignedatargetbonus opportunitythatreflectedcompetitivepracticesinthe marketforsimilarpositions.Targetbonusopportunities in2017were150%ofbasesalaryforourCEOand85% ofbasesalaryforallotherNEOs.UndertheAIP,the bonusforeachexecutiveofficercanrangefrom0%to 300%ofthetargetincentivevalue.Fundingbasedonthe financialperformanceandcontrollablebusinessmetrics rangesfrom0%to200%oftarget.Basedonindividual performance,suchfundedamountsmaybemodifiedby 0%to150%,i.e.,decreasedto0%oftargetorincreased uptoamaximumof300%oftargetvalue.Targetssetfor theNEOswerebasedoncompetitivemarketpractices anddesignedtofocustheexecutiveonfinancial performance,operationalexcellenceandpeople development. AIP Bonus Allocation Process Aftertheendofeachplanyear,theCompensation CommitteeapprovesthefundingfortheAIPbasedonthe performanceofeachbusinessagainstitspre-determined financialperformancemetricsandcontrollablebusiness metrics.Thebonusopportunitiesforexecutiveofficers areadjustedupordownfromeachofficer’starget opportunitybasedontheleveloffundingachieved(e.g., 50%fundingwouldreduceanofficer’stargetopportunity byhalf).Fundedawardsareallocatedtoexecutive officersbasedoneachofficer’sindividualperformance ratingagainsthisorherpre-establishedperformance goals,basedonaqualitativeandquantitative assessmentofperformance(see“Compensation PhilosophyandPrinciples”)andotherindividual performancecriteria.Ingeneral,anexecutiveofficerwho receivesan“achieves”performancereviewwillearnan annualincentiveawardatornearhisorherfunding- adjustedindividualtargetlevel.Similarly,anexecutive officerwhofallsbelow“achieves”levelofperformance willtypicallyreceivelessthantheindividualfunding- adjustedtargetincentiveopportunity,andanexecutive whoreceivesan“exceeds”performancereviewmayearn anannualincentiveawardgreaterthanhisorher individualfunding-adjustedtargetlevel. TheCompensationCommitteeandthefullboardeach approvesthebonustobepaidtoourCEO.The CompensationCommitteedeterminesthebonusestobe paidtoexecutiveofficersbasedonrecommendationsby ourCEOandchiefhumanresourcesofficer. Consistentwithpastpractice,theCompensation Committeealsoestablishedoverallperformance measuresofcashflow(netcashfromoperationsmeets orexceeds$500million)andearningspershare(“EPS”) (dilutednetearningsattributabletoWeyerhaeuser commonshareholdersmeetsorexceeds$0.50)for purposesofqualifying2017AIPbonusesasdeductible performance-basedcompensationunderSection162(m) oftheInternalRevenueCode.Becausethesethreshold goalsweremet,theCompensationCommitteewas authorizedtomaketheAIPawardsasdescribedabove. However,inlightofrecentfederaltaxlegislation,the entireamountofpaid2017AIPbonusesmaynotbefully deductibleasaresultoftheSection162(m)changes.For moreinformation,see LimitationonDeductibilityof ExecutiveCompensation below. AIP Funding Illustration IndividualAIPawardsarecalculatedasfollows: BaseSalary TargetAIP Opportunity Percentage Business Performance FundingMultiple Individual Performance Adjustment Individual AIPAward X X + = 2018ANNUALMEETING&PROXYSTATEMENT 31 BaseSalaryTargetAIPOpportunityPercentageBusinessPerformanceFundingMultipleIndividualPerformanceAdjustmentIndividualAIPAward Total of 04 pages in section EXECUTIVE COMPENSATION Financial Performance Metrics The 2017 financial performance metrics for AIP funding: Š for the Timberlands and Real Estate, Energy & Natural Resources businesses, were based on the combined Adjusted EBITDA achieved by the two businesses; Š for the Wood Products business, was based on RONA; and Š for the CEO and corporate function employees, were based on a weighting of earned funding of the AIP for the three businesses—40% for Timberlands, 20% for Real Estate, Energy & Natural Resources and 40% for Wood Products. For 2017, Funds from Operations, or “FFO”, was replaced by a new performance measure for the Timberlands and Real Estate, Energy & Natural Resources segments: earnings before interest, taxes, depreciation, depletion, amortization, basis of real estate sold, pension and postretirement costs not allocated to business segments and special items, or “Adjusted EBITDA”. The Compensation Committee made the change to use Adjusted EBITDA because it aligns this important incentive compensation program with the way the company evaluates and reports its performance to shareholders and better reflects the way senior management manages the company. RONA is defined as earnings before interest and taxes, or “EBIT”, divided by average net assets, which is total assets for Wood Products less cash and cash equivalents and current liabilities. We use RONA as the principal performance measure for our Wood Products business because of its strong link over time to total shareholder return in the basic materials sector and for Weyerhaeuser. The use of this measure is intended to focus participants on generating profitability, both through increasing revenues and controlling costs. In addition, use of this measure reinforces the importance of making capital investments that will improve the company’s overall returns. Targets for the financial performance metrics are established by the Compensation Committee at the beginning of each plan year and are not subject to adjustment by management. The Compensation Committee determines the level of Adjusted EBITDA and RONA performance necessary for funding the threshold, target and maximum levels, which represent funding at 20%, 100% and 200% of target levels, respectively. If the applicable performance goal is below the threshold, the funding level for this portion of the AIP is 0%. Targets for the AIP’s financial performance metrics are established based on a variety of factors: Š The near-term outlook, prior year performance and competitive position influences the performance goal set for target funding for the Timberlands and the Real Estate, Energy & Natural Resources businesses. Š The cost of capital and competitive position influences the performance goal set for target funding for the Wood Products business. Š Internal benchmarks of outstanding performance influence the performance goal set for maximum funding. For 2017, the Compensation Committee set a combined Adjusted EBITDA target for the Timberlands and Real Estate, Energy & Natural Resources businesses and a RONA target for the Wood Products business at the following levels: Metric Threshold (20% of Target Funding) Target (100% of Target Funding) Maximum (200% of Target Funding) Timberlands and Real Estate, Energy & Natural Resources Adjusted EBITDA $912 million $1,141 million $1,426 million Wood Products RONA 6% 12% 22% Controllable Business Metrics The remainder of the AIP funding determination (30%) is based on the performance of each business against certain controllable business metrics approved in advance by the Compensation Committee. The controllable business metrics measure performance against achievement of the company’s vision in areas such as operational excellence and people development, financial and competitive performance, cost competitiveness and performance against strategic goals and priorities. 30 WEYERHAEUSERCOMPANY VERIZON COMMUNICATIONS INC. WEYERHAEUSER COMPANY CompensationDiscussionandAnalysis | 2017short-termincentivecompensation Whytheseperformancemeasures? TheCommitteeselectedadjustedEPS,freecashflowandtotalrevenuetoreflectVerizon’sstrategicgoalsof encouragingprofitableoperations,efficientuseofcapitalandoverallgrowth.TheCommitteealsoselecteda diversityandsustainabilitymetrictoreflectVerizon’scommitmenttopromotingdiversityamongouremployees andourbusinesspartners,andtoreducingtheenvironmentalimpactofouroperations. The2017performancemeasures,alongwiththeweightingascribedtoeach,areshownbelowasapercentageofthetotal Short-TermPlanawardopportunityattargetlevelperformance. 45% 5% 25% 25% AdjustedEPS Diversityand sustainability Total revenue Freecash flow 2017Short-TermPlan performancemeasures TheCommitteebelievesthattheseperformancemeasures areappropriatetomotivateVerizon’sexecutivestoachieve outstandingshort-termresultsand,atthesametime,help buildlong-termvalueforshareholders.The2017measures andrelatedtargetsapprovedbytheCommitteeare describedindetailbelow. 45% AdjustedEPS Targetrange:$3.78to$3.87 Verizon’searningsareafunctionoftherevenueearnedfromcustomersandtheexpensesincurredto servethosecustomers.Asaresult,adjustedEPSisameasureoftheefficiencywithwhichweare approachingthemarketplace–theeffectivenesswithwhichwearebalancingencouragingcustomers tostartandcontinuerelationshipswithusandthecostsweareincurringtodoso.TheCommittee assignsthegreatestweighttoadjustedEPSindeterminingawardsundertheShort-TermPlan becausethismeasureisbroadlyusedandrecognizedbyinvestorsasakeyindicatorofongoing operationalperformanceandprofitability.AdjustedEPSexcludesspecialitems,suchasimpairments andgainsandlossesfromdivestitures,businesscombinations,changesinaccountingprinciples,the netimpactofseverance,pensionandpost-retirementbenefitcosts,extraordinaryitemsand restructurings.Asaresult,theCommitteebelievesthismeasureprovidesmeaningfulcomparisons ofourfinancialresultsfromperiodtoperiodandreflectstherelativesuccessoftheongoingbusiness. 25% Freecashflow Targetrange: $11.5billionto$12.9billion Freecashflowisameasureofthecashwehaveleftoverafterwehavemadethecapitalexpenditures weneedtomaketocontinuetoprovideservicestoourcustomers.Asaresult,itisanindicationofthe extenttowhichweareefficientlyusingcapital.ItisalsoanindicationoftheamountofcashVerizon hasavailabletoreturntoshareholdersintheformofdividendsorsharerepurchasesandtoincrease ourfinancialflexibilitybyreducingoutstandingdebt.Freecashflowiscalculatedbysubtractingcapital expendituresfromthetotalofcashflowfromoperationsandcashflowfromfinancingandinvesting activitiesattributabletodevicepaymentplanreceivablesecuritizations. 34 | Verizon 2018ProxyStatement EXECUTIVE COMPENSATION Compensation Components – Determination of Compensation Base Salary Base salary is the principal fixed element of executive compensation. In setting base salaries for executives, our Compensation Committee generally targets base salary to be at or slightly below the median level among the peer group companies described above for the applicable executive role. We also consider other factors to allow us to meet our objective of attracting and retaining critical talent, such as the company’s performance, relative pay among executives, the executive’s individual performance, and his or her experience and potential to assume roles with greater responsibility. The Compensation Committee reviews executive salaries on an annual basis. Increases in salaries generally are based on the market level salary for the role in which the executive serves and individual performance assessments. Based on the competitive assessment conducted in early 2017, Mr. Simons’ 2017 base salary was below median to reflect the company’s general philosophy to have a greater portion of the CEO’s total pay at risk through short-and long-term incentive programs. Base salaries for each of Messrs. Blocker, Hagen, and Kilberg and Ms. Hunter were within the median range. Mr. Hagen’s base salary was increased for 2017 to bring it in line with similarly-situated executives. Base salaries for our NEOs in 2017 were: Named Executive Officer Percentage Increase Over 2016 2017 Base Salary Doyle R. Simons 0% $1,000,000 Russell S. Hagen 3.64% $ 570,000 Adrian M. Blocker 0% $ 570,000 Rhonda D. Hunter 0% $ 570,000 James A. Kilberg 0% $ 542,000 Short-Term Incentive Plan Our Annual Incentive Plan (“AIP”) is an annual cash bonus plan designed to: Š motivate our executive officers, including our NEOs, and other participants to generate strong financial performance and achieve our strategic goals; Š link pay to performance; and Š attract and retain top talent employees. Each AIP participant is assigned a target bonus opportunity that reflects competitive practices in the market for similar positions. The AIP is funded based on achieving the pre-established financial performance and controllable business metrics described below. The actual bonus amounts awarded to individual employees are based on the level of plan funding and the individual employee’s individual performance against his or her performance goals. Executives with a performance rating of “achieves” will generally receive an award at or near the bonus level funded by financial and business performance. AIP Performance Measures and Pl n Mecha ics For 2017, the AIP focused on the performance of the company’s three business segments: Timberlands, Real Estate, Energy & Natural Resources, and Wo d Products. We view each of the company’s busine ses separately to optimize the performance of each business. The AIP i designed to be easy for employees to understand and give them a clear view of the effect of their business improvement efforts on their compensation. AIP funding is calculated using financial performance metrics and controllable business me rics, with the financial performance metrics weighted 70% and the controllable business metrics weight d 30%. Employees of each business segment, including the executive officer leading a segment, receive bonuses under the AIP based on: Š the performance of the business gainst its fina cial performance metrics targets; Š the performance of the business against its controllable business metrics; and Š the performance of each employee against his or her individual performance goals. The CEO and corporate function employees, including the Chief Financial Officer, receive annual bonu es ba ed on a weighting of earned funding of the AIP f r the business segments—40% for Timberlands, 20% for Real Estate, Energy & Natural Resources, and 40% for Wood Products—modified by the performance of the individual employee against his or her performance goals. This funding mechanism is designed to mak the CEO accountable for the results of all of our businesses nd to focus corporate function employees n the goals, priorities and success of the businesses in which they play a critical role. 2018ANNUALMEETING&PROXYSTATEMENT 29