EXECUTIVE COMPENSATION

REPORT OF THE HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION

The Human Resources Committee of the Board is responsible for establishing and administering the policies and plans related to compensation and benefits for senior managers, including the executives listed in the Summary Compensation Table beginning on page 24 of this Proxy Statement. The individuals listed in that table are referred to as the named executive officers.

This report summarizes the philosophy, structure, and compensation levels of the Company's executive compensation programs for 2003.

PHILOSOPHY

The Committee oversees a compensation program that is designed to support Verizon's long-term strategy and align the financial interest of the senior management group with Verizon's shareholders. The Committee has established the following objectives for the Company's executive compensation program:

• To attract and retain high-performing executive talent;
• To encourage achieving key operational and financial goals;
• To reward key performers who achieve superior returns for shareholders; and
• To link the majority of total compensation opportunity to performance based on financial and strategic objectives.

The Committee evaluates and approves each component of compensation (base salary, annual incentives, and long-term incentives) and reviews and approves the individual total compensation for key executives. In considering the mix of elements comprising total compensation, the Committee has emphasized long-term pay and performance to stress the importance of achieving Verizon's long-term goals.

Accordingly, the total compensation of the senior management group has been set at levels that are intended to be competitive with other large, global, public companies with whom we compete for executive talent. The Committee has determined that the aggregate of Verizon's base pay and short-term compensation opportunity should target the 50th percentile for comparable companies and that its long-term incentive opportunities should target the 75th percentile. To ensure that Verizon's senior management compensation is consistent with these levels, the Committee annually compares Verizon's total compensation and component pay levels to those of companies who compete with Verizon for executive talent. In November 2003, the Committee reviewed the compensation levels for the senior management group and determined that the long-term incentive opportunity was generally below the targeted 75th percentile. However, as it did in 2002, the Committee decided that it was appropriate to maintain Verizon's current long-term incentive structure below the 75th percentile but within the 3rd quartile. In addition, the Company approved maintaining the bonus and compensation structures that have been in place since 2000.

Each of Verizon's 2003 incentive compensation plans emphasize a pay for performance philosophy and are designed to reflect both individual and company performance. They provide challenging performance objectives that serve to both motivate and retain executives. The Verizon Short-Term Incentive Plan is designed to reward performance in achieving certain internal business goals that are primarily financial and operational in nature. The Verizon Long-Term Incentive Plan is designed to reward the creation of sustainable shareholder value and more closely align the interests of the Company's senior management group with that of its shareholders. For 2003, the Committee has determined that, given the changing environment, the senior management group long-term incentive compensation will consist of a mix of non-qualified stock options and performance stock units.

The Company has in place stock ownership guidelines that encourage each executive to achieve and maintain an appropriate ownership stake in the Company. The ownership levels are based on a multiple of base salary and require a multiple of at least five times base salary for the CEO and a multiple of at least one to four times for other executives. These guidelines apply to all senior management employees. All named executive officers are currently in compliance with the stock ownership guidelines. The table on page 30 shows the current ownership levels of these named officers.

The Committee also recognizes that, from time to time, it is appropriate to enter into agreements with certain key executives to ensure that Verizon continues to retain their services. The agreements with the named executive officers are described beginning on page 27 of this Proxy Statement. The Committee has adopted a policy that applies to any new severance agreements with senior executives. The policy requires that the Board of Directors seek shareholder ratification of any severance agreement between a senior executive officer and the Company that provides for a total cash value severance payment exceeding 2.99 times the sum of the executive's base salary plus bonus. This limitation applies to the cash value of any post-employment consulting arrangement entered into between the senior executive officer and the Company, but does not apply to the cash value of any benefits that are payable or become payable pursuant to Company policy applicable to management.

COMPONENTS OF COMPENSATION

There are three components of the compensation structure for the senior management group: salary; a short-term incentive award paid in cash; and a long-term incentive award. The majority of an executive's total compensation is performance-based and, therefore, at risk. The value of such compensation (short-term and long-term incentives) depends largely on the degree of success in attaining both Company and individual performance objectives.

Salary. The Company's executive salary structure is based on broad salary bands. Verizon periodically evaluates this structure by comparing it to a group of other large global public companies. Base pay is set at the 50th percentile for comparable companies. In 2003, the senior management group generally received salary increases based upon individual performance, market changes in the value of that position, and the economic and business conditions affecting Verizon at the time of the evaluation. The salaries earned by the named executives for 2003 are shown in column (c) of the Summary Compensation Table on page 24.

Short-Term Incentive. Senior managers are eligible to receive annual cash incentives under the Verizon Short-Term Incentive Plan. The plan is designed to support achieving Verizon's business and performance goals by placing a sizable percentage of annual compensation at risk. For 2003, the awards were based upon actual performance as measured against pre-established performance objectives. These objectives are based primarily upon financial measures, particularly earnings per share and revenue excluding the net impact of pension and post-retirement benefits. A portion of the award is also based upon two additional non-financial measures: customer service and diversity. The Committee evaluates Verizon's performance on these measures against the performance of industry peers. Depending on Verizon's and the individual's performance, the awards can range from zero to a pre-established maximum performance percentage. The amounts shown under "Bonus" in column (d) of the Summary Compensation Table represent the short-term incentive payments awarded to each of the named executive officers for 2003.

Long-Term Incentive. The Company provides long-term incentive opportunities under the Verizon Long-Term Incentive Plan. These long-term incentives may include non-qualified stock options, incentive stock options, performance units, restricted stock grants and stock appreciation rights. For 2003, long-term incentive compensation consisted of a mix of non-qualified stock options and performance stock units. This mix closely aligns the interests of the Company's senior management group with the interests of its shareholders because of the focus on external performance measures, stock price and relative total shareholder return. This will not change the value of the long-term incentive compensation awarded to executives and will result in the Company granting fewer stock options to its executives.

The award of individual stock options is generally based on the recipient's actual base salary multiplied by a percentage applicable to the recipient's compensation band. The percentage is determined based on the level of responsibilities and on comparable positions within a group of other large global public companies. All stock options are granted with an exercise price equal to the fair market value of Verizon's stock on the date of the grant and are not transferable during the recipient's lifetime. Non-qualified stock options reward participants only to the extent that the value of Verizon's common stock increases, thus creating greater shareholder value. In 2003, Verizon began expensing the fair market value of stock options granted on or after January 1, 2003. The number of stock options granted to each of the named executive officers is shown in column (g) of the Summary Compensation Table.

Performance stock units represent shares of Verizon stock that may become payable after the completion of a three-year performance cycle. Actual payment of the performance stock units will be determined based on Verizon's Total Shareholder Return (TSR) relative to the TSR of the companies that make up the Standard & Poor's 500 and to the TSR of a group of telecom companies included in Verizon's industry peer group. No performance stock units will be paid unless Verizon's relative TSR position meets a specific minimum threshold percentage at the conclusion of the performance cycle. The value of the award may increase or decrease based on Verizon's relative TSR position compared to that of the companies in the Standard & Poor's 500 and the companies in Verizon's industry peer group. The value of each performance stock unit is equal to the fair market value of a share of Verizon's common stock on the date of the grant and will change as the value of Verizon's common stock changes. All units that become payable under the program will be paid in shares of Verizon common stock. This combination of non-qualified stock options and performance stock units will continue to align the interests of its executives with that of Verizon's shareholders. The value of the performance stock units granted to each of the named executive officers is shown in column (f) of the Summary Compensation Table.

2003 COMPENSATION FOR IVAN SEIDENBERG

Mr. Ivan Seidenberg is Chairman and Chief Executive Officer of Verizon. His 2003 compensation was determined in accordance with the plans and policies discussed in this report. His annual salary is shown in column (c) of the Summary Compensation Table, and his short-term incentive award is shown under "Bonus" in column (d) of this table.

Mr. Seidenberg did not receive a salary increase in 2003, maintaining the same salary since the merger in June 2000. In 2003, Mr. Seidenberg received a short-term incentive award of $2,775,000. The range of his short-term incentive award was $0 to $3,750,000.

In recognition of the current market conditions, in January of 2003 Mr. Seidenberg recommended a reduction to his 2003 long-term incentive award by more than 10% from its 2002 and 2001 levels, from $12 million to $10.5 million. The Committee reviewed and approved this recommendation. As a result, on February 3, 2003 Mr. Seidenberg was awarded 492,200 non-qualified stock options and 109,000 PSUs. The option grant is reported in column (g) of the Summary Compensation Table. The PSU grant dollar value is reported in column (f) of the Summary Compensation Table.

On December 31, 2003, the remaining 20% of Mr. Seidenberg's total special long-term performance incentive award became payable. The Committee approved paying the award for Mr. Seidenberg at target due to the performance of Verizon as measured against its industry peers. Mr. Seidenberg received $2,000,000, and his award is reflected in column (h) of the Summary Compensation Table.

APPLICABLE TAX CODE PROVISION

Under the Omnibus Budget Reconciliation Act of 1993, provisions were added to the Internal Revenue Code under Section 162(m) that limit the tax deduction for compensation in excess of one million dollars paid to certain executive officers. Companies are permitted to exclude performance-based compensation from the limit if that compensation meets certain requirements. The Committee believes that the short and long-term plans are performance driven and therefore satisfy the requirements for exemption under Internal Revenue Code Section 162(m).

Respectfully submitted,

Human Resources Committee

Russell E. Palmer, Chairperson
Richard L. Carrión
Walter V. Shipley
John R. Stafford

Dated: March 6, 2004

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Babbio, Vice Chairman and President of the Company, serves on the Board of Directors of ARAMARK Corporation and, until February 2003, served on its compensation committee. Mr. Neubauer, Executive Chairman of the Board of Directors of ARAMARK Corporation, serves on Verizon's Board of Directors and, until March 2003, served on its Human Resources Committee.