The persons named as proxies will use their discretion to vote on other matters that may properly come before the Annual Meeting.
The above matters are described in the attached Proxy Statement. You are urged, after reading the attached Proxy Statement, to vote your shares by proxy using one of the following methods: (i) vote via the Internet or by telephone; or (ii) if you requested printed proxy materials, complete, sign, date and return your proxy card or voting instruction form if you hold your shares through a broker, bank or other nominee in the postage-paid envelope provided. This proxy is being solicited on behalf of the Company’s Board of Directors.
Biographical Information Biographical Information:
Pamela L. Carter retired in July 2015 as Vice President of Cummins Inc. and President of Cummins Distribution Business, a division of Cummins Inc., a designer, manufacturer and marketer of diesel engines and related components and power systems. Ms. Carter joined Cummins Inc. in 1997 as Vice President — General Counsel and held various management positions before her appointment in 2008 as President of Cummins Distribution Business, a $5 billion business with a global footprint.
Prior to her career with Cummins, Ms. Carter served in various capacities with the State of Indiana and in the private practice of law. Ms. Carter was the first woman and the first African-American to be elected to the office of Attorney General in Indiana. Ms. Carter also became the first African-American woman to be elected state attorney general in the U.S. She served as Parliamentarian in the Indiana House of Representatives, Deputy Chief-of-Staff to Governor Evan Bayh, Executive Assistant for Health Policy & Human Services, and Securities Enforcement Attorney for the Office of the Secretary of State. | | WWW.CSX.COM | | 17 | Skills and Qualifications With strong operational experience and extensive service in government, Ms. Carter provides the Board with in-depth knowledge and insight into operations, technology, regulatory, legal and public policy matters. |
| | | |  | James M. FooteManagement Director Nominee / Chief Executive Officer and President | Age65 Director since2017 | CSX Committees Executive (Chair) | Other Public Directorships ●None | |
| | Biographical Information James M. Foote, a senior executive with over 40 years of railroad industry experience in finance, operations and sales and marketing, was named President and Chief Executive Officer and a director of CSX in December 2017. Mr. Foote joined CSX as Executive Vice President and Chief Operating Officer in October 2017. Prior to joining CSX, Mr. Foote was President and Chief Executive Officer of Bright Rail Energy, a technology company formed in 2012 to design, develop and sell products that allow railroads to switch locomotives to natural gas power. Before heading Bright Rail, Mr. Foote was Executive Vice President, Sales and Marketing with Canadian National Railway Company (“Canadian National”). Mr. Foote joined Canadian National in 1995 as Vice President – Investor Relations to assist the company’s privatization. He also served as Vice President Sales and Marketing – Merchandise at Canadian National. | Skills and Qualifications Mr. Foote has expertise in railroad operations, including the scheduled railroading operating model, and sales and marketing. He also provides the Board with significant knowledge and understanding of the Company and its business. |
Table of Contents Item 1: Election of Directors
James M. Foote |  | | Management Director Nominee
Chief Executive Officer and President
Age:64
Director since:2017
CSX Committees:
Executive (Chair)
Skills and Qualifications:
Mr. Foote has expertise in railroad operations, including the PSR business model, and sales and marketing. He also provides the Board with significant knowledge and understanding of the Company and its business.
Other Public Directorships: | Steven T. HalversonIndependent Director Nominee | Age64 Director since2006 | CSX Committees Audit / Compensation (Chair) | Other Public Directorships ●None | |
Biographical Information:
James M. Foote, a senior executive with over 40 years of railroad industry experience in finance, operations and sales and marketing, was named Chief Executive Officer and President of CSX in December 2017 following the death of E. Hunter Harrison. Prior to this role, Mr. Foote served as Executive Vice President and Chief Operating Officer from October to December 2017. Before joining CSX, Mr. Foote was president and chief executive officer of Bright Rail Energy, a technology company formed in 2012 to design, develop and sell products that allow railroads to switch locomotives to natural gas power. Before heading Bright Rail, Mr. Foote was executive vice president, sales and marketing with Canadian National Railway Company. Mr. Foote joined Canadian National in 1995 as vice president – investor relations to assist the company’s privatization. He also served as vice president sales and marketing – merchandise at Canadian National.
Steven T. Halverson |
| | Biographical Information Steven T. Halverson is the Chairman and former Chief Executive Officer of The Haskell Company, one of the largest design and construction firms in the United States. Prior to joining The Haskell Company in 1999, Mr. Halverson served as a Senior Vice President of M.A. Mortenson, a national construction firm. Mr. Halverson also serves as a director for GuideWell Mutual Insurance Holdings, Blue Cross Blue Shield of Florida, and is past chair of the Florida Council of 100, the Florida Chamber of Commerce, the Construction Industry Roundtable and the Jacksonville Civic Council. From 2008 until its sale to McKesson Corporation in 2013, Mr. Halverson served on the board of directors of PSS World Medical. | Skills and Qualifications Mr. Halverson’s expertise in the construction industry allows him to provide unique insight and perspective on the U.S. economy and certain CSX markets. In addition, through his roles with key organizations in Florida, Mr. Halverson provides broad leadership capabilities to the Board. |  | | Independent Director Nominee
Age:63
Director since:2006
CSX Committees:
Audit / Compensation
Skills and Qualifications:
Mr. Halverson’s expertise in the construction industry allows him to provide unique insight and perspective on the U.S. economy and certain CSX markets. In addition, through his roles with key organizations in Florida, Mr. Halverson provides broad leadership capabilities to the Board.
Other Public Directorships:
| |
| | | |  | Paul C. HilalDirector Nominee / Vice Chairman of the Board | Age52 Director since2017 | CSX Committees Executive / Finance | Other Public Directorships ●None |
Biographical Information:
Steven T. Halverson is the Chief Executive Officer of The Haskell Company, one of the largest design and construction firms in the United States. Prior to joining The Haskell Company in 1999, Mr. Halverson served as a Senior Vice President of M.A. Mortenson, a national construction firm. Mr. Halverson also serves as a director for GuideWell Insurance, Blue Cross Blue Shield of Florida, ACIG Insurance Co., the Florida Counsel of 100 (past chair), the Florida Chamber of Commerce (past chair), the Construction Industry Roundtable (past chair) and the Jacksonville Civic Council (past chair). From 2008 until its sale to McKesson Corporation in 2013, Mr. Halverson served on the board of directors of PSS World Medical.
| 18 | | CSX CORPORATION 2018 PROXY STATEMENT | |
| |
| Biographical Information Table of Contents
| Item 1: Election of Directors |
Paul C. Hilal |  | | Director Nominee
Age:51
Director since:2017
Vice Chairman of the Board
CSX Committees:
Executive / Finance
Skills and Qualifications:
Mr. Hilal draws on his experience as a value investor, as a capital allocator, as an engaged director driving shareholder value and in the railroad industry to provide the Board valuable insight regarding the financial aspects of CSX’s business.
Other Public Directorships:
●None
|
Biographical Information:
Paul C. Hilal founded and controls Mantle Ridge, and each of its related entities.
Prior to founding Mantle Ridge, Mr. Hilal was a partner and senior investment professional at Pershing Square Capital Management where he worked from 2006 to 2016. From 2012 to 2016, Mr. Hilal served as a director of Canadian Pacific Railway Limited (“Canadian Pacific”) where he was chair of the Management Resources and Compensation Committee and a member of the Finance Committee. Mr. Hilal currently serves on the Board of Overseers of Columbia Business School and served until 2016 on the Board of the Grameen Foundation – an umbrella organization that helps micro-lending and micro-franchise institutions empower the world’s poorest through financial inclusion and entrepreneurship. Edward J. Kelly, III | Skills and Qualifications Mr. Hilal draws on his experience as a value investor, as a capital allocator, and as an engaged director driving shareholder value. Additionally, through his railroad industry experience and perspective, Mr. Hilal provides the Board valuable insight regarding the financial aspects of CSX’s business. |  | | Independent Director Nominee
Age:64
|
16 CSX Corporation 2019 Proxy Statement Director since:2002
Chairman of the Board
CSX Committees:
Compensation / Executive / Governance
Skills and Qualifications:
As an executive with expertise in the banking industry, Mr. Kelly provides extensive financial, regulatory and governance experience to the Board. He offers important perspective on global financial markets.
Other Public Directorships:
●XL Group Ltd.
●MetLife Inc.
|
Biographical Information:
Edward J. Kelly, III retired as Chairman of the Institutional Clients Group at Citigroup, Inc. in July 2014. He joined Citigroup, Inc. in 2008, and served at various points as Vice Chairman, Chief Financial Officer and Head of Global Banking at Citigroup, among other roles.
Mr. Kelly previously served as Managing Director at The Carlyle Group and Vice Chairman of The PNC Financial Services Group, Inc. following PNC’s acquisition of Mercantile Bankshares Corporation in March 2007. At Mercantile, Mr. Kelly held the offices of Chairman, Chief Executive Officer and President from March 2003 until March 2007, and was Chief Executive Officer and President from March 2001 to March 2003. Before joining Mercantile, Mr. Kelly served as Managing Director and co-head of Investment Banking Client Management at J.P. Morgan Chase and Managing Director and Head of Global Financial Institutions at J.P. Morgan. Previously, Mr. Kelly was General Counsel at J.P. Morgan and a partner at the law firm of Davis Polk & Wardwell LLP, where he specialized in matters related to financial institutions. Early in his career, Mr. Kelly served as a law clerk to Supreme Court Justice William J. Brennan, Jr. and U.S. Court of Appeals Judge Clement F. Haynsworth, Jr.
Mr. Kelly previously served on the boards of directors for The Hartford Financial Services Group, The Hershey Company and Paris RE Holdings.
Table of Contents Item 1: Election of Directors
John D. McPherson |  | | Independent Director Nominee
Age:71
Director since:2008
CSX Committees:
Finance / Public Affairs
Skills and Qualifications:
As a result of his extensive career in the rail industry, Mr. McPherson serves as an expert in railroad operations.
Other Public Directorships: | John D. McPhersonIndependent Director Nominee | Age72 Director since2008 | CSX Committees Finance / Public Affairs | Other Public Directorships ●None | |
| |
| | Biographical Information Biographical Information:
John D. McPherson served as President and Chief Operating Officer of Florida East Coast Railway, a wholly-owned subsidiary of Florida East Coast Industries, Inc., from 1999 until his retirement in 2007. From 1993 to 1998, Mr. McPherson served as Senior Vice President – Operations, and from 1998 to 1999, he served as President and Chief Executive Officer of the Illinois Central Railroad. Prior to joining the Illinois Central Railroad, Mr. McPherson served in various capacities at Santa Fe Railroad for 25 years.
From 2012 to 2015, Mr. McPherson served on the board of directors of Las Vegas Railway Express, a start-up passenger railroad that plans to operate between Los Angeles and Las Vegas. From 1997 to 2007, Mr. McPherson served as a member of the board of directors of TTX Company, a railcar provider and freight car management services joint venture of North American railroads. David M. Moffett | Skills and Qualifications As a result of his extensive career in the rail industry, Mr. McPherson serves as an expert in railroad operations. |  | | Independent Director Nominee
Age:66
Director since:2015
CSX Committees:
Audit (Chair) / Executive / Finance
Skills and Qualifications:
Mr. Moffett has many years of experience as a chief executive officer or chief financial officer of public financial services companies, as well as significant public policy experience.
Other Public Directorships:
|
| | | |  | David M. MoffettIndependent Director Nominee | Age67 Director since2015 | CSX Committees Audit (Chair) / Executive / Finance | Other Public Directorships ●PayPal Holdings, Inc. ●Genworth Financial, Inc. |
| |
| | Biographical Information Biographical Information:
David M. Moffett served as the Chief Executive Officer and a director of the Federal Home Loan Mortgage Corporation from September 2008 until his retirement in March 2009. He previously served as a Senior Advisor with the Carlyle Group LLC from May 2007 to September 2008, and as the Vice Chairman and Chief Financial Officer of U.S. Bancorp from 2001 to 2007, after its merger with Firstar Corporation where he served as Vice Chairman and Chief Financial Officer from 1998 to 2001. Mr. Moffett also served as Chief Financial Officer of StarBanc Corporation, a predecessor to Firstar Corporation, from 1993 to 1998.
Mr. Moffett currently serves as a director of Genworth Financial, Inc. and as the lead independent director on the board of directors of PayPal Holdings, Inc. He also serves as a trustee on the boards of Columbia Fund Series Trust I and Columbia Funds Variable Insurance Trust, overseeing approximately 52 funds within the Columbia Funds mutual fund complex. In addition, he serves as a trustee for the University of Oklahoma Foundation. Mr. Moffett also has served as a consultant to Bridgewater and Associates. From 2007 to 2015, Mr. Moffett served on the board of directors of eBay, Inc. From 2010 to 2016, Mr. Moffett served on the board of directors of CIT Group Inc. | 20 | | CSX CORPORATION 2018 PROXY STATEMENT | | Skills and Qualifications With his many years of experience as a chief executive officer or chief financial officer of public financial services companies, Mr. Moffett is able to provide valuable insight to the Board concerning financial matters. He is also able to leverage his significant public policy experience. |
WWW.CSX.COM 17 Table of Contents
| Item 1: Election of Directors |
Dennis H. Reilley |  | | Independent Director Nominee
Age:65
Director since:2017
CSX Committees:
Audit / Executive / Finance / Governance (Chair)
Skills and Qualifications:
Drawing on his expertise in finance, operations and leadership on the boards of Fortune 500 companies, Mr. Reilley provides the Board valuable insight and exposure to different approaches to governance and other key issues.
Other Public Directorships:
●Marathon Oil Corporation
●DowDuPont, Inc.
|
Biographical Information:
Dennis H. Reilley is the retired Chairman, President and Chief Executive Officer of Praxair, Inc. Prior to joining Praxair in 2000, Mr. Reilley served as Executive Vice President and Chief Operating Officer of E.I. Dupont de Nemours and Company and its former energy subsidiary, Conoco Inc., from 1999 to 2000. Mr. Reilley has served as non-executive chairman of Marathon Oil Corporation since 2014 and has served as a board member since 2002. He has also served as a director of Dow Chemical Company from 2007 until its merger with E.I. du Pont de Nemours and Company in 2017, and now serves as a director of the combined company, DowDuPont, Inc. Mr. Reilley served as a director of Covidien PLC from 2007 to 2015 (as Chairman from 2007 to 2008 and as Lead Director from 2008 to 2013). Prior to his appointment to the CSX Board, Mr. Reilley was an advisory board member of Trian Advisory Partners, of which he was a founding member. Additionally, Mr. Reilley served as a director of H.J. Heinz Company from 2005 to 2013 and the Entergy Corporation from 1999 to 2005, as well as a former chairman of the American Chemistry Council.
Linda H. Riefler |  | | Independent Director Nominee
Age:56
Director since:2017
CSX Committees:
Audit / Compensation / Public Affairs
Skills and Qualifications:
Ms. Riefler draws on her experience at Morgan Stanley to provide the Board perspective on internal growth strategies, risk and external growth strategies, debt and equity financings, and capital market allocations.
Other Public Directorships:
●MSCI, Inc.
|
Biographical Information:
Linda H. Riefler served as the Chairman of Global Research at Morgan Stanley from 2011 to 2013 and as Global Head of Research since 2008. From 2006 to 2008 she served as the Chief Talent Officer, in which role she served on both the Management Committee for seven years and the Operating Committee of Morgan Stanley. Ms. Riefler joined Morgan Stanley in 1987 in the Capital Markets division and was elected a managing director in 1998.
Table of Contents Item 1: Election of Directors
J. Steven Whisler | Linda H. RieflerIndependent Director Nominee | Age57 Director since2017 | CSX Committees Audit / Compensation / Public Affairs | Other Public Directorships ●MSCI, Inc. | |
| | Biographical Information Linda H. Riefler served as the Chairman of Global Research at Morgan Stanley from 2011 to 2013 and as Global Head of Research since 2008. From 2006 to 2008 she served as the Chief Talent Officer of Morgan Stanley, in which role she served on both the Management Committee for seven years and the Operating Committee of Morgan Stanley. Ms. Riefler joined Morgan Stanley in 1987 in the Capital Markets division and was elected a managing director in 1998. | Skills and Qualifications Ms. Riefler draws on her experience at Morgan Stanley to provide the Board perspective on growth strategies, risk management, debt and equity financings, and capital market allocations. |  | | Independent Director Nominee
Age:63
Director since:2011
CSX Committees:
Audit / Finance
Skills and Qualifications:
Through his prior tenure on the Burlington Northern Santa Fe board of directors and as a former executive in the mining industry, Mr. Whisler brings to the Board invaluable safety program experience, railroad knowledge and familiarity with certain key markets.
Other Public Directorships:
| |
| | | |  | J. Steven WhislerIndependent Director Nominee | Age64 Director since2011 | CSX Committees Audit / Finance | Other Public Directorships ●Brunswick Corporation ●International Paper Co. |
| |
| | Biographical Information Biographical Information:
J. Steven Whisler is the retired Chairman and Chief Executive Officer of Phelps Dodge Corporation, a mining and manufacturing company, where he served in many roles from 1981 until his retirement in 2007. During his tenure at Phelps Dodge Corporation, Mr. Whisler was instrumental in the implementation of its “Zero and Beyond” safety program designed to eliminate workplace injuries and its “Quest for Zero” process-improvement program designed to, among other things, eliminate environmental waste while enhancing product quality.
Mr. Whisler also served as a director of US Airways Group, Inc. from 2005 until 2011, and Burlington Northern Santa Fe from 1995 until its acquisition by Berkshire Hathaway in 2010. John J. Zillmer | Skills and Qualifications Through his prior tenure on the Burlington Northern Santa Fe board of directors and as a former executive in the mining industry, Mr. Whisler brings to the Board invaluable safety program experience, railroad knowledge and familiarity with certain key markets. |
 | | 18 CSX Corporation 2019 Proxy Statement |
Table of Contents Independent Director NomineeItem 1: Election of Directors
Age:62
Director since:2017
CSX Committees:
Compensation (Chair) / Executive / Governance / Public Affairs
Skills and Qualifications:
Mr. Zillmer provides the Board valuable insight on business optimization and improvement, in addition to labor relations, environmental safety, logistics, corporate governance and talent management.
Other Public Directorships: | | | |  | John J. ZillmerIndependent Director Nominee / Chairman of the Board | Age63 Director since2017 | CSX Committees Compensation / Executive / Governance (Chair) / Public Affairs | Other Public Directorships ●Ecolab, Inc. ●Veritiv Corporation ●Performance Food Group Company |
| Biographical Information:
John J. Zillmer is the former Executive Chairman, President and Chief Executive Officer of Univar Inc., a global chemical distributor and Fortune 500 company, where he also served as a director from 2009 to 2012. Prior to joining Univar, Mr. Zillmer served as Chairman and Chief Executive Officer of Allied Waste Industries, Inc. from 2005 to 2008, leading an operational transformation which has become an industry benchmark. He currently serves as a director of Ecolab, Inc., Veritiv Corporation and Performance Food Group Company. Since June 2004, Mr. Zillmer has also served as a director of Liberty Capital Partners, a private equity and venture capital firm specializing in start-ups, early stage, growth equity, buyouts and acquisitions. Mr. Zillmer also serves on the North American advisory board of CVC Capital Partners. He previously served on the board of Reynolds American, Inc. from 2007 until its acquisition by British American Tobacco in 2017. | 22 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Item 1: Election of Directors |
What are the directors’ qualifications to serve on the CSX Board of Directors?
The table below highlights the qualifications and experience of each nominee that resulted in the Board’s determination that each nominee is uniquely qualified to serve on the Board.
| DIRECTOR QUALIFICATIONS AND EXPERIENCE | |  |  |  |  |  |  |  |  |  |  |  |  |  |  | BUSINESS OPERATIONSexperience gives directors a practical understanding of developing, implementing and assessing the Company’s operating plan and business strategy. | | ○ | ○ | ○ | ○ | ○ | | ○ | ○ | ○ | ○ | ○ | ○ | ○ |  | CORPORATE GOVERNANCEexperience supports Board and management accountability, transparency and protection of shareholder interests. | | ○ | ○ | ○ | ○ | ○ | ○ | ○ | | ○ | ○ | | ○ | ○ |  | FINANCE / CAPITAL ALLOCATIONexperience is important in evaluating the Company’s capital structure. | | | | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ |  | FINANCIAL EXPERTISE / LITERACYis important because it assists directors with their oversight of financial reporting and internal controls. | | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ |  | GOVERNMENT / PUBLIC POLICYexperience is important in understanding the regulatory environment in which the Company operates. | | ○ | ○ | ○ | ○ | | | ○ | ○ | ○ | ○ | | | |  | RISK MANAGEMENTexperience is critical to the Board’s risk oversight role. | | ○ | | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ |  | MARKETING / SALESexperience is important to understanding the Company’s business strategies in developing new markets. | | | | ○ | ○ | ○ | | | ○ | ○ | ○ | ○ | ○ | ○ |  | TALENT MANAGEMENTexperience is valuable in helping the Company attract, motivate and retain high performing employees, including succession planning efforts. | | ○ | | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ | ○ |  | TRANSPORTATION INDUSTRYexperience is important to understanding the dynamics within the freight transportation sector. | | | ○ | | ○ | | ○ | | ○ | | | | ○ | |
What if a nominee is unable to serve as director?
If any of the nominees named above is not available to serve as a director at the time of the Annual Meeting (an event which the Board does not now anticipate), the proxies will be voted for the election of such other person or persons as the Board may designate, unless the Board, in its discretion (but subject to the terms of the MR Agreement), reduces the numberof directors. Furthermore, if Ms. Riefler or Messrs. Hilal, Reilley or Zillmer are not available to serve as a director at the time of the Annual Meeting, proxies will be voted for the election of such other person or persons designated by Mantle Ridge pursuant to the MR Agreement, subject to the terms thereof.
| | WWW.CSX.COM | | 23 | | Biographical Information John J. Zillmer is the former Executive Chairman, President and Chief Executive Officer of Univar Inc., a global chemical distributor and Fortune 500 company, where he also served as a director from 2009 to 2012. Prior to joining Univar, Mr. Zillmer served as Chairman and Chief Executive Officer of Allied Waste Industries, Inc. from 2005 to 2008, leading an operational transformation which has become an industry benchmark. He has also served as a director of Liberty Capital Partners, a private equity and venture capital firm specializing in start-ups, early stage, growth equity, buyouts and acquisitions. Mr. Zillmer also serves on the North American advisory board of CVC Capital Partners. He previously served on the board of Reynolds American, Inc. from 2007 until its acquisition by British American Tobacco in 2017. | Skills and Qualifications Mr. Zillmer provides the Board valuable insight on business optimization and improvement, in addition to labor relations, environmental safety, logistics, corporate governance and talent management. |
What if a nominee is unable to serve as director? If any of the nominees named above is not available to serve as a director at the time of the Annual Meeting (an event which the Board does not now anticipate), the proxies will be voted for the election of such other person or persons as the Board may designate, unless the Board, in its discretion, reduces the size of the Board. DIRECTOR INDEPENDENCE The Board annually evaluates the independence of each of its directors and, acting through its Governance Committee, the performance of each of its directors. In evaluating the independence of each of its directors, the Board considers the Nasdaq Global Select Market (“Nasdaq”) listing standards and reviews transactions or relationships, if any, between each director, director nominee or his or her immediate family and the Company or its subsidiaries. The purpose of this review is to determine whether any such relationships or transactions would interfere with the exercise of independent judgment by the director or director nominee in carrying out his or her responsibilities as a director, and thus, be inconsistent with a determination that the director or director nominee is independent. The Board also considers the independence of its committee members under applicable tax and securities laws. In February 2019, after considering Nasdaq listing standards, the Board, upon recommendation from the Governance Committee, determined that the following director nominees are independent under the Nasdaq listing standards: Donna M. Alvarado, Pamela L. Carter, Steven T. Halverson, John D. McPherson, David M. Moffett, Linda H. Riefler, J. Steven Whisler and John J. Zillmer. PRINCIPLES OF CORPORATE GOVERNANCE The Board is committed to corporate governance principles and practices that facilitate the fulfillment of its fiduciary duties to the Company and its shareholders. The Board has adopted Corporate Governance Guidelines that reflect the high standards that employees, investors, customers, suppliers and others should expect. Key corporate governance principles observed by the Board and the Company include: | ● | separation of the roles of Chairman and Chief Executive Officer; | | ● | nomination of a slate of directors for election to the Board, a substantial majority of which are independent, as that term is defined in the Nasdaq listing standards; | | ● | establishment of qualification guidelines for director candidates and review of each director’s performance and continuing qualifications for Board membership; | | ● | the requirement that the Audit Committee, Compensation Committee and Governance Committee be comprised solely of independent directors (within the meaning of applicable tax and securities laws); |
Table of Contents Item 1: Election of Directors | |
Director Independence
The Board annually evaluates the independence of each of its directors and, acting through its Governance Committee, the performance of each of its directors. In evaluating the independence of each of its directors, the Board considers the Nasdaq Global Select Market (“Nasdaq”) listing standards and reviews transactions or relationships, if any, between each director, director nominee or his or her immediate family and the Company or its subsidiaries. The purpose of this review is to determine whether any such relationships or transactionswould interfere with the exercise of independent judgment by the director or director nominee in carrying out his or her responsibilities as a director, and thus, be inconsistent with a determination that the director or director nominee is independent.
In March 2018, after considering Nasdaq listing standards, the Board, upon recommendation from the Governance Committee, determined that the following directors are independent under the Nasdaq listing standards: Donna M. Alvarado, John B. Breaux, Pamela L. Carter, Steven T. Halverson, Edward J. Kelly, III, John D. McPherson, David M. Moffett, Dennis H. Reilley, Linda H. Riefler, J. Steven Whisler and John J. Zillmer.
Principles of Corporate Governance
The Board is committed to corporate governance principles and practices that facilitate the fulfillment of its fiduciary duties to shareholders and to the Company and its shareholders. The Board has adopted Corporate Governance Guidelines that reflect the high standards that employees, investors, customers, suppliers and others can and should expect. Key corporate governance principles observed by the Board and the Company include:
● | separation of the roles of Chairman and Chief Executive Officer; | ● | nomination of a slate of directors for election to the Board, a substantial majority of whichare independent, as that term is defined in the Nasdaq listing standards; | ● | establishment of qualification guidelines for director candidates and review of eachdirector’s performance and continuing qualifications for Board membership; | ● | the requirement that the Audit Committee, Compensation Committee and GovernanceCommittee be comprised solely of independent directors; | | ● | authority for the Governance, Compensation and Audit Committees to retain outside,independent advisors and consultants when appropriate; | | ● | adoption of a Code of Ethics, which meets applicable rules and regulations and covers all directors, officers and employees of CSX; | | ● | adoption of a Policy Regarding Shareholder Rights Plans, establishing parameters around the adoption of any future shareholder rights plan, including the expiration of any such plan within one year of adoption if the plan does not receive shareholder approval or ratification; | | ● | adoption of a Policy Regarding Shareholder Approval of Severance Agreements, requiring shareholder approval of certain future severance agreements with senior executives that provide benefits in an amount exceeding a threshold set forth in the policy; | | ● | a majority voting standard with a director resignation policy in an uncontested election; and | | ● | adoption of a proxy access bylaw. |
CSX’s Corporate Governance Guidelines and Code of Ethics which meets applicable rules and regulations and covers alldirectors, officers and employees of CSX; | ● | adoption ofare available on the Company’s website at http://investors.csx.com under the heading “Corporate Governance.” Shareholders may also request a Policy Regarding Shareholder Rights Plans, establishing parametersaround the adoptionfree copy of any futureof these documents by writing to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202. Any waivers of or changes to the Code of Ethics that apply to our directors or executive officers will be disclosed on CSX’s website athttp://www.csx.com. There were no waivers to the Code of Ethics in 2018.SHAREHOLDER OUTREACH AND ENGAGEMENT We believe that on-going shareholder rights plan, includingengagement is a key component of effective corporate governance that allows the expirationCompany to better understand evolving trends and enable strategic decision-making to deliver shareholder value. We conduct shareholder outreach throughout the year to ensure that management and the Board understand and consider our shareholders’ views on important issues. Senior leaders and subject matter experts from the Company meet routinely with representatives from many of anysuch plan within one yearour institutional shareholders and periodically with proxy advisory firms to discuss CSX’s business strategy, corporate governance practices, executive compensation, and environmental, social and governance matters. Members of adoption if the plan does not receiveBoard participate in these meetings from time to time. In addition to this shareholder approvalor ratification; | ● | adoption of a Policy Regarding Shareholder Approval of Severance Agreements, requiringshareholder approval of certain future severance agreementsoutreach, CSX also engages with senior executives thatprovide benefitsshareholders and other interested parties through its participation in an amount exceeding a threshold set forthindustry and investment community conferences, investor road shows, and analyst meetings. In addition, we continue to successfully engage with individual shareholders to advance issues that are in the policy; | ● | a majority voting standardbest interests of our broad and diverse shareholder base.Shareholders who wish to communicate with the Board, or with a particular director, resignation policy in an uncontested election; and | ● | adoptionmay forward appropriate correspondence to CSX Corporation, Office of a proxy access bylaw. | |
CSX’s Corporate Governance Guidelines and Code of Ethics are available on the Company’s website athttp://investors.csx.comunder the heading “Corporate Governance.” Shareholders may also request a free copy of any of these documents by writing to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202. Any waivers of or changes to the Code of Ethics that apply to our directors or executive officers will be disclosed on CSX’s website athttp://www.csx.com. There were no waivers to the Code of Ethics in 2017.
Shareholders who wish to communicate with the Board, or with a particular director, may forward appropriate correspondence to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202. Pursuant to procedures established by the non-employeethe Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202. Pursuant to procedures established by the non-management directors of the Board, the Office of the Corporate Secretary will forward appropriate correspondence to the Board or a particular director. Appropriate correspondence generally includes any legitimate, non-harassing inquiries or statements. Interested parties who wish to communicate with the Chairman of the Board or non-employee directors may forward correspondence to CSX Corporation, the Chairman of the Board, CSX Board of Directors, 500 Water Street, C160, Jacksonville, Florida 32202.
| 24 | | BOARD OF DIRECTORS’ ROLE IN RISK OVERSIGHT Pursuant to its charter, the Audit Committee of the Board has primary responsibility for risk oversight. In addition to regular risk presentations to the Audit Committee, management periodically reports to the Board and its other committees on current risks and the Company’s approach to avoiding and mitigating risk exposure. The Company’s Business Risk Management (“BRM”) program includes activities related to the identification, assessment, mitigation and monitoring of risks. The CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Item 1: Electionrisk universe is divided into the following broad risk categories:Compliance— Risks directly impacting CSX’s ability to meet or comply with state, federal or local rules and regulations (e.g., environmental laws and regulations); Strategic— Risks (and opportunities) directly impacting CSX’s ability to achieve or exceed its stated longer term strategic objectives (e.g., market demand shifts); and External— Risks arising from events outside CSX and beyond the Company’s direct influence or control (e.g., economic downturn, cyber and other security risks). The objective of Directors |
Board of Directors’ Role in Risk Oversight
Pursuant to its charter, the Audit Committee of the Board has primary responsibility for risk oversight. In addition to regular risk presentations to the Audit Committee, management periodically reports to the Board and its other committees on current risks and the Company’s approach to avoiding and mitigating risk exposure.
The Company’s Business Risk Management (“BRM”) program includes activities related to the identification, assessment, mitigation and monitoring of risks. The CSX risk universe is divided into the following broad risk categories:
Compliance— Risks directly impacting CSX’s ability to meet or comply with state, federal or local rules and regulations (e.g., environmental laws and regulations);
Strategic— Risks (and opportunities) directly impacting CSX’s ability to achieve or exceed its stated longer term strategic objectives (e.g., market demand shifts); and
External— Risks arising from events outside CSX and beyond the Company’s direct influence or control (e.g., economic downturn, cyber and other security risks).
The objective of the BRM program is to facilitate timely identification and review of new and existing risks along with overseeing the development and execution of mitigation plans. A well-established risk management structure is leveraged to govern the program.
the BRM program is to facilitate timely identification and review of new and existing risks along with overseeing the development and execution of mitigation plans. A well-established risk management structure is leveraged to govern the program. Risks are prioritized based on their potential impacts on the Company. On an ongoing basis, risks are evaluated to track the status of key mitigation activities along with the trends of key indicators. Ultimately, the BRM program provides an opportunity for business and functional leadership to collaborate on the key Company risks and identify needed mitigation steps to help advance the Company’s objectives. Board of Directors’ Role in Succession Planning
The Board is responsible for succession planning for the Board, as well as senior management, including the CEO. In addition to succession planning efforts by the Board and the Governance Committee throughout the year, the full Board engages in a comprehensive management succession planning exercise on an annual basis where it analyzes potential succession candidates across all senior management positions. Although the Board focuses on the senior executive team and CEO succession, directors also discuss the pipeline for other key roles in the Company. As part of this exercise, the Board reviews skills, competencies and readiness levels of succession candidates and recommends development plans to ensure that management succession candidates are adequately prepared for planned and unexpected transitions.
As discussed in greater detail below, in March 2017, upon the resignation of Mr. Ward, CSX appointed E. Hunter Harrison as CEO to transform the Company by implementing his proven PSR business model. Following Mr. Harrison’s untimely death in December 2017, CSX appointed James M. Foote, the Company’s Chief Operating Officer, with whom Mr. Harrison had worked closely with at Canadian National Railway, to continue the positive progress of PSR.
In February 2018, in response to a shareholder proposal that was subsequently withdrawn, the Board adopted a policy requiring that the CEO have an annual physical, performed by a medical provider approved by the Board, or by a Committee designated by the Board, with the results to be provided to the Board by the medical provider in such a manner and in such a form as may be determined by the Board.
As part of its succession planning efforts for potential director nominees, the Board considers, among other factors, diversity of backgrounds and experience, the tenure and skill sets of existing directors and expertise in areas of strategic focus.
The Board believes that the 13 director nominees standing for election at the Annual Meeting possess a diverse breadth of experience that will bolster management’s positioning of CSX to respond to volatile macroeconomic conditions and challenges facing CSX and the rail industry.
| | WWW.CSX.COM | | 25 | 20 CSX Corporation 2019 Proxy Statement |
Table of Contents Item 1: Election of Directors | |
Transactions with Related Persons and Other Matters
CSX operates under a Code of Ethics that requires all employees, officers and directors, without exception, to avoid engaging in activities or relationships that conflict, or would be perceived to conflict, with the Company’s interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to CSX than could be obtained from an unrelated person. The Audit Committee is responsible for review and oversight of all transactions with related persons. CSX has not adopted written procedures for reviewing Related Person Transactions, but generally follows the procedures described below.
A “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which: (i) CSX (including any of its subsidiaries) was, is or will be a participant; (ii) the amount involved exceeds $120,000 in any fiscal year; and (iii) any Related Person had, has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).
CSX considers a “Related Person” to be:
BOARD OF DIRECTORS’ ROLE IN SUCCESSION PLANNING The Board is responsible for succession planning for the Board, as well as senior management, including the CEO. In addition to succession planning efforts by the Board and the Governance Committee throughout the year, the full Board engages in a comprehensive management succession planning exercise on an annual basis where it analyzes potential succession candidates across all senior management positions. Although the Board focuses on the senior executive team and CEO succession, directors also discuss the pipeline for other key roles in the Company. As part of this exercise, the Board reviews skills, competencies and readiness levels of succession candidates and recommends development plans to ensure that management succession candidates are adequately prepared for planned and unexpected transitions. TRANSACTIONS WITH RELATED PERSONS AND OTHER MATTERS CSX operates under a Code of Ethics that requires all employees, officers and directors, without exception, to avoid engaging in activities or relationships that conflict, or would be perceived to conflict, with the Company’s interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to CSX than could be obtained from an unrelated person. The Audit Committee is responsible for review and oversight of all transactions with related persons. CSX has not adopted written procedures for reviewing Related Person Transactions, but generally follows the procedures described below in accordance with Item 404 of Regulation S-K. A “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which: (i) CSX (including any of its subsidiaries) was, is or will be a participant; (ii) the amount involved exceeds $120,000 in any fiscal year; and (iii) any Related Person had, has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A “Related Person” includes: (i) any person who is, or at any time since the beginning of the last fiscal year was, a director or executive officer or a nominee to become a director; (ii) any person who is known to be the beneficial owner of more than 5% of any class of CSX’s voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant oremployee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest. On an annual basis, in response to the Directors and Officers Questionnaire (“Questionnaire”) and a Related Person Transaction survey (“Survey”), each director, director nominee and executive officer submits to the Corporate Secretary a description of any current or proposed Related Person Transactions. Directors and executive officers are expected to notify the Corporate Secretary of any updates to the list of Related Person Transactions during the year. If Related Person Transactions are identified, those transactions are reviewed by the Audit Committee.
The Audit Committee will evaluate Related Person Transactions based on:
● | information provided to the Board during the required annual affirmation of independence; | | | ● | applicable responses to the Questionnaires and Surveys submitted to the Company; and | | | ● | any other applicable information provided by any director or executive officer or a nominee to become a director; (ii) any person who is known to be the beneficial owner of more than 5% of any class of CSX’s voting securities; (iii) any immediate family member of any of the Company,foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.On an annual basis, in response to the Directors and Officers Questionnaire (“Questionnaire”) and a Related Person Transaction survey (“Survey”), each director, director nominee and executive officer submits to the Corporate Secretary a description of any current or proposed Related Person Transactions. Directors and executive officers are expected to notify the Corporate Secretary of any updates to the list of Related Person Transactions during the year. If Related Person Transactions are identified, those transactions are reviewed by the Audit Committee. The Audit Committee will evaluate Related Person Transactions based on: | ● | information provided to the Board during the required annual affirmation of independence; | | ● | applicable responses to the Questionnaires and Surveys submitted to the Company; and | | ● | any other applicable information provided by any director or executive officer of the Company, or obtained through internal database queries. |
In connection with the review of any Related Person Transaction, the Audit Committee will consider whether the transaction will be a conflict of interest or give the appearance of a conflict of interest. In the case of any Related Person Transaction involving an outside director or nominee for director, the Audit Committee will also consider whether the transaction will compromise the director’s status as an independent director as prescribed in the Nasdaq listing standards.
Mantle Ridge Agreements
As previously reported, on January 18, 2017 and prior to becoming CEO of the Company, E. Hunter Harrison, entered into a consulting agreement with Mantle Ridge (the “MR Consulting Agreement”). Under the MR Consulting Agreement, Mr. Harrison agreed to serve as a consultant to Mantle Ridge for which the agreement entitled him to, among other things and subject to the repayment obligations described below: (i) a $166,667 monthly consulting fee; (ii) an $84 million supplemental payment, payable in two lump-sum installments of $55 million on January 31, 2017 and $29 million before March 15, 2018; and (iii) a tax equalization payment related to his forfeiture of certain equity awards granted by his former employer, Canadian Pacific Railway Limited (collectively, the “Payments”).
The MR Consulting Agreement obligated Mr. Harrison to repay in full, or forfeit if not yet paid, the Payments if: (i) he resigned (other than due to death or disability or was required to do so by his former employer due to a breach of certain restrictive covenants by Mantle Ridge); (ii) he accepted an employment position as requested by Mantle Ridge (in which case the repayment was required within 10 days of receiving an equivalent amount from his new employer); (iii) he materially violated the non-competition covenants to which he was subject under the MR Consulting Agreement; or (iv) he rejected an offer of employment to serve as the CEO of a Class 1 Railroad if such offer met certain specified minimum duration, compensation, severance, benefits and other requirements.
| 26 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
In connection with the review of any Related Person Transaction, the Audit Committee will consider whether the transaction will be a conflict of interest or give the appearance of a conflict of interest. In the case of any Related Person Transaction involving an outside director or nominee for director, the Audit Committee will also consider whether the transaction will compromise the director’s status as an independent director as prescribed in the Nasdaq listing standards. The Audit Committee did not identify any Related Person Transactions during 2018 that are required to be reported pursuant to Item 404(a) of Regulation S-K.
Table of Contents | Item 1: Election of Directors |
On March 6, 2017, the Company entered into the MR Agreement, pursuant to which, among other things: (i) the Board agreed to certain director appointments and the subsequent nomination of the directors so appointed at each of the Company’s 2017 Annual Meeting and the Annual Meeting; (ii) the Board agreed to certain committee leadership and composition and to maintain such committee leadership and composition until at least the conclusion of the Annual Meeting; and (iii) that the roles of Chairman of the Board and CEO would be separated and that Mr. Kelly and Mr. Hilal would be appointed as non-executive Chairman and Vice Chairman of the Board, respectively, each to serve until the conclusion of the Annual Meeting. Furthermore,
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee is, or in order to facilitate Mr. Harrison becoming CEO of the Company, pursuant to an amendment to the MR Consulting Agreement, Mantle Ridge agreed that if the Board approved and effectuated the reimbursement of the various payments and obligations discussed above no later than the 15th day following the 2017 Annual Meeting, then Mr. Harrison would have no obligation to repay the Payments. The MR Agreement terminates upon conclusion of the Annual Meeting, subject to certain specified obligations that will terminate at a later date. It is more fully described in, and is attached as an exhibit to, the Company’s Current Report on Form 8-K filed on March 7, 2017 with the SEC.
On March 6, 2017, Mr. Harrison was appointed as CEO and a director of the Company. On March 30, 2017, the Company and the Mantle Ridge Group entered into a registration rights agreement (the “Registration Rights Agreement”). The Registration Rights Agreement wascontemplated by the MR Agreement. Pursuant to the Registration Rights Agreement, the Mantle Ridge Group shareholders may request that the Company file a registration statement to register the sale of shares of CSX common stock that the Mantle Ridge Group shareholders beneficially own, subject to the limitations and conditions provided in the Registration Rights Agreement. The Registration Rights Agreement is more fully described in, and is attached as an exhibit to, the Company’s Current Report on Form 8-K filed on April 3, 2017 with the SEC.
Finally, on June 16, 2017, the Company entered into a letter agreement with Mr. Harrison, pursuant to which the Company: (i) paid and acknowledged the reimbursement payment to Mantle Ridge of $55 million for funds previously paid to Mr. Harrison by Mantle Ridge; (ii) assumed Mantle Ridge’s obligation to pay Mr. Harrison a lump sum cash amount of $29 million in respect of other forfeited compensation from Canadian Pacific Railway Limited prior to March 15, 2018 subject to applicable deductions and withholdings; and (iii) assumed Mantle Ridge’s tax indemnification obligations to Mr. Harrison, which enabled him to remain in the same after-tax position as if he had not forfeited such compensation and benefits earned from Canadian Pacific and had not been reimbursed for them. This letter agreement is more fully described in, and is attached as an exhibit to, the Company’s Current Report on Form 8-K filed on June 16, 2017 with the SEC.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or in 2017 was, an executive officer or former executive officer of the Company. In addition, no executive officer of the Company served on the board of directors of any entity whose executive officers included a director of the Company.
| | WWW.CSX.COM | | 27BOARD LEADERSHIP AND COMMITTEE STRUCTURE
| The Board believes that at this time, and based on the Company’s current circumstances, the positions of Chairman and CEO should be separate, with the Chairman of the Board role being filled by an independent director. The duties of the Chairman include: (i) calling special meetings of the Board; (ii) presiding at all meetings of the Board and shareholders; (iii) in consultation with the Vice Chairman of the Board, determining the agenda, schedule and meeting materials for meetings of the Board; (iv) guiding Board discussions and facilitating discussions between the Board and the Company’s management; (v) interacting with the Company’s analysts, investors, employees and other key constituencies; and (vi) keeping the Vice Chairman informed, and consulting with the Vice Chairman, as to material internal and external discussions the Chairman has, and material developments the Chairman learns, about the Company and the Board. The Chairman is assisted by a Vice Chairman. The duties of the Vice Chairman include: (i) providing input on the agenda, schedules and meeting materials for meetings of the Board; (ii) assisting in guiding Board discussions and facilitating communication between the Board and the Company’s management; (iii) interacting with the Company’s analysts, investors, employees and other key constituencies; (iv) performing the duties of Chairman in the absence or at the request of the Chairman; and (v) keeping the Chairman informed, and consulting with the Chairman, as to material internal and external discussions the Vice Chairman has, and material developments the Vice Chairman learns, about the Company and the Board. The Board has six standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the Finance Committee, the Governance Committee and the Public Affairs Committee. Each of these committees has a written charter approved by the Board, a copy of which can be found on the Company’s website athttp://investors.csx.comunder the heading “Corporate Governance.” As of the Record Date, the composition of the committees of the Board was as follows: | Director | Audit | Compensation | Executive | Finance | Governance | Public Affairs | | Donna M. Alvarado | M | M | | | | M | | John B. Breaux | | | M | | M | C | | Pamela L. Carter | | | M | C | M | | | James M. Foote | | | C | | | | | Steven T. Halverson | M | C | | | | | | Paul C. Hilal | | | M | M | | | | John D. McPherson | | | | M | | M | | David M. Moffett | C | | M | M | | | | Linda H. Riefler | M | M | | | | M | | J. Steven Whisler | M | | | M | | | | John J. Zillmer | | M | M | | C | M |
C Chair M Member
22 CSX Corporation 2019 Proxy Statement |
Table of Contents Item 1: Election of Directors Executive Committee0Meetings in 2018 The Executive Committee meets for the purpose of acting on behalf of the full Board between regularly scheduled meetings of the Board when time is of the essence. The Executive Committee has and may exercise all the authority of the Board, except as may be prohibited by Section 13.1-689 of the Virginia Stock Corporation Act, as it may from time to time be amended. Pursuant to the Executive Committee charter, a notice of a meeting of the Executive Committee is required to be provided to all Board members. The Executive Committee has seven members, consisting of the CEO, Chairman of the Board, Vice Chairman and the chairs of each of the five other standing committees. |  Committee ChairJames M. FooteCommittee Members
John B. Breaux
Pamela L. Carter
Steven T. Halverson
Paul C. Hilal
David M. Moffett
John J. Zillmer |
Board Leadership and Committee Structure
The Board believes that at this time, and based on the Company’s current circumstances, the positions of Chairman and CEO should be separate, with the Chairman of the Board role being filled by an independent director. The duties of the Chairman include: (i) calling special meetings of the Board; (ii) presiding at all meetings of the Board and shareholders; (iii) in consultation with the Vice Chairman of the Board, determining the agenda, schedule and meeting materials for meetings of the Board; (iv) guiding Board discussions and facilitating discussions between the Board and the Company’s management; (v) interacting with the Company’s analysts, investors, employees and other key constituencies; and (vi) keeping the Vice Chairman informed, and consulting with the Vice Chairman, as to material internal and external discussions the Chairman has, and material developments the Chairman learns, about the Company and the Board.
The Chairman is assisted by a Vice Chairman. The duties of the Vice Chairman include: (i) providing input on the agenda, schedules and meeting materials for meetings of the Board; (ii) assisting in guiding Board discussions and facilitating communication between the Boardand the Company’s management; (iii) interacting with the Company’s analysts, investors, employees and other key constituencies; (iv) performing the duties of Chairman in the absence or at the request of the Chairman; and (v) keeping the Chairman informed, and consulting with the Chairman, as to material internal and external discussions the Vice Chairman has, and material developments the Vice Chairman learns, about the Company and the Board.
The Board has six standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the Finance Committee, the Governance Committee and the Public Affairs Committee. Each of these committees has a written charter approved by the Board, a copy of which can be found on the Company’s website athttp://investors.csx.comunder the heading “Corporate Governance.” As of the Record Date, the composition of the committees of the Board was as follows: |  | | Independent Members  | | |
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Audit Committee8 Meetings in 2018 The primary functions of the Audit Committee include oversight of: (i) the integrity of the Company’s financial statements and accounting methodology; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the Independent Registered Public Accounting Firm’s qualifications and independence; (iv) the Company’s risk management processes; (v) the performance of the Independent Registered Public Accounting Firm; and (vi) the Company’s internal audit function.The Audit Committee recommends the appointment of the Independent Registered Public Accounting Firm and the Board approves the selection. This appointment is then submitted to shareholders for ratification. The Audit Committee also approves compensation of the Company’s Independent Registered Public Accounting Firm, reviews the scope and methodology of the Independent Registered Public Accounting Firm’s proposed audits, reviews the Company’s financial statements and monitors the Company’s internal control over financial reporting by, among other things, discussing certain aspects thereof with the Independent Registered Public Accounting Firm and management. The Audit Committee is responsible for the approval of all services performed by the Independent Registered Public Accounting Firm. Finally, the Committee maintains procedures for the receipt and treatment of complaints regarding the Company’s accounting, internal accounting controls or auditing matters. As part of its risk management responsibilities, the Committee oversees cybersecurity risks. The Audit Committee has five members, each of whom the Board, upon recommendation of the Governance Committee, has determined to be independent pursuant to the independence standards promulgated by Nasdaq and the SEC. The Board has determined that all members of the Audit Committee are financially literate and Messrs. Moffett and Whisler are audit committee financial experts, as that term is defined by SEC rules and regulations. Please refer to the Report of the Audit Committee below for additional information. |  Committee ChairDavid M. MoffettCommittee Members
Donna M. Alvarado
Steven T. Halverson
Linda H. Riefler
J. Steven Whisler | | Independent Members 
| DIRECTOR | | AUDIT | | COMPENSATION | | EXECUTIVE | | FINANCE | | GOVERNANCE | | PUBLIC AFFAIRS | Donna M. Alvarado | | ○ | | ○ | | | | | | | | ○ | John B. Breaux | | | | | | ○ | | | | ○ | | C | Pamela L. Carter | | | | | | ○ | | C | | ○ | | | James M. Foote | | | | | | C | | | | | | | Steven T. Halverson | | ○ | | ○ | | | | | | | | | Paul C. Hilal | | | | | | ○ | | ○ | | | | | Edward J. Kelly, III | | | | ○ | | ○ | | | | ○ | | | John D. McPherson | | | | | | | | ○ | | | | ○ | David M. Moffett | | C | | | | ○ | | ○ | | | | | Dennis H. Reilley | | ○ | | | | ○ | | ○ | | C | | | Linda H. Riefler | | ○ | | ○ | | | | | | | | ○ | J. Steven Whisler | | ○ | | | | | | ○ | | | | | John J. Zillmer | | | | C | | ○ | | | | ○ | | ○ |
● | Chair
○Table of Contents
| MemberItem 1: Election of Directors Compensation Committee8 Meetings in 2018 The primary functions of the Compensation Committee are to: (i) establish the Company’s philosophy with respect to executive compensation and benefits; (ii) review the Company’s compensation practices and policies, benefit plans and perquisites applicable to all employees and executives to ensure consistency with the Company’s compensation philosophy; (iii) monitor the Company’s benefit plans, practices, programs and policies maintained for employees and directors for compliance with all applicable laws; (iv) in consultation with the Board, review and approve corporate goals and objectives relevant to compensation and benefits for the CEO, and evaluate the CEO’s performance in light of those goals and objectives, and as directed by the Board, set the level of compensation of the CEO based on such evaluation; (v) review and recommend approval of management compensation and Company compensation plans, including benefits for key employees as determined by the Committee from time to time; and (vi) review the Compensation Discussion and Analysis (“CD&A”) section of this Proxy Statement and, as appropriate, recommend to the Board for approval the inclusion of the CD&A section in the Company’s Annual Report on Form 10-K and Proxy Statement. In addition, the Compensation Committee monitors the administration of certain executive and management compensation and benefit programs.The Compensation Committee may, under its charter, delegate all or a portion of its duties and responsibilities to a subcommittee thereof as appropriate and consistent with applicable regulations, laws and exchange listing standards. The Compensation Committee has also retained the services of an independent compensation consultant to advise on executive compensation matters. The role of the compensation consultant in determining or recommending the amount or form of executive compensation is described in the Compensation Discussion and Analysis section of this Proxy Statement. The Compensation Committee has four members each of whom qualifies as: (i) a “non-employee director” within the meaning of Rule 16b-3 of Securities and Exchange Act of 1934; (ii) independent pursuant to the independence standards promulgated by Nasdaq; and (iii) an “outside director” under Section 162(m) of the Code. No member of the Compensation Committee was an officer or employee of CSX during 2018. No member of the Compensation Committee is a former officer of CSX. During 2018, none of our executive officers served as a member of a board of directors or compensation committee of any entity that has one of more executive officers who serve on our Board of Directors or the Compensation Committee. |  Committee ChairSteven T. HalversonCommittee Members
Donna M. Alvarado
Linda H. Riefler
John J. Zillmer | | Independent Members 
| | |
| 28 | | CSX CORPORATION 2018 PROXY STATEMENT |
Finance Committee6 Meetings in 2018 The Finance Committee provides general oversight and review of financial matters affecting the Company, including the monitoring of corporate debt, cash flow and the assets and liabilities maintained by the Company and its affiliates in conjunction with employee benefit plans, including monitoring the funding and investment policies and performances of the assets. In addition, the Committee reviews and recommends policies and practices related to dividends and share repurchase programs. |  Committee ChairPamela L. CarterCommittee Members
Paul C. Hilal
John D. McPherson
David M. Moffett
J. Steven Whisler | | | | Independent Members  | | |
24 CSX Corporation 2019 Proxy Statement |
Table of Contents | Item 1: Election of Directors Governance Committee7Meetings in 2018 The Governance Committee identifies individuals qualified to become Board members and recommends candidates for election to the Board. In identifying and recommending director nominees, the Governance Committee uses criteria established by the Board with respect to qualifications for nominations to the Board and for continued membership on the Board. Additionally, the Committee reviews and makes recommendations to the Board regarding director independence. In considering potential director candidates, the Committee considers whether the individual has demonstrated leadership ability, integrity, values and judgment. The Governance Committee seeks to maintain a Board with a broad diversity of experience in business matters and the ability to assess and evaluate the role and policies of the Company in the face of changing economic conditions, regulatory environment and customer expectations. The Governance Committee generally identifies nominees for directors through its director succession planning process. The Committee will also consider persons recommended by shareholders of the Company in selecting director nominees. Potential nominees suggested by shareholders will be evaluated by the Committee on the same basis as individuals identified directly by the Committee or from other sources. For more information on the director nominees, see Item 1: Election of Directors. The Governance Committee has three members each of whom the Board has determined to be independent under the applicable Nasdaq rules. The Committee develops, recommends and monitors corporate governance principles and conducts regular evaluations of director performance and of the effectiveness of the Board as a working group. In addition, the Committee reviews and recommends changes to the Board regarding committee structure and director compensation. |  Committee ChairJohn J. ZillmerCommittee Members
John B. Breaux
Pamela L. Carter |
Executive Committee | Independent Members Meetings in 2017:0Committee Members:
| | |
John B. Breaux
Pamela L. Carter
Paul C. Hilal
Edward J. Kelly, III
David M. Moffett
Dennis H. ReilleyPublic Affairs Committee5Meetings in 2018 The Public Affairs Committee reviews significant legal, legislative and regulatory initiatives and rulemaking by federal, state, local and foreign government authorities, as well as other public issues of significance that affect the Company and its shareholders. The Committee also reviews key issues, assumptions, risks and opportunities that relate to the development and implementation of the Company’s operations and safety initiatives. Additionally, the Committee provides oversight of the Company’s compliance with legal requirements and internal policies relating to equal employment, diversity in the workplace, employee safety and environmental protection. |  Committee ChairJohn B. BreauxCommittee Members
Donna M. Alvarado
John D. McPherson
Linda H. Riefler
John J. Zillmer | | | | Independent Members  | | |
Table of Contents Committee Chair:
James M. FooteItem 1: Election of Directors
Independent Members:6ANNUAL EVALUATION OF BOARD PERFORMANCE
| | The Executive Committee meetsBoard believes annual performance reviews are essential for ensuring overall effectiveness, including fulfilment of its oversight responsibilities, strategic planning and communications. For 2018, the purpose of acting on behalfBoard evaluation process was initiated through detailed questionnaires. Individual director performance is then discussed with committee chairs or the Chairman of the full Board, between regularly scheduledas appropriate. Summaries of the committee-specific feedback are provided to the relevant committee chairs, which are then reviewed with the Chairman of the Board. The Governance Committee reviews the evaluations and recommendations. Each standing committee also conducted an evaluation of its own performance. MEETINGS OF THE BOARD AND EXECUTIVE SESSIONS During 2018, there were 7 meetings of the Board. Each of the directors then serving attended at least 75% of the meetings of the Board when time is ofand the essence.committees on which he or she served. The Executive Committee has and may exercise allnon-employee directors met alone in executive session at each regular Board meeting. These executive sessions were chaired by the authority of the Board, except as may be prohibited by Section 13.1-689 of the Virginia Stock Corporation Act, as it may from time to time be amended. Pursuant to the Executive Committee charter, a notice of a meeting of the Executive Committee is required to be provided to all Board members. The Executive Committee has eight members, consisting of the CEO, Chairman of the Board, Vice Chairman andBoard. In accordance with the chairs of each ofCSX Corporate Governance Guidelines, the five other standing committees. Mr. Foote joinedindependent directors (when different than non-management directors) meet in executive session at least once a year. While the Executive Committee in December 2017.
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Audit Committee
Meetings in 2017:8Committee Members:
Donna M. Alvarado
Steven T. Halverson
Dennis H. Reilley
Linda H. Riefler
J. Steven Whisler
Company does not have a formal policy regarding director attendance at annual shareholder meetings, the Company strongly encourages directors to attend absent an emergency. All but one director attended the 2018 Annual Meeting.
Committee Chair:
DIRECTOR COMPENSATIONDavid M. Moffett
Independent Members:6
| | The primary functions of the Audit Committee include oversight of: (i) the integrity of the Company’s financial statements and accounting methodology; (ii) the Company’s compliance with legal and regulatory requirements; (iii) the Independent Auditors’ qualifications and independence; (iv) the Company’s risk management processes; (v) the performance of the Independent Auditors; and (vi) the Company’s internal audit function.
The Audit Committee recommendsBoard periodically, but at least once every three years, reviews and sets the appointment of the Independent Auditors and the Board approves the selection. This appointment is then submitted to shareholders for ratification. The Audit Committee also approves compensation of the Company’s Independent Auditors, reviews the scope and methodology of the Independent Auditors’ proposed audits, reviews the Company’s financial statements and monitors the Company’s internal control over financial reporting by, among other things, discussing certain aspects thereof with the Independent Auditors and management. The Audit Committee is responsible for the approval of all services performed bynon-employee directors based on the Independent Auditors. Finally, the Committee maintains procedures for the receipt and treatment of complaints regarding the Company’s accounting, internal accounting controls or auditing matters. The Audit Committee has six members, each of whom the Board, upon recommendation of the Governance Committee. Director compensation includes both cash and stock-based components. In recommending the amount and form of director compensation, the Committee has determined to be independent pursuant to the independence standards promulgated by Nasdaqconsiders, among other factors, peer benchmarking data and the SEC.level of compensation necessary to attract and retain qualified, independent directors.
Elements of Director Compensation The Board has determined thatfollowing charts show director cash and equity compensation for fiscal year 2018. | Annual Retainer | | Cash | | Equity(1) | | Base Retainer | | $ | 100,000 | | $ | 150,000 |
| (1) | Annual grant of CSX common stock in the amount of $150,000 with the number of shares based on the average closing price of CSX common stock in the months of November 2017, December 2017 and January 2018. Effective for 2019, the cash and equity base retainer for non-management directors has been increased to $112,500 and $162,500, respectively. |
| Incremental Amount Above Annual Retainer | | | | Chairman of the Board | $ | 250,000 | | Audit Committee Chair(2) | $ | 20,000 | | Audit Committee Member | $ | 5,000 | | Compensation Committee Chair | $ | 20,000 | | Finance Committee Chair | $ | 10,000 | | Public Affairs Committee Chair | $ | 10,000 | | Governance Committee Chair | $ | 15,000 |
| (2) | The incremental retainer for the Audit Committee Chair has been increased to $25,000 for 2019. |
Each non-employee director was eligible to defer all membersor a portion of his or her director’s fees in 2018, including cash and stock compensation, under the Audit CommitteeCSX Directors’ Deferred Compensation Plan (the “Directors’ Plan”). Cash deferrals are financially literatecredited to an unfunded account and Messrs. Moffett, Reilley and Whislerinvested in various investment choices or deferred as shares of CSX common stock. The investment choices parallel the investment options offered to employees under CSX’s 401(k) plan. Stock deferrals are audit committee financial experts,automatically held as that term is defined by SEC rules and regulations. Please refer tooutstanding shares in a trust, with dividends credited in the Reportform of the Audit Committee below for additional information.shares. |
| | WWW.CSX.COM | | 29 | 26 CSX Corporation 2019 Proxy Statement |
Table of Contents Item 1: Election of Directors | |
Compensation Committee
Meetings in 2017:12Committee Members:
Donna M. Alvarado
Steven T. Halverson
Edward J. Kelly, III
Linda H. Riefler
Committee Chair:
John J. Zillmer
Independent Members:5Matching Gift Program and Other Benefits
| | The primary functionsNon-management directors may participate in the CSX Directors’ Matching Gift Program, which is considered an important part of CSX’s philanthropy and community involvement. CSX will match director contributions to organizations that qualify for support under Company guidelines, up to a maximum annual CSX contribution of $50,000 per non-employee director per year. During 2018, six philanthropic organizations in areas served by the Compensation CommitteeCompany collectively received $230,000 under the Directors’ Matching Gift Program.
Non-employee directors also are to: (i) establish the Company’s philosophy with respecteligible to executive compensation and benefits; (ii) review the Company’s compensation practices and policies, benefit plans and perquisites applicable to all employees and executives to ensure consistency with the Company’s compensation philosophy; (iii) monitor the Company’s benefit plans, practices, programs and policies maintained for employees and directors for compliance with all applicable laws; (iv) in consultation with the Board, review and approve corporate goals and objectives relevant toreceive other compensation and benefits as discussed below. The CEO does not receive compensation for the CEO, and evaluate the CEO’s performance in light of those goals and objectives, andhis services as directed bya director. 2018 DIRECTORS’ COMPENSATION TABLE The following table summarizes the Board, set the level of compensation of each of the CEO based on such evaluation; (v) review and recommend approvalnon-employee directors in 2018. | Name | Fees Earned or
Paid in Cash(1)
($) | Stock
Awards(2),(3),(4)
($) | All Other
Compensation(6)
($) | Total
($) | | Donna M. Alvarado | $ | 105,000 | $ | 145,191 | $ | 1,391 | $ | 251,582 | | John B. Breaux | $ | 110,000 | $ | 145,191 | $ | 31,391 | $ | 286,582 | | Pamela L. Carter | $ | 110,000 | $ | 145,191 | $ | 1,391 | $ | 256,582 | | Steven T. Halverson | $ | 105,000 | $ | 145,191 | $ | 51,391 | $ | 301,582 | | Paul C. Hilal | $ | 100,000 | $ | 145,191 | $ | 1,391 | $ | 246,582 | | Edward J. Kelly, III | $ | 100,000 | $ | 387,158 | $ | 51,391 | $ | 538,549 | | John D. McPherson | $ | 100,000 | $ | 145,191 | $ | 1,391 | $ | 246,582 | | David M. Moffett | $ | 120,000 | $ | 145,191 | $ | 51,391 | $ | 316,582 | | Dennis H. Reilley | $ | 120,000 | $ | 145,191 | $ | 1,391 | $ | 266,582 | | Linda H. Riefler | $ | 105,000 | $ | 145,191 | $ | 1,391 | $ | 251,582 | | J. Steven Whisler | $ | 105,000 | $ | 145,191 | $ | 51,391 | $ | 301,582 | | John J. Zillmer | $ | 120,000 | $ | 145,191 | $ | 1,391 | $ | 266,582 |
| (1) | Fees Earned or Paid in Cash – Includes a cash retainer of $100,000 and any Committee Chair or Audit Committee fees earned in 2018. Mr. Moffett elected to defer 100% of his cash retainer and fees in the form of cash into the Directors’ Plan. Messrs. Breaux and Whisler elected to defer 100% of their cash retainers and fees in the form of CSX stock into the Directors’ Plan. | | (2) | Stock Awards – Amounts disclosed in this column are based on the February 7, 2018 grant date fair value of the annual stock grant to directors calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). The number of shares is based on an award of $150,000 divided by the average closing price of CSX common stock in the months of November 2017, December 2017 and January 2018. All such stock awards to directors vested immediately upon grant. | | (3) | Stock Awards – Mr. Kelly’s amount also includes a Non-Executive Chairman stock grant based on the February 7, 2018 grant date fair value calculated in accordance with FASB ASC Topic 718. The number of shares is based on an award of $250,000 divided by the average closing price of CSX common stock in the months of November 2017, December 2017 and January 2018. This stock award vested immediately upon grant. | | (4) | Option Awards – There were no stock options granted to non-employee directors in 2018. | | (5) | All Other Compensation – Includes excess liability insurance, Company match under the Directors’ Matching Gift Program and Company contributions under the Directors’ Charitable Gift Plan. The only perquisite to exceed $10,000 for any director was the Company match under the Directors’ Matching Gift Program, which includes matches in the following amounts: $50,000 for each of Messrs. Halverson, Kelly, Moffett and Whisler and $30,000 for Senator Breaux. |
Stock Ownership Guidelines The Board has adopted Stock Ownership Guidelines to better align the interests of management compensation and Company compensation plans, including benefits for key employees as determined by the Committee from time to time; (vi) establish performance objectives for certain executives, and certify the attainment of those objectives in connectionnon-employee directors with the paymentinterests of performance-based compensation within the meaningshareholders. Within five years of Section 162(m) of the Internal Revenue Code (the “Code”), as applicable; and (vii) review the Compensation Discussion and Analysis (“CD&A”) section of this Proxy Statement and, as appropriate, recommendelection to the Board, for approvala non-employee director is expected to acquire and hold an amount of CSX common stock equal in value to five times the inclusionamount of such non-employee director’s annual cash retainer. If the annual cash retainer increases, the non-employee directors will have five years from the time of the CD&A sectionincrease to acquire any additional shares needed to satisfy the guidelines. All non-employee directors who have served on the Board for five or more years since their election held a sufficient number of shares to satisfy these guidelines. Further information on the Stock Ownership Guidelines is available on CSX’s website athttp://investors.csx.comunder the heading “Corporate Governance.”
Table of Contents 
The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of the Independent Registered Public Accounting Firm retained to audit the Company’s financial statements. Pursuant to this responsibility, the Audit Committee engages in a comprehensive annual evaluation of the Independent Registered Public Accounting Firm’s qualifications, performance and independence. When considering the Independent Registered Public Accounting Firm’s independence, the Audit Committee specifically considers non-audit fees and services. Additionally, the Audit Committee periodically considers whether there should be a rotation of the Independent Registered Public Accounting Firm. Furthermore, in conjunction with the mandated rotation of the Independent Registered Public Accounting Firm’s lead engagement partner, the Audit Committee and its chair were directly involved in the Company’s Annual Report on Form 10-K and Proxy Statement. In addition,selection of the Committee monitors the administration of certain executive and management compensation and benefit programs.Independent Registered Public Accounting Firm’s lead engagement partner. The CompensationAudit Committee has five members each of whom is: (i) an “outside director” withinselected and appointed Ernst & Young LLP (“EY”) as the meaning of regulations promulgated pursuantCompany’s Independent Registered Public Accounting Firm to Section 162(m); (ii) a “non-employee director” withinaudit and report on CSX’s financial statements for the meaning of Rule 16b-3 of Securities and Exchange Act of 1934; and (iii) independent pursuant to the independence standards promulgated by Nasdaq. No member of the Compensation Committee was an officerfiscal year ending December 31, 2019. EY or employee of CSX during 2017. No member of the Compensation Committee is a former officer of CSX. During 2017, none of our executive officersits predecessors have continuously served as a member of a board of directors or compensation committee of any entity that has one of more executive officers who serve on our Board or the Compensation Committee.
|
FinanceCompany’s Independent Registered Public Accounting Firm since 1981. The Audit Committee
Meetings in 2017:6Committee Members:
Paul C. Hilal
John D. McPherson
David M. Moffett
Dennis H. Reilley
J. Steven Whisler
Committee Chair:
Pamela L. Carter
Independent Members:5
| | The Finance Committee provides general oversight and review of financial matters affecting the Company, including the monitoring of corporate debt, cash flow and the assets and liabilities maintained byBoard believe that the continued retention of EY as the Company’s Independent Registered Public Accounting Firm is in the best interests of the Company and its affiliatesshareholders.
Action by shareholders is not required by law in conjunction with employee benefit plans, including monitoring the funding and investment policies and performancesappointment of the assets. In addition,Independent Registered Public Accounting Firm. If shareholders do not ratify this appointment, however, the appointment will be reconsidered by the Audit Committee reviews and recommends policiesthe Board. EY has no direct or indirect financial interest in CSX or in any of its subsidiaries, nor has it had any connection with CSX or any of its subsidiaries in the capacity of promoter, underwriter, voting trustee, director, officer or employee. Representatives of EY will be present at the Annual Meeting and practices relatedwill be afforded an opportunity to dividends and share repurchase programs.make a statement if they desire to do so. It also is expected they will be available to respond to appropriate questions. |  | | The Board unanimously recommends that the shareholders vote FOR this proposal. |
| 30 | | CSX CORPORATION 2018 PROXY STATEMENT | | 28 CSX Corporation 2019 Proxy Statement |
Table of Contents | Item 1: Election of Directors |
Governance Committee
Meetings in 2017:7
Committee Members:
John B. Breaux
Pamela L. Carter
Edward J. Kelly, III
John J. Zillmer
Committee Chair:
Dennis H. Reilley
Independent Members:5
| | The Governance Committee identifies individuals qualified to become Board members and recommends candidates for election to the Board. In identifying and recommending director nominees, the Governance Committee uses criteria established by the Board with respect to qualifications for nominations to the Board and for continued membership on the Board. Additionally, the Committee reviews and makes recommendations to the Board regarding director independence. In considering potential director candidates, the Committee considers whether the individual has demonstrated leadership ability, integrity, values and judgment. The Governance Committee seeks to maintain a Board with a broad diversity of experience in business matters and the ability to assess and evaluate the role and policies of the Company in the face of changing economic conditions, regulatory environment and customer expectations.
The Governance Committee generally identifies nominees for director through its director succession planning process. The Committee will also consider persons recommended by shareholders of the Company in selecting director nominees. Potential nominees suggested by shareholders will be evaluated by the Committee on the same basis as individuals identified directly by the Committee or from other sources. For more information on the director nominees, see Item 1: Election of Directors.
The Committee develops, recommends and monitors corporate governance principles and conducts regular evaluations of director performance and of the effectiveness of the Board as a working group. In 2017, the Committee used an outside expert to facilitate the Board evaluations through interviews with each member of the Board. In addition, the Committee reviews and recommends changes to Board committee structure and director compensation.
|
Public Affairs Committee
Meetings in 2017:4Committee Members:
Donna M. Alvarado
John D. McPherson
Linda H. Riefler
John J. Zillmer
Committee Chair:
John B. Breaux
Independent Members:5
| | The Public Affairs Committee reviews significant legal, legislative and regulatory initiatives and rulemaking by federal, state, local and foreign government authorities, as well as other public issues of significance that affect the Company and its shareholders. The Committee also reviews key issues, assumptions, risks and opportunities that relate to the development and implementation of the Company’s operations and safety initiatives. Additionally, the Committee provides oversight of the Company’s compliance with legal requirements and internal policies relating to equal employment, diversity in the workplace, employee safety and environmental protection.
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Table of Contents
Item 1: Election of Directors | |
Meetings of the Board and Executive Sessions
During 2017, there were 25 meetings of the Board. Each of the directors then serving attended at least 80% of the meetings of the Board and the committees on which he or she served. The non-employee directors met alone in executive session at each regular Board meeting. These executive sessions were chaired by the Chairman. In accordance with the CSX Corporate Governance Guidelines, the independent directors (when different than non-employee directors) meet in executive session at least once a year. While the Company does not have a formal policy regarding director attendance at annual shareholder meetings, the Company strongly encourages directors to attend absent an emergency. All but one director then in office attended the 2017 Annual Meeting.
Director Compensation
The Board periodically, but at least once every three years, reviews and sets the compensation for non-employee directors based on the recommendation of the Governance Committee. Director compensation includes both cash and stock-based components. In recommending the amount and form of director compensation, the Committee considers, among other factors, the level of compensation necessary to attract and retain qualified, independent directors.
For 2017, the Board approved an annual retainer of $100,000, which was payable in cash unless the director chose to defer his or her fee in the form of CSX common stock. The Board also approved: (i) a $250,000 retainer for the Chairman; (ii) an additional $20,000 each for the Chairs of the Audit and Compensation Committees; (iii) an additional $15,000 for the Chair of the Governance Committee; (iv) an additional $10,000 each for the chairs of the Finance and Public Affairs Committees; and (v) an additional $5,000 for each member of the Audit Committee. At the February 2017 Board meeting, each non-employee director also received an annual grant of CSX common stock in the amount of $150,000 with the number of shares based on the average closing price of CSX common stock in the months of November 2016, December 2016 and January 2017. Upon joining the Board in March 2017, Ms. Riefler and Messrs. Hilal, Reilley and Zillmer received an annual grant of CSX common stock in the amount of $150,000 with the number of shares based on the average closing price of CSX common stock in the months of December 2016, January 2017 and February 2017, which was then prorated for 10 of 12 months of service.
Each non-employee director was eligible to defer all or a portion of his or her director’s fees in 2017, including cash and stock compensation, under the CSX Directors’ Deferred Compensation Plan (the “Directors’ Plan”). Cash deferrals are credited to an unfunded account and invested in various investment choices or deferred as shares of CSX common stock. The investment choices parallel the investment options offered to employees under CSX’s 401(k) plan. Stock deferrals are automatically held as outstanding shares in a rabbi trust, with dividends credited in the form of shares.
Non-employee directors also are eligible to receive other compensation and benefits as discussed below. The CEO does not receive compensation for his services as a director.
Charitable Gift Plan
Directors elected before 2004 are eligible to participate in the CSX Directors’ Charitable Gift Plan (the “Charitable Plan”). Under the Charitable Plan, if a director serves for five consecutive years, CSX will make contributions totaling $1 million on his or her behalf to charitable institutions designated by the director. Contributions to designated charities are made in installments, with $100,000 payable upon the director’s retirement and the balance payable in installments of $100,000 per year, starting at the time of the director’s death. At year-end 2017, the only active director eligible to participate in the Charitable Plan was Mr. Kelly.
Matching Gift Program and Other Benefits
Non-management directors may participate in the CSX Directors’ Matching Gift Program, which is considered an important part of CSX’s philanthropy and community involvement. CSX will match director contributions to organizations that qualify for support under Company guidelines, up to a maximum annual CSX contribution of $50,000 per non-employee director per year. During 2017, 13 philanthropic organizations in areas served by the Company collectively received $330,000 under the Directors’ Matching Gift Program.
| 32 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Item 1: Election of Directors |
2017 Directors’ Compensation Table
The following table summarizes the compensation of each of the non-employee directors in 2017.
| NAME | | FEES EARNED OR PAID IN CASH(1)
($) | | STOCK AWARDS(2),(3),(4)
($) | | ALL OTHER COMPENSATION(6)
($) | | TOTAL
($) | | Donna M. Alvarado | | $ | 105,000 | | $ | 193,327 | | $ | 1,365 | | $ | 299,692 | | John B. Breaux | | $ | 110,000 | | $ | 193,327 | | $ | 31,365 | | $ | 334,692 | | Pamela L. Carter | | $ | 110,000 | | $ | 193,327 | | $ | 1,365 | | $ | 304,692 | | Steven T. Halverson | | $ | 110,000 | | $ | 193,327 | | $ | 51,365 | | $ | 354,692 | | Paul C. Hilal | | $ | 83,333 | | $ | 148,872 | | $ | 1,241 | | $ | 233,446 | | Edward J. Kelly, III | | $ | 100,000 | | $ | 443,360 | | $ | 51,365 | | $ | 594,725 | | John D. McPherson | | $ | 100,000 | | $ | 193,327 | | $ | 1,365 | | $ | 294,692 | | David M. Moffett | | $ | 120,000 | | $ | 193,327 | | $ | 51,365 | | $ | 364,692 | | Timothy T. O’Toole | | $ | 25,000 | | $ | 193,327 | | $ | 1,365 | | $ | 219,692 | | David M. Ratcliffe | | $ | 52,500 | | $ | 193,327 | | $ | 126,365 | | $ | 372,192 | | Dennis H. Reilley | | $ | 98,750 | | $ | 148,872 | | $ | 1,241 | | $ | 248,863 | | Linda H. Riefler | | $ | 87,500 | | $ | 148,872 | | $ | 1,241 | | $ | 237,613 | | Donald J. Shepard | | $ | 57,500 | | $ | 193,327 | | $ | 151,365 | | $ | 402,192 | | J. Steven Whisler | | $ | 105,000 | | $ | 193,327 | | $ | 51,365 | | $ | 349,692 | | John J. Zillmer | | $ | 101,250 | | $ | 148,872 | | $ | 1,241 | | $ | 251,363 |
(1) | Fees Earned or Paid in Cash – Includes a cash retainer of $100,000 and any Committee Chair or Audit Committee fees earned in 2017. Messrs. O’Toole, Ratcliffe and Shepard received retainers for the portion of the year for which they served on the Board. The retainer payments for Ms. Riefler and Messrs. Hilal, Reilley, and Zillmer were prorated given they did not begin service on the Board until March 2017. Messrs. Breaux, McPherson, O’Toole, Ratcliffe, Shepard and Whisler elected to defer 100% of their cash retainers and fees in the form of CSX stock into the Directors’ Plan.
| (2) | Stock Awards – Amounts disclosed in this column are based on the February 8, 2017 grant date fair value of the annual stock grant to then-existing directors (Messrs. Breaux, Halverson, Kelly, McPherson, Moffett, O’Toole, Ratcliffe, Shepard, and Whisler, and Ms. Alvarado and Carter) calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). The number of shares is based on an award of $150,000 divided by the average closing price of CSX common stock in the months of November 2016, December 2016 and January 2017. All such stock awards to directors vested immediately upon grant.
| (3) | Stock Awards – Mr. Kelly’s amount also includes a Non-Executive Chairman stock grant based on the March 9, 2017 grant date fair value calculated in accordance with FASB ASC Topic 718. The number of shares is based on an award of $250,000 divided by the closing price of CSX common stock on March 9, 2017. This stock award vested immediately upon grant.
| (4) | Stock Awards – Amounts disclosed in this column for Messrs. Hilal, Reilley and Zillmer and Ms. Riefler are based on the March 6, 2017 (the date they joined the Board) grant date fair value of the annual stock grant calculated in accordance with FASB ASC Topic 718. The number of shares is based on an award of $150,000 divided by the average closing price of CSX common stock in the months of December 2016, January 2017 and February 2017, which was then prorated for 10 of 12 months of service. All such stock awards to directors vested immediately upon grant.
| (5) | Option Awards – As of December 31, 2017, there were no stock options outstanding for non-employee directors.
| (6) | All Other Compensation – Includes excess liability insurance, Company match under the Directors’ Matching Gift Program and Company contributions under the Charitable Plan. The only perquisite to exceed $10,000 for any director was the Company match under the Directors’ Matching Gift Program, which includes matches in the following amounts: $50,000 for each of Messrs. Halverson, Kelly, Moffett, Shepard and Whisler, $30,000 for Mr. Breaux and $25,000 for Mr. Ratcliffe. Additionally, the $100,000 Company contribution installments under the Charitable Plan were made for Messrs. Ratcliffe and Shepard on their retirement from the Board.
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Table of Contents
Item 1: Election of Directors | |
Stock Ownership Guidelines
The Board has adopted Stock Ownership Guidelines to better align the interests of non-employee directors with the interests of shareholders. Within five years of election to the Board, a non-employee director is expected to acquire and hold an amount of CSX common stock equal in value to five times the amount of such non-employee director’s annual cash retainer. If the annual cash retainer increases, the non-employee directors will have five yearsfrom the time of the increase to acquire any additional shares needed to satisfy the guidelines. All directors who have served on the Board for five or more years since their election held a sufficient number of shares to satisfy these guidelines. Further information on the Stock Ownership Guidelines is available on CSX’s website athttp://investors.csx.comunder the heading “Corporate Governance.”
| 34 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
 | | Item 2: Ratification of Independent Registered Public Accounting Firm FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EY served as the Independent Registered Public Accounting Firm for the Company in 2018. The Board unanimously recommendsAudit Committee was responsible for the audit fee negotiations associated with the retention of EY. Fees paid to EY were as follows: | 2017 | 2018 | Audit Fees:
Includes fees associated with the integrated audit, testing internal controls over financial reporting (SOX 404), the reviews of the Company’s quarterly reports on Form 10-Q, statutory audits and other attestation services related to regulatory filings. | $ | 3,063,000 | $ | 3,030,000 | Audit Related Fees:
Includes audits of employee benefit plans and subsidiary audits. | $ | 159,000 | $ | 162,000 | Tax Fees:
Includes fees for tax compliance and tax advice and planning. | $ | 136,000 | $ | — | All Other Fees:
Includes fees for advisory services for non-audit projects. The Audit Committee has concluded that the services covered under the caption “All Other Fees” are compatible with maintaining EY’s independent status. | $ | 76,000 | $ | 2,000 |
PRE-APPROVAL POLICIES AND PROCEDURES The Audit Committee is responsible for the approval of all services performed by EY. The Chairman of the Audit Committee has the authority to approve all engagements that will cost less than $250,000 and, in such cases, will report any pre-approvals to the full Audit Committee for ratification at its next scheduled meeting. All engagements expected to cost $250,000 or more require pre-approval of the full Audit Committee. In addition, it is Company policy that tax and other non-audit services should not equal or exceed base audit fees plus fees for audit-related services. In 2017 and 2018, all services performed by EY were pre-approved.
Table of Contents 
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements, for establishing and maintaining effective internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements, including a discussion of the quality of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. During 2018, the Audit Committee was comprised solely of independent directors as defined by Nasdaq listing standards and Rule 10A-3 of the Securities Exchange Act of 1934. The members of the Audit Committee in 2018, together with appointment dates and meeting attendance, is set forth below: | Members | Committee
Member Since | Attendance at
Full Committee
Meetings
During 2018 | | David M. Moffett, Chairman | May 2015 | 8/8 | | Donna M. Alvarado | August 2006 | 8/8 | | Steven T. Halverson | August 2006 | 7/8 | | Linda H. Riefler | March 2017 | 8/8 | | J. Steven Whisler | May 2011 | 6/8 |
The meetings of the Audit Committee are designed to facilitate and encourage communication among the Audit Committee, the Company, the Company’s internal audit function and the Company’s independent registered public accounting firm. The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets 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 the Company’s internal controls over financial reporting and the overall quality of the Company’s financial reporting. Each year, the Audit Committee evaluates the qualifications, performance and independence of the Company’s independent registered public accounting firm, and determines whether to re-engage the current independent registered public accounting firm. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the independent registered public accounting firm, the capabilities of the independent registered public accounting firm, technical expertise and knowledge of the Company’s operations and industry. Based on this evaluation, the Audit Committee has retained EY as the Company’s independent registered public accounting firm for 2019. Although the Audit Committee has the authority to appoint the independent registered public accounting firm, the Audit Committee intends to continue to recommend that the Board ask shareholders voteto ratify the appointment of the independent registered public accounting firm at the Annual Meeting. EY, the Company’s independent registered public accounting firm for 2018, is responsible for expressing an opinion that: (i) the Company’s consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States; and (ii) the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018. 30 CSX Corporation 2019 Proxy Statement |
Table of Contents Report of the Audit Committee In this context, the Audit Committee has: | (i) | reviewed and discussed with management, the audited financial statements for the year ended December 31, 2018; | | (ii) | discussed with EY, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”); | | (iii) | received from EY, the written disclosures regarding auditors’ independence required by PCAOB Ethics and Independence Rule 3526, “Communication with Audit Committees Concerning Independence” and discussed EY’s independence with them; and | | (iv) | reviewed and discussed with management and EY, the results of management’s assessment of the effectiveness of the Company’s internal control over financial reporting and EY’s audit of the Company’s internal control over financial reporting. |
Based on its review and on the discussions described above, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the 2018 Annual Report. FORMembers of the Audit Committee this proposal.
David M. Moffett, Chair
Donna M. Alvarado
Steven T. Halverson
Linda H. Riefler
J. Steven Whisler Jacksonville, Florida February 6, 2019
Table of Contents 
ENVIRONMENTAL RESPONSIBILITY Rail is the most environmentally friendly way to move goods over land, and CSX is working to lessen the environmental impact of its operations. CSX continues to advance fuel efficiency by investing in a variety of technologies and operational strategies including Trip Optimizer, idle reduction technologies, distributed power, and trailing unit shutdown. Additionally, CSX has an active engine retrofit program in which it rebuilds or remanufactures older locomotives to current emissions standards to improve the overall efficiency and elevate the average tier level of the fleet. In 2017, CSX’s fuel efficiency improved to an all-time record – the company moves a ton of freight, on average, 488 miles on a single gallon of fuel. CSX can move a ton of
freight488 miles
on a single gallon of fuel. | | CSX also invests in its infrastructure and facilities to improve energy efficiency and reduce local greenhouse gas emissions. Over the last five years, the Company has improved the efficiency of intermodal facilities – resulting in smaller paved footprints, less parking spots, far fewer diesel utility trucks, and more efficient electric cranes. CSX also continues to make progress toward achieving its stated 2020 environmental goals. |
The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of the Independent Auditors retained to audit the Company’s financial statements. Pursuant to this responsibility, the Audit Committee engages in a comprehensive annual evaluation of the Independent Auditors’ qualifications, performance and independence. When considering the Independent Auditors’ independence, the Audit Committee specifically considers non-audit fees and services. Additionally, the Audit Committee periodically considers whether there should be a rotation of the Independent Auditors. Furthermore, in conjunction with the mandated rotation of the Independent Auditors’ lead engagement partner, the Audit Committee and its chair were directly involved in the selection of the Independent Auditors’ lead engagement partner.
The Audit Committee has selected and appointed Ernst & Young LLP (“EY”) as the Company’s Independent Auditors to audit and report on CSX’s financial statements for thefiscal year ending December 31, 2018. EY or its predecessors have continuously served as the Company’s Independent Auditors since 1981. The Audit Committee and the Board believe that the continued retention of EY as the Company’s Independent Auditors is in the best interests of the Company and its shareholders.
Action by shareholders is not required by law in the appointment of the Independent Auditors. If shareholders do not ratify this appointment, however, the appointment will be reconsidered by the Audit Committee and the Board.
EY has no direct or indirect financial interest in CSX or in any of its subsidiaries, nor has it had any connection with CSX or any of its subsidiaries in the capacity of promoter, underwriter, voting trustee, director, officer or employee. Representatives of EY will be present at the Annual Meeting and will be afforded an opportunity to make a statement if they desire to do so. It also is expected they will be available to respond to appropriate questions.
| | WWW.CSX.COM | | 35 | | 2020 ENVIRONMENTAL GOALS |
 | Reduce GHG emissions intensity by6 to 8 percent |  | Reduce quantityof waterconsumed |  | Reduce hazardous waste generator statusby 25 percent |  | Continue to elevatesustainable standards of construction | | | | | | | | |  | Increase energy blend to10 percent renewable sources |  | Improve the qualityof effluent water |  | Decrease asphalt, concrete and brick to landfillto zero |  | Encourage employees totake sustainableactionsin their everyday jobs, such as conserving energy, reducing waste and identifying efficiencies |
COMMUNITY INVESTMENT CSX’s giving and volunteer programs extend the Company’s service culture deeper into the communities across its 23-state network. CSX also supports communities through monetary and in-kind donations to nonprofit organizations, and by working with select service partners to help us extend our impact. CSX employees can also take advantage of volunteer service opportunities to support their choice of nonprofit organizations. 32 CSX Corporation 2019 Proxy Statement |
Table of Contents 
This Compensation Discussion and Analysis (“CD&A”) describes the principles of the Company’s executive compensation programs, how those principles are applied and how the Company’s compensation programs are designed to drive executive performance and create sustainable long-term shareholder value. This CD&A focuses on the compensation of the Named Executive Officers (“NEOs”) as of December 31, 2018, who are listed below. | Name | Title |  | James M. Foote | President and Chief Executive Officer (“CEO”) |  | Frank A. Lonegro | Executive Vice President and Chief Financial Officer (“CFO”) |  | Edmond L. Harris | Executive Vice President – Operations, CSX Transportation, Inc. |  | Mark K. Wallace | Executive Vice President – Sales and Marketing |  | Nathan D. Goldman | Executive Vice President, Chief Legal Officer and Corporate Secretary |
EXECUTIVE OVERVIEW 2018 Business Highlights Building on the introduction of the scheduled railroading operating model in 2017, CSX delivered transformative performance improvement and operating efficiency in 2018. Under the first full year of leadership of President and CEO James M. Foote, the Company continued to drive efficiencies under the new operating model to achieve record operating performance and financial results. In 2018, the Company implemented an organizational realignment of the operating departments, which focused on network simplification while intensifying safety efforts. In addition, the leadership team met with customers and investors to: (i) provide further details on the new operating model, including the Company’s commitment to providing an industry-leading service product; (ii) communicate changes taking place; and (iii) build confidence in the model’s potential for long-term success. CSX continues to deliver value to shareholders through a balanced approach to deploying cash that includes investments in the business and distributions to shareholders. In 2018, CSX returned approximately $5.4 billion to its shareholders in the form of dividends and share repurchases. In 2018, the Company also invested approximately $1.75 billion to further enhance safety, service, capacity and flexibility of its network. In January 2019, the Company announced a new $5 billion share repurchase program. As a result of the scheduled railroading operating model and the renewed focus on driving a safe, efficient and customer-focused railroad, the Company was able to generate record productivity and profits. Key 2018 business highlights included: Operating
Income | | Operating
Ratio | | Productivity
Gains | | Fully-Diluted
EPS | | Total
Shareholder
Return | | Capital
Returned to
Shareholders | | $4.87B | | 60.3% | | $365M | | $3.84 | | 14.5% | | $5.4B |
Table of Contents Compensation Discussion and Analysis The Scheduled Railroading Operating Model Based on five foundational principles — operating safely, optimizing asset utilization, controlling costs, improving customer service, and valuing and developing employees — scheduled railroading drives efficiency by streamlining the rail network and simplifying the operating plan. The fundamental difference between traditional railroading and scheduled railroading is that the former focuses on meeting train schedules, whereas scheduled railroading requires CSX to develop a trip plan for each rail car and focuses on moving customers’ freight as efficiently as possible by eliminating unnecessary handlings. As a result, the operations team has significantly reduced the number of car handlings that previously slowed the movement of cars across the network and impaired timely service to customers. Much of this was accomplished through a reduction in the number of hump classification yards that process cars from inbound trains and build outbound trains. At the beginning of the scheduled railroading transformation, CSX had twelve hump yards on the network; today it has five. 
Scheduled railroading drives efficiency through improved use of assets, with a focus on reducing the time that locomotives and rail cars are not moving freight. As such, the Company has removed more than 1,000 locomotives (approximately 25%) from active service and reduced its number of locomotive shops from ten to five. In addition, the Company has taken more than 22,000 rail cars (approximately 16%) out of the system, which enhances efficiencies and reduces maintenance costs. Organizational efficiency is a hallmark of scheduled railroading. For example, over the past year, the network’s previous nine dispatching offices have been consolidated into one dispatching center in Jacksonville, Florida. While scheduled railroading recognizes that some functions are handled more effectively in a centralized location, another primary tenant of the model is that decision-making is more efficient when it takes place as close as possible to where the work is performed. A major organizational realignment in 2018 created East and West operating territories, each with two operating regions that oversee all three primary operating functions — transportation, mechanical and engineering. In addition, administrative support employees were assigned and relocated to the regions, where they work closely with teams in the field and quickly address local priorities. Another example involved the consolidation of customer service functions, including shipment tracking, problem resolution and transactional systems, into the sales and marketing organization to eliminate redundancies and create a more positive customer experience. These changes have improved customer service and resulted in a more efficient, engaged and productive workforce. Delivering Results The efficiencies achieved through the scheduled railroading operating model and improved business practices across the organization have resulted in significantly stronger performance and financial results. Throughout the year, the Company demonstrated that enhanced asset utilization improves service and lowers costs. The simplified network and operating plan contributed to historic lows in average rail car dwell time (the amount of time cars spend in terminals versus moving toward their destinations) and record highs in average train velocity. For 2018, the average dwell time improved 15% to 9.6 hours and velocity improved 19% to 17.9 m.p.h. The correlation between improved efficiency and better service was also reflected in a 26% reduction in locomotive failures despite the closure of half of the railroad’s locomotive shops. As a result of the scheduled railroading operating model, the Company offers a service product that provides capacity to accommodate customers’ growth, while offering better supply chain solutions and a more reliable, higher value-added solution for customers’ transportation requirements. We are initiating more frequent, transparent communication with customers about service solutions and enhancements. For example, the CSX Customer Engagement Forum is a meeting hosted with select customers and CSX executives to understand customer perspectives on our service and how CSX can leverage the performance improvements of scheduled railroading to add value to their businesses. 34 CSX Corporation 2019 Proxy Statement |
Table of Contents Item 2: RatificationCompensation Discussion and Analysis The CSX leadership team devoted significant attention and resources to improving the Company’s safety performance in 2018. A new chief safety officer was added to the leadership team, and a comprehensive safety assessment was performed by an external safety consultant. The Company adopted a program of Independent Registered Public Accounting Firm | |
Fees Paid to Independent Registered Public Accounting Firm
EY served as the Independent Auditors for the Company in 2017. The Audit Committee was responsible for the audit fee negotiations associated with the retention of EY. Fees paid to EY were as follows:
| | 2017 | | 2016 | | Audit Fees: | | | | | | | Includes fees associated with the integrated audit, testing internal controls over financial reporting (SOX 404), the reviews of the Company’s quarterly
reports on Form 10-Q, statutory audits and other attestation services related to regulatory filings. | | $ | 3,063,000 | | $ | 2,689,000 | | Audit Related Fees: | | | | | | | | Includes audits of employee benefit plans and subsidiary audits. | | $ | 159,000 | | $ | 277,000 | | Tax Fees: | | | | | | | | Includes fees for tax compliance and tax advice and planning. | | $ | 136,000 | | | — | | All Other Fees: | | | | | | | Includes fees for advisory services for non-audit projects. The Audit Committee has concluded that the services covered under the caption “All Other Fees”
are compatible with maintaining EY’s independent status. | | $ | 76,000 | | $ | 77,000 |
Pre-Approval Policies and Procedures
The Audit Committee is responsible for the approval of all services performed by EY. The Chairman of the Audit Committee has the authority to approve all engagements that will cost less than $250,000 and, in such cases, will report any pre-approvals to the full Audit Committee for ratification at its next scheduled meeting.
All engagements expected to cost $250,000 or more require pre-approval of the full Audit Committee. In addition, it is Company policy that tax and other non-audit services should not equal or exceed base audit fees plus fees for audit-related services. In 2016 and 2017, all services performed by EY were pre-approved.safety enhancements that included a renewed focus on operating rules compliance and a revised discipline policy that places greater emphasis on education and training.
| 36 | | With a continued focus on operating and safety performance, CSX CORPORATIONdelivered record financial results in 2018. The Company reduced its operating ratio — the percentage of every revenue dollar that is used to cover operating expenses — to nearly 60%, eclipsing its 2018 PROXY STATEMENT | | |
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Report of the Audit Committee
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements, for establishing and maintaining effective internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements, including a discussion of the quality of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
During 2017, the Audit Committee was comprised solely of independent directors as defined by Nasdaq listing standards and Rule 10A-3 of the Securities Exchange Act of 1934. The members of the Audit Committee in 2017, together with appointment dates and meeting attendance, is set forth below:
MEMBERS | | COMMITTEE
MEMBER SINCE | | ATTENDANCE AT FULL
MEETINGS DURING 2017 | David M. Moffett, Chairman | | May 2015 | | 7/8 | Donna M. Alvarado | | August 2006 | | 8/8 | Steven T. Halverson | | August 2006 | | 8/8 | Dennis H. Reilley | | March 2017 | | 6/6 | Linda H. Riefler | | March 2017 | | 6/6 | J. Steven Whisler | | May 2011 | | 6/8 |
The meetings of the Audit Committee are designed to facilitate and encourage communication among the Audit Committee, the Company, the Company’s internal audit function and the Company’s independent auditor. The Audit Committee discussed with the Company’s internal auditors and independent auditor the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and the independent auditor, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls over financial reporting and the overall quality of the Company’s financial reporting.
Each year, the Audit Committee evaluates the qualifications, performance and independence of the Company’s independent auditor, and determines whether to re-engage the current independent auditor. In doing so, the Audit Committee considers the quality and efficiencyof the services provided by the auditors, the auditor’s capabilities, technical expertise and knowledge of the Company’s operations and industry. Based on this evaluation, the Audit Committee has retained EY as the Company’s independent auditor for 2018. Although the Audit Committee has the authority to appoint the independent auditors, the Audit Committee intends to continue to recommend that the Board ask shareholders to ratify the appointment of the independent auditors at the Annual Meeting.
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Report ofgoal. At the Audit Committee | |
EY, the Company’s independent registered public accounting firm for 2017, is responsible for expressing an opinion that: (i) the Company’s consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States; and (ii) the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017.
In this context, the Audit Committee has:
(i) | reviewed and discussed with management, the audited financial statementssame time, revenue increased 7% for the year ended December 31, 2017;and operating income increased by 31% year-over-year. The revenue increase was driven in part by economic factors but also reflected improved service. The sales and marketing team pursued profitable new business opportunities based on the added value of a faster and more reliable service product.
| (ii) | discussedAligned for Success
The Company’s incentive pay programs were adjusted in 2018 to more closely align with EY, the matters requiredprinciples of the scheduled railroading for the purpose of driving improved performance and delivering value for shareholders. In addition, the changes were designed to be discussedmotivate and engage employees through emphasis on factors over which they exercise more direct control thereby creating a stronger pay for performance environment. Led by Auditing Standard No. 1301, “Communications with Audit Committee,” as adopted bya strong management focus and clearly defined operating model, CSX employees advanced the Public Company Accounting Oversight Board (the “PCAOB”); | (iii) | received from EY, the written disclosures regarding auditors’ independence required by PCAOB EthicsCompany’s scheduled railroading vision throughout 2018, demonstrating to customers and Independence Rule 3526, “Communication with Audit Committees Concerning Independence” and discussed EY’s independence with them; and
| (iv) | reviewed and discussed with management and EY, the results of management’s assessment ofshareholders the effectiveness of the Company’s internal control over financial reporting and EY’s auditmodel for achieving industry-leading levels of performance.
EXECUTIVE COMPENSATION PRACTICES What are the primary objectives of the Company’s internal control over financial reporting.executive compensation programs? The primary objectives of the executive compensation programs are to: | ● | Drive business and financial performance.Inspire leaders to achieve or exceed short and long-term business goals and objectives that are straight-forward, relevant and applicable to achieving strong financial results. |
Based on its review and on the discussions described above, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the 2017 Annual Report.
Members| ● | Focus on long-term success.Mitigate inappropriate risk-taking and hold leaders accountable for long-term, sustainable business results that provide strong returns for shareholders. | | ● | Align ownership interests with shareholders.Require that a significant portion of total compensation be performance-based equity to align the long-term interests of executives with those of the Audit CommitteeDavid M. Moffett, Chair
Donna M. Alvarado
Steven T. Halverson
Dennis H. Reilley
Linda H. Riefler
J. Steven Whisler
Jacksonville, Florida
February 6, 2018
| 38 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) describes the principles of the Company’s executive compensation programs, how those principles are applied and how the Company’s compensation programs are designed to drive employee performance and create sustainable long-term shareholder value. This CD&A focuses on the compensation of the Named Executive Officers (“NEOs”) as of December 31, 2017.
James M. Foote(1) | Frank A. Lonegro | Mark K. Wallace(2) | President and Chief Executive | Executive Vice President and | Executive Vice President | Officer (“CEO”) | Chief Financial Officer (“CFO”) | and Chief Administrative | | | Officer (“CAO”) | | Sarah K. Brandt | Peter J. Shudtz | E. Hunter Harrison(3) | Senior Vice President | Vice President – | Former President and Chief | and Chief Information | Federal Regulation | Executive Officer (former CEO) | Officer (“CIO”) | | | | Michael J. Ward(4) | Fredrik J. Eliasson(5) | Ellen M. Fitzsimmons(6) | Former Chief Executive Officer | Former Executive Vice | Former Executive Vice | (former CEO) | President and Chief Sales and | President – Law and Public | | Marketing Officer (“CSMO”) | Affairs, General Counsel and | | | Corporate Secretary |
(1) | On December 22, 2017, Mr. Foote was appointed as President and CEO following the untimely passing of then President and CEO, Mr. Harrison. Mr. Foote had previously been named Executive Vice President and Chief Operating Officer effective October 25, 2017.
| (2) | Mr. Wallace was appointed to his position on March 29, 2017.
| (3) | On March 6, 2017, Mr. Harrison was appointed CEO, effective immediately. On April 19, 2017, Mr. Harrison also assumed the role of President. Mr. Harrison passed away on December 16, 2017.
| (4) | On March 6, 2017, Mr. Ward retired from his position as Chairman and CEO.
| (5) | Mr. Eliasson resigned from his position effective November 15, 2017.
| (6) | Ms. Fitzsimmons retired from her position effective November 15, 2017.
|
Executive Overview
CSX secured the services of railroad executive E. Hunter Harrison in March 2017 to transform the Company by implementing his proven PSR business model. PSR is based on five guiding principles of improving customer service, controlling costs, optimizing asset utilization, operating safely and valuing and developing employees. As the new CEO of CSX, Mr. Harrison immediately commenced the implementation of PSR, which he had developed and refined during his successful leadership of the Canadian Pacific Railway Limited (“Canadian Pacific”), the Canadian National Railway Company and the Illinois Central Railroad. To support the implementation of PSR, Mr. Harrison made a series of changes in the CSX leadership team, which included the recruitment of James M. Foote as Chief Operating Officer, with whom Mr. Harrison had worked closely with at Canadian National Railway. Many elements of the CSX transformation to PSR were well underway when Mr. Harrison passed away unexpectedly on December 16, 2017.
Upon the untimely death of Mr. Harrison, Mr. Foote was promoted to President and CEO in late December 2017. The Board believes Mr. Foote will continue to lead and guide the Company under the PSR operating model creating long-term shareholder value and a sustainable future for CSX. In addition to his experience with PSR, Mr. Foote has successfully led Sales and Marketing organizations and demonstrated his ability to develop talent and motivate employees. In early January 2018, Mr. Foote supplemented his leadership team with the addition of industry veteran Edmond L. Harris as Executive Vice President – Operations. Mr. Harris has extensive operating experience with the PSR operating model.
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Compensation Discussion and Analysis | |
Background
Mr. Harrison’s compensation package was subject to extensive negotiation between Mr. Harrison and the Company and their respective advisors. Ultimately, the Board concluded that the total compensation package for Mr. Harrison, as disclosed in the Summary Compensation Table: (i) was necessary to secure his proven leadership; (ii) reflects the overwhelming positive market reaction to his potential hiring; (iii) was structured to help align his interest with the interests of the Company’s shareholders and to promote the long-term success of the Company; (iv) was unique to 2017; and (v) was appropriate given the overwhelming support by the Company’s shareholders.
Mantle Ridge L.P., a registered investment advisory firm, approached Mr. Harrison, then the CEO of Canadian Pacific, to discuss the possibility of working together to secure an opportunity for Mr. Harrison to lead the transformation of a major United States freight railroad. While interested, Mr. Harrison noted that his employment agreement and supplemental executive retirement benefits with Canadian Pacific each included a provision that prevented him from working at other railroad companies for a two-year period following his resignation or retirement from Canadian Pacific. Pursuant to negotiations among Canadian Pacific, Mantle Ridge and Mr. Harrison, Canadian Pacific agreed to relax these non-competition provisions if Mr. Harrison forfeited approximately $90 million in vested and about-to-vest compensation and benefits.
As part of these negotiations, in January 2017, Mr. Harrison left Canadian Pacific and, prior to any discussions with CSX, he entered into a consulting agreement with Mantle Ridge (the “MR Consulting Agreement”). Under the MR Consulting Agreement, Mr. Harrison was to be paid a monthly consulting fee and an upfront $55 million cash payment in respect to his forfeited Canadian Pacific equity awards. He was also entitled to a supplemental $29 million payment by March, 2018 in respect to his forfeited Canadian Pacific retirement benefits, and a tax equalization payment in the event that his forfeitures resulted in adverse tax consequences to him. Soon thereafter, Mantle Ridge advised CSX that it had recently become a significant CSX shareholder. Additionally, it advised CSX that Mr. Harrison had terminated his employment with Canadian Pacific, was working with Mantle Ridge on an exclusive basis and would be eager to become CEO of CSX.
The Board engaged in extensive discussions with Mr. Harrison and Mantle Ridge. During these discussions, Mr. Harrison proposed that: (i) he receive an option to buy shares of CSX common stock equal to approximately 1% of the Company’s market capitalization; (ii) CSX agree to pay $55 million to Mantle Ridge as reimbursement for the payment it made to Mr. Harrison and assume Mantle Ridge’s obligation to pay $29 million to Mr. Harrison for the Canadian Pacific retirement benefits he had but forfeited in order to relax his non-competition agreement; and (iii) CSX assume the related tax indemnity provided by Mantle Ridge to Mr. Harrison. Under the MR Consulting Agreement, Mr. Harrison would have had to refuse the leadership role with CSX in order to retain the equity award and retirement benefit reimbursement payments from Mantle Ridge, but he was entitled to take the roleand retain the reimbursement payments if CSX agreed to reimburse Mantle Ridge for the $55 million reimbursement payment it had made and assume the payment obligation for the $29 million retirement benefit make-whole arrangement.
These discussions and negotiations resulted in CSX appointing Mr. Harrison as CEO of CSX on March 6, 2017. Upon his hiring, Mr. Harrison was granted options to purchase 9 million shares of CSX common stock at $49.79 per share (the closing price as of his hire date) with a 10-year exercise term, which is described in greater detail below. These options were to vest in equal annual installments over his four-year employment term. Half of the options were to vest based on continued service and half were to vest based on achievement of targets related to adjusted operating ratio and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). These options were designed to begin to vest only after Mr. Harrison’s first full-year of service with CSX. Upon Mr. Harrison’s death in December 2017, all 9 million stock options were forfeited.
Given the magnitude of the potential reimbursement payments, the Board elected to solicit shareholder guidance at the 2017 Annual Meeting pursuant to an advisory vote on whether the Company should assume these financial obligations. The Board was mindful of the fact that it was ultimately a Board decision as to whether to agree to the requests of Mr. Harrison and Mantle Ridge to retain Mr. Harrison. The Board, however, thought it was appropriate to seek the unbiased opinion of shareholders with varying investment horizons with respect to the investment in leadership through the reimbursement arrangement. As such, the Board did not recommend “for” or “against” the advisory vote as it did not want to influence shareholders’ votes or opinions. At the 2017 Annual Meeting, over 93% of the CSX shares that were voted supported the reimbursement arrangements. Following the 2017 Annual Meeting, the Board made the decision to retain Mr. Harrison by authorizing the reimbursement arrangements and paid the $55 million to Mantle Ridge, which was the amount that Mantle Ridge had already paid to Mr. Harrison and committed to pay the remaining $29 million and assume the tax indemnity under the reimbursement arrangement.
The Company believes these payments to Mr. Harrison and Mantle Ridge were appropriate for the following reasons:
● | Proven and Successful Railroad Leader.Mr. Harrison was a proven railroad executive who had an exemplary track record for producing market-leading operating and financialresults, as well as value creation for shareholders. Twice he was honored by the industryas Railroader of the Year for his leadership in the implementation of PSR at North American railroads. | | | ● | Overwhelming Positive Market Reaction to Mr. Harrison Potentially BecomingCSX’s Next CEO.Investors reacted very favorably to the prospect of Mr. Harrison joining CSX as CEO. Between January 18, 2017, when it was publicly announced that Mantle Ridge had acquired shares of CSX and was working with Mr. Harrison, and March 6, |
| 40 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
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| Compensation Discussion and Analysis |
2017, the day Mr. Harrison was appointed as CEO of CSX, the share price of CSX common stock increased approximately 35%. During this same period, the S&P 500 and the Dow Jones U.S. Transportation Average Index rose only 4.6% and 3.1%, respectively.
| MARKET CAPITALIZATION OF CSX COMMON STOCK (2017) |
● | Options Structured to Align Mr. Harrison’s Compensation with Shareholders’ Interests and Promote Long-Term Success.The options granted to Mr. Harrison had an exercise price of $49.79 per share, which was the closing price of CSX’s common stock on his date of hire. This exercise price was established after the stock price had already risen from $36.88 to $49.79 on the anticipated hiring of Mr. Harrison by CSX. Therefore, Mr. Harrison’s options would have been “in-the-money” only to the extent the share price of CSX common stock achieved additional sustained increases over time. Thus, he would have been financially rewarded only if all shareholders were similarly rewarded over the long-term due to an increase in the price of CSX common stock. In addition, half of these options were to vest based on the achievement of certain financial performance targets. These financial performance targets were chosen to encourage the sustainable, long-term growth of the Company. The number of performance-based options that were to vest was dependent upon the Company’s performance against these targets and would only be valuable if the share price exceeded the exercise price. | | ● | Overwhelmingly Positive Support by Shareholders.The Board sought the input of the Company’s shareholders concerning the reimbursement payments sought by Mr. Harrison. At the 2017 Annual Meeting, the Company’s shareholders overwhelmingly supported the reimbursement payments to Mr. Harrison and Mantle Ridge (with over 93% of the votes cast in favor of the reimbursement arrangements). The Board subsequently approved and authorized the reimbursement payments and assumed the related tax indemnification obligations to retain Mr. Harrison as CEO so that he could continue the positive trajectory the Company was on with PSR. |
To support the implementation of PSR, Mr. Harrison made a series of changes in the CSX leadership team, which included the recruitment of James M. Foote as Chief Operating Officer, with whom Mr. Harrison had worked closely at Canadian National Railway. Upon the untimely death of Mr. Harrison, Mr. Foote was promoted to President and CEO in late December 2017. The Board believes Mr. Foote will continue to lead and guide the Company under the PSR operating model creating long-term shareholder value and a sustainable future for CSX. In addition to his experience with PSR, Mr. Foote has successfully led Sales and Marketing organizations and demonstrated his ability to develop talent and motivate employees. In early January 2018, Mr. Foote supplemented his leadership team with the addition of industry veteran Edmond L. Harris as Executive Vice President – Operations. Mr. Harris has extensive operating experience with the PSR operating model.
2017 Business Highlights
In 2017, as discussed above, the Company transitioned to a new leadership team and operating strategy focused on the implementation of PSR. As a result of PSR and renewed focus on driving an efficient, customer-focused railroad, the Company was able to generate record productivity and profits while maintaining safety performance. Although the Company experienced service-related issues during this transition, by the end of the year, service performance had recovered and was at or better than 2016 levels. For the fourth quarter of 2017, velocity and dwell, two key operating metrics, were notably improved at 16.2 miles per hour and 10.6 hours, respectively, compared to 14.2 miles per hour and 11.4 hours, respectively, for the fourth quarter of 2016.
Key 2017 business highlights included:
● | Adjusted operating income of $3.85 billion(1)and adjusted operating ratio of 66.3%, which were CSX records; | ● | Earnings per share growth of 27%; | ● | Productivity gains of $460 million; | ● | One-year stock price appreciation of 55%; and | ● | Repurchase of approximately 39 million shares of CSX common stock. |
(1) | See footnote 1 on page 9 regarding adjusted operating income and adjusted operating ratio – both non-GAAP financial measures that the Company believes provide meaningful information regarding operating results because they exclude certain significant items that are not considered indicative of future trends.
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Compensation Discussion and Analysis | |
CSX continues to deliver value to shareholders through a balanced approach to deploying cash that includes investments in the business and distributions to shareholders. In 2017, CSX returned approximately $2.7 billion to its shareholders in the form of dividends and share repurchases. In 2017, the Company also invested approximately $2.0 billion to furtherenhance safety, service, capacity and flexibility of its transportation network. In addition, in February 2018, the Company announced: (i) a 10% increase in its quarterly dividend to $0.22 per share from $0.20 per share; and (ii) an expansion of its then-current share repurchase program to $5.0 billion, which is expected to be completed by the end of the first quarter 2019.
Aligning Executive Compensation Programs with Leading Governance Practices
The Compensation Committee (for purposes of the CD&A, the “Committee”) has established executive compensation programs that incorporate leading governance principles. Highlighted below are certain executive compensation practices designed to drive heightened performance and support strong corporate governance.
| CSX EXECUTIVE COMPENSATION PRACTICES INCLUDE: |  |  | High percentage of executive compensation that is performance-based | | Performance measures that are highly correlated to shareholder value creation | | Engagement of an independent compensation committee consultant | | Significant share ownership requirements for Vice President-level executives and above and non-employee directors | | Change of control agreements requiring a double-trigger (i.e., change of control plus termination) for severance purposes | | Clawback provisions in all short and long-term incentive compensation plans | | Inclusion of multiple financial measures in short and long-term incentive compensation plans | | Annual risk assessment of all compensation programs by an independent consultant
|
| CSX EXECUTIVE COMPENSATION PRACTICES DO NOT INCLUDE / ALLOW: |  |  | Dividends or dividend equivalents on unvested performance units | | Excise tax gross ups | | Re-pricing of underwater options without shareholder approval | | Recycling of shares withheld for taxes | | | | | |
| | |
Aligning Executive Compensation with Company Performance
The Committee’s performance-based compensation philosophy is designed to attract, retain and motivate executives to deliver superior short-term and long-term financial performance to shareholders. As such, the Committee structures the Company’s executive compensation programs to reward short-term and long-term performance that creates value for shareholders. The executive compensation programs are designed to provide an appropriate allocation between fixed and variable compensation while mitigating unnecessary or inappropriate risk. Total compensation for each NEO is heavily weighted towards performance-based awards with long-term incentive compensation comprising the majority of the target total compensation.
Long-Term Incentive Compensation.A significant portion of CSX’s senior management’s compensation is provided under performance-based long-term incentives (“LTI”). The 2015-2017, 2016-2018 and 2017-2019 long-term incentive plan (“LTIP”) cycles use operating ratio (“OR”) and return on assets (“ROA”) on an equally weighted basis to measure the Company’s performance. OR and ROA have demonstrated a high correlation to shareholder value over time. Since 2009, a portion of the LTI has been provided in the form of restricted stock units (“RSUs”). In 2016, CSX added non-qualified stock options to its long-term incentive portfolio to further support direct alignment with shareholders and to align with incentive compensation practices of the Company’s peer group.
| 42 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
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| Compensation Discussion and Analysis |
For the 2015-2017 cycle, CSX achieved a cumulative OR of 68.4% and average ROA of 7.36%, which resulted in a payout of 64% of the target award. The Committee annually reviews the financial measures used for each three-year cycle, and will make changes, as appropriate, as the Company continues to evolve the business to create long-term shareholder value and incent our NEOs to drive business results.
Short-Term Incentive Compensation.In 2017, the Committee approved a redesigned short-term incentive plan to better align leadership and eligible employees to the PSR operating model with an increased focus on operating efficiency with operating income (weighted 60%) and OR (weighted 40%) as financial-based operating performance measures. Based on 2017 adjusted operating income of $3.85 billion and an adjusted OR of 66.3%, the short-term incentive payout for 2017 was 159% of target. Awards may be adjusted upward or downward based on the individual’s performance.
The Committee recognizes there is an overlap between the short-term and long-term plans with respect to OR, but believes that utilizing this measure as the Company implements PSR will inspire a consistent and concerted focus on operating efficiency. Moreover, the Committee does not believe this overlap will create inappropriate risk-taking since the measurement periods are different (one vs. three years), and operational measures and reviews are in place to monitor risk. Consistent with its review of the long-term incentive plans, the Committee annually reviews the measures used for each short-term incentive cycle, and will make changes as appropriate.
CEO Total Compensation in 2017.TheSummary Compensation Tablecontains elements of compensation that were earned for the year, such as base salary and annual incentive compensation, as well as options granted to Mr. Harrison in 2017, but forfeited upon his death prior to the first annual vesting date. The table also contains total compensation for Messrs. Foote and Ward, each of whom served as CEO at some time during 2017. It does not reflect the CEO’s total actual or realized pay for the most recently completed fiscal year. The CEO’s realized pay could be worth more or less than what is shown in theSummary Compensation Tabledepending on the Company’s overall financial performance, the CEO's individual performance and actual share price.
Executive Compensation Practices
What is CSX’s executive compensation philosophy?
The Committee believes that a strong and engaged executive leadership team is critical to driving Company and employee performance and delivering shareholder value. Accordingly, the Committee has designed executive compensation programs to motivate and reward the executive leadership team and align their compensation with the short-term and long-term performance of the Company. When designing the Company’s executive compensation programs, the Committee considers shareholder input through the annual say-on-pay vote.
The executive compensation programs at CSX are premised on two key principles:
● | Performance-based compensation is essential to enhancing shareholder value; and | ● | Total compensation opportunity, including benefits, should be competitive with market practices. |
These principles help ensure that the Company’s executives are properly compensated and focused on specific performance factors that measure progress against the Company’s business goals. The compensation principles discussed in the CD&A are applied in all but extraordinary circumstances.
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Compensation Discussion and Analysis | |
What are the primary objectives of the Company’s executive compensation program?
The primary objectives of the executive compensation programs are to:
● | Attract and retain high-performing talent.Use competitive compensation and benefits programs to attract and retain talented, engaged, high-performing executives with specific skill sets and relevant experience to continue to drive the business forward, create shareholder value and develop and motivate future leaders of CSX. |
The Compensation Committee (for the purposes of the CD&A, the “Committee”) believes that a strong and engaged executive leadership team is critical to driving Company and employee performance and delivering shareholder value. Accordingly, the Committee has designed executive compensation programs to motivate management to drive stronger performance and align compensation with the short-term and long-term success of the Company. When designing the Company’s executive compensation programs, the Committee considers shareholder input through the annual say-on-pay vote.
Table of Contents DriveCompensation Discussion and Analysis
How do the Company’s Executive Compensation Programs Align with Leading Governance Practices? The Committee has established executive compensation programs that incorporate leading governance principles. Highlighted below are executive compensation practices that drive performance and support strong corporate governance.  | |  | | | | | CSX Executive Compensation Practices Include: | | CSX Executive Compensation
Practices Do NOT Include / Allow: ✕Re-pricing of underwater options without shareholder approval ✕Excise tax gross ups ✕Dividends or dividend equivalents on unvested performance units ✕Recycling of shares withheld for taxes ✕Hedging or pledging of CSX common stock1 | ✓Significant percentage of executive compensation that is performance-based ✓Performance measures that are highly correlated to shareholder value creation ✓Engagement of an independent compensation committee consultant ✓Significant share ownership requirements for Vice President-level executives and above and non-employee directors ✓Change of control agreements require a double-trigger (i.e., change of control plus termination) for severance purposes ✓Clawback provisions in all short and long-term incentive compensation plans ✓Inclusion of multiple financial measures in short and long-term incentive compensation plans ✓Annual risk assessment of all compensation programs by an independent consultant ✓Use of payout caps on short-term incentives and performance units | |
| 1 | The Mantle Ridge group of entities, which are controlled by Mr. Hilal, pledged shares of CSX common stock as collateral under a secured credit facility with a third-party lender prior to Mr. Hilal becoming a director at CSX. |
What is the role of the Compensation Committee? The Committee oversees the development and approval of the Company’s executive compensation philosophy, strategy and design. The Committee strives to reward performance through compensation plans that appropriately motivate and engage employees and support shareholder value creation while taking into account independent market data and market-competitive practices. In developing performance targets for the short and long-term incentive plans, the Committee reviews, among other factors, the annual and three-year business plans and financial performance.Inspire leaderseconomic environment. In assessing performance of the NEOs to achieve or exceed short- and long-termdetermine incentive compensation payouts, the Committee conducts a detailed review of business goals and objectivesassociated results. In accordance with its charter, the Committee may delegate to (i) the CEO or other members of executive management, the authority to adopt, amend or terminate any of the Company’s plans, policies or programs, subject to the limitations set forth in the applicable plan, policy or program, (ii) the CEO or the senior human resource officer, acting in consultation with the CEO, the authority to review and approve grants of stock options, stock appreciation rights, restricted stock, performance shares and other stock-related incentives to employees of the Company other than the CEO and other Section 16 officers and (iii) a subcommittee of the Committee, all or a portion of the Committee’s duties and responsibilities, consistent with applicable regulations, laws and listing standards. What data does the Committee consider when determining executive compensation? The Committee annually evaluates competitive compensation data for the NEOs, including base salary and short and long-term incentives with that of similar positions at peer railroads and general industry companies that are straight-forward, relevantpart of the comparator group. For purposes of evaluating targeted compensation amounts for the NEOs, the Committee reviews market data at the 25th, 50th and applicable75th percentiles of the comparator group. The Committee considers the following factors, among others, in evaluating target compensation levels: | ● | Contribution to the Company’s financial results; | | ● | Effectiveness in leading the Company’s business strategy to implement the scheduled railroading operating model; | | ● | Performance compared to the specific goals, objectives and measures determined for CSX and for the individual executive at the beginning of the year; | | ● | Contribution in creating a culture that aligns with the CSX Code of Ethics, as well as communicating and reinforcing the guiding principles of scheduled railroading; and | | ● | The nature, scope and level of the executive’s responsibilities internally relative to other executives and externally based on the comparator group; |
In keeping with past practices, the Committee developed a customized comparator group for 2018 comprised of 15 primarily U.S.-based companies and North American railroads (the “Comparator Group”) to achieving strong business results. | ● | Focus on long-term success.Mitigate inappropriate risk and hold leaders accountable for long-term, sustainable business results that provide strong returns for shareholders. | ● | Align ownership interests with shareholders.Require that a significant portion ofhelp guide total compensation be performance-based equitydecisions at CSX. The Committee annually assesses and approves the Comparator Group to align the long-term interests of executives withensure that it reflects market characteristics comparable to those of CSX’s shareholders. |
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What is the role of the Compensation Committee?
The Committee oversees the development and approval of the Company’s executive compensation philosophy, strategy and design. The Committee strives to incent and reward performance through compensation plans that appropriately incent the right behaviors to drive shareholder value creation while taking into account independent market data and market-competitive practices. In assessing performance of the NEOs to determine incentive compensation payouts, the Committee conducts a detailed review of business goals taking into account enterprise-wide risk assessments.
In establishing individual executive compensation opportunities and approving payouts, the Committee considers analyses and recommendations from its independent compensation consultant, competitive market practices and the CEO’s recommendations for executive vicepresidents. The Committee does not rely solely on guidelines, formulas or short-term changes in business performance. Key factors affecting the Committee’s determinations include:
● | the Company, including revenue, assets, net income, market capitalization, number of employees, industry type and business complexity. In addition, the Committee reviews the degree of overlap with proxy advisory peer companies. As a result of its review for 2018, the Committee approved the Comparator Group with changes from the prior year. The nature, scope and levelCompany believes the use of the executive’s responsibilities internally relative to other executives and externally based on market comparisons; | ● | Performance compared to the specific goals, objectives and measures determinedComparator Group allows for CSX and for the individual executive at the beginninga nuanced analysis of the year; | ● | Contribution to CSX’s financial results; | ● | Effectiveness in leading CSX’s business strategy to implement PSR, improve customer service, productivity, and employee development and engagement; and | ● | Contribution to CSX’s corporate responsibility efforts, including the executive’s success in creating a culture of integrity and compliance with applicable laws and CSX’s Code of Ethics. |
What is the role of the independent compensation consultant?various total compensation components.
Pursuant to its charter, the Committee has sole authority to select, retain and terminate any consultant used to assist the Committee in fulfilling its duties, including the authority to approve or ratify payments and other retention terms to any consultant.
The Committee has retained an independent compensation consultant, Meridian Compensation Partners, LLC (the “Consultant”), to provide objective analysis and to assist in the development and evaluation of the Company’s executive compensation programs. The Consultant reports directly to the Committee Chair and performs no other work for the Company. The Consultant generally attends all meetings where the Committee evaluatesthe overall effectiveness of the executive compensation programs or where the Committee analyzes or approves executive compensation. The Consultant is paid on an hourly fee basis, with such hourly rates approved by the Committee annually.
The Committee reviews the performance and independence of the Consultant on an annual basis, at which time it decides whether to renew the Consultant’s annual engagement. Each year, the Committee considers all appropriate information relating to the independence of the Consultant and its professionals involved in the work performed for, and advice provided to, the Committee. In 2017, the Committee determined that: (i) the relationships and work of the Consultant and its professionals did not present any conflict of interest; and
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2018 COMPARATOR GROUP Assets as of Fiscal Year-end 2018
(in millions) | | Market Capitalization as of December 31, 2018
(in millions) |  | |  |
What is the role of the independent compensation consultant? Pursuant to its charter, the Committee has sole authority to select, retain and terminate any consultant used to assist the Committee in fulfilling its duties. The Committee has retained an independent compensation consultant, Meridian Compensation DiscussionPartners, LLC (the “Consultant”), to provide objective analysis and Analysis |
to assist in the development and evaluation of the Company’s executive compensation programs. The Consultant reports directly to the Committee chair, and generally attends all meetings where the Committee evaluates the overall effectiveness of the executive compensation programs or where the Committee analyzes or approves executive compensation. The Consultant is paid on an hourly fee basis, with such hourly rates approved by the Committee annually.The Committee reviews the performance and independence of the Consultant on an annual basis, at which time it decides whether to renew the Consultant’s annual engagement. Each year, the Committee considers all appropriate information relating to the independence of the Consultant and its professionals involved in the work performed for, and advice provided to, the Committee. In 2018, the Committee determined that: (i) the relationships and work of the Consultant and its professionals did not present any conflict of interest; and (ii) the Consultant and its professionals are independent for the purpose of providing advice to the Committee with respect to matters relating to the compensation of the executives and directors of the Company. In 2017, the Consultant’s duties and responsibilities included:
● | Assisting in the development of a peer group of companies for comparison purposes; | ● | Analyzing competitive practices, financial information, stock price and other performance data; | ● | Reviewing compensation governance practices, including a risk assessment related to the Company’s compensation plans and practices; | ● | Assessing compensation plan design in the context of the Company’s business goals and shareholder impact; | ● | Reviewing performance targets and assessing performance against targets for the Company’s short- and long-term incentive plans; | ● | Providing regular updates to the Committee with respect to matters relating to the compensation of the executives and non-employee directors of the Company.In 2018, the Consultant’s duties and responsibilities included: | ● | Assisting in the development of a comparator group of companies for compensation comparison purposes; | | ● | Analyzing competitive practices, financial information, stock price and other performance data; | | ● | Reviewing compensation governance practices, including a risk assessment related to the Company’s compensation plans and practices; | | ● | Assessing compensation plan design in the context of the Company’s business goals, shareholder impact and employee engagement; | | ● | Reviewing performance targets and assessing performance against targets for the Company’s short and long-term incentive plans; | | ● | Providing regular updates to the Committee with respect to current trends and developments in legislative and regulatory activity, compensation program design and governance; | | ● | Consulting with the Committee chair to plan and prioritize Committee agenda items; and | | ● | Providing the Committee with an annual independence letter. |
How does the Compensation Committee evaluate risk in connection with executive compensation programs? The Committee believes appropriately structured compensation programs should take into consideration enterprise risks and discourage behavior that leads to inappropriate increases in the Company’s overall risk profile. Accordingly, the Committee Chairand its Consultant regularly review the Company’s enterprise risks and compensation plan design to planconsider whether the plans motivate the appropriate behaviors and prioritize Committee agenda items;mitigate unnecessary or excessive risk-taking.
Table of Contents Compensation Discussion and | ● | Providing AnalysisEach year, the Committee with an annual independence letter. |
What is the role of the CEO in compensation decisions?
The CEO reviews compensation benchmark data for executive vice presidents. Using this data, the CEO considers information on their performance to drive short- and long-term business performance for shareholder value creation and their scope of responsibility. He makes individual compensation recommendations to the Committee for each executive vice president. These recommendations include: (i) possible salary adjustments; (ii) payout recommendations for short-term incentive compensation based on individual performance during the previous year; and (iii) short-term and long-term incentive awards.
The CEO does not make recommendations with respect to his own compensation, nor is he present when the Committee discusses his compensation.
What is the Company’s process for evaluating risk in connection with its executive compensation programs?
The Committee believes appropriately structured compensation plans should take into consideration enterprise risks and discourage behavior that leads to inappropriate increases in the Company’s overall risk profile. Accordingly, management, the Committee and the Consultant regularly review the Company’s enterprise risks and compensation plan design to consider whether the plans motivate the appropriate behaviors and mitigate unnecessary or excessive risk-taking.
On an annual basis,reviews a risk assessment prepared by management and the Consultant prepare a risk assessment that focuses on the structure, key features and risk mitigating factors included in the Company’s executive compensation programs. This risk assessment:
● | Describes the process for establishing the Company’s executive compensation programs; | ● | Reviews the risks and mitigating factors present in the Company’s executive compensation programs. This risk assessment:| ● | Describes the process for establishing the Company’s executive compensation programs; | | ● | Reviews potential risks and mitigating factors related to the Company’s executive compensation programs; | | ● | Analyzes the relationship between the executive compensation programs and the Company’s enterprise risks identified through the Company’s business risk mitigation process; and | | ● | When appropriate, provides recommendations for potential enhancements to further mitigate compensation risks. |
The risk assessment, which includes a summary of all executive compensation programs and participation, helps the Committee evaluate: (i) the nature of the risks inherent in the Company’s executive compensation programs; and (ii) whether the Company has designed and implemented appropriate risk management processes that foster a culture of risk-awareness. In 2018, this assessment led to a conclusion by management, with the help of the Consultant, that the executive compensation programs andof the Company’s enterprise risks identified through the Company’s business risk mitigation process; and | ● | When appropriate, provides recommendations for potential enhancementsCompany were appropriately designed to further mitigate compensation risks. |
The risk assessment, which includes a summary of all executive compensation programs and participation, helpsrisk. As a result, the Committee evaluate: (i) the nature of the risks inherent in the Company’s executive compensation programs; and (ii) whether the Company has designed and implemented appropriate risk management processes that foster a culture of risk-awareness. In 2017, this assessment led to a conclusion by management and the Consultant that the executive compensation programs of the Company were appropriately designed while mitigating compensation risk. Additionally, CSX believes that any risks arising from its executive compensation policies and practices are not likely to have a material adverse effect on the Company.
| | WWW.CSX.COM | In addition, the following features of the Company’s executive compensation programs serve to mitigate excessive risk-taking: | ● | Total compensation is appropriately balanced between (i) fixed and variable compensation and (ii) short and long-term incentive plans; | | ● | Significant weighting towards long-term incentive compensation discourages short-term risk-taking; | | ● | Multiple long-term incentive compensation vehicles with overlapping vesting periods are used, including performance units, nonqualified stock options and/or restricted stock units (“RSUs”); | | ● | Performance measures for short and long-term incentive awards align with the Company’s scheduled railroading operating plan and other business goals; | | ● | Clawback provisions in short and long-term incentive plans require repayment of awards in certain circumstances; | | ● | Financial performance measures have a strong, relevant correlation to long-term shareholder value creation; | | ● | Multiple financial performance measures in the short and long-term incentive plans provide a balanced approach; | | ● | Short and long-term incentive awards include maximum payout caps for NEOs on financial performance measures; | | ● | Internal controls over the measurement and calculation of performance measures protect data integrity; and | | ● | Share ownership guidelines reinforce alignment of executive and shareholder interests. |
45What are the elements of the Company’s 2018 executive compensation programs?
The various components of the Company’s compensation programs include base salary and short and long-term incentive compensation. The Company also provides retirement and other employee benefits, non-qualified deferred compensation plans and limited perquisites. The NEOs generally participate in the same benefit programs as all eligible employees. The Committee makes its decisions concerning the specific compensation elements and total compensation paid or awarded to the Company’s NEOs within the framework described herein. The objective is to provide total compensation opportunities that are competitive with those provided by companies in the Comparator Group, with actual payment of incentive compensation dependent upon the achievement of both the Company and individual performance. The Committee bases its decisions on whether each award provides an appropriate incentive for individual performance that is consistent with the Company’s executive compensation objectives. | Pay Element | | Form | | Performance | | Objective | Salary |  | | Cash | | Based on assessment of individual experience, scope of responsibilities, individual performance and long-term shareholder value creation | | Recruit and retain talented leaders | Short-Term Incentives |  | | Cash | | The performance measures for the cash awards are: ●Operating Income (50%) ●Operating Ratio (50%) | | Reward executives and eligible employees for driving performance within a one-year period | Long-Term Incentives |  | | | ●Performance Units (60%) ●Stock Options (40%) | | The performance measures for the performance units are: ●Operating Ratio (50%) ●Free Cash Flow (50%) ●Formulaic linear Relative TSR modifier (upward or downward) with 225% maximum | | Incent and reward behaviors that support strategic and business-aligned initiatives to drive shareholder value over a three-year period |
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How does the executive compensation program mitigate excessive risk-taking?
The Committee believes the following elements of the Company’s executive compensation programs serve to mitigate excessive risk-taking:
● | TotalWhat is the 2018 target compensation is appropriately balancedmix for the CEO and other NEOs?
The Company’s executive compensation philosophy requires that a substantial portion of total compensation be at-risk and consist of performance-based incentives that link to CSX’s financial and operating results. In addition, the Committee strives to strike an appropriate balance between (i)short and long-term compensation. The mix between fixed and variable compensation and (ii) short-term and long-term compensation is designed to align the NEOs’ financial incentives with shareholder interests. In 2018, approximately 89% of the CEO’s targeted Total Direct Compensation and an average of 82% of the other NEOs’ targeted Total Direct Compensation was performance-based and at-risk. The at-risk component of executive compensation means that if the Company did not meet or exceed the pre-established threshold performance levels, the executive would not receive a payout under the applicable short or long-term incentive plan. For 2018, the Company enhanced the mix of long-term incentive compensation for the executive team to be more strongly focused on performance, with long-term incentive compensation comprised of 60% Performance Units and 40% stock options. The chart below illustrates the amount of target Total Direct Compensation, including compensation that is at-risk, for the CEO and the other NEOs. Actual percentages of realized compensation may vary in a given year depending on the payouts under the incentive compensation programs and the Company’s stock price performance. | 2018 CEO TARGET COMPENSATION MIX | | 2018 NEO TARGET COMPENSATION MIX
(EXCLUDING CEO) |  | |  |
2018 BASE SALARY How is base salary determined? The Committee determines a base salary for each executive based on its assessment of the individual’s experience, scope of responsibilities, individual performance and long-term shareholder value creation. The Committee also considers salary data for similar positions within the Comparator Group. Base salary may represent a larger or smaller percentage of total compensation if actual Company and individual performance under the short and long-term incentive plans discussed below fall short of or exceed pre-established performance targets. 2018 SHORT-TERM INCENTIVE COMPENSATION The Company’s 2018 Management Incentive Compensation Plan (the “2018 MICP”) was designed to reward executives and eligible employees for driving Company performance over a one-year period. As discussed earlier in the CD&A, the Committee annually reviews the goals and measures used to drive business results and create value for shareholders. Each NEO has an incentive opportunity expressed as a percentage of base salary earned during the year (“Target Incentive Opportunity”). In 2018, the Target Incentive Opportunity level for Mr. Foote was 125% of his base salary and the Target Incentive Opportunity level for Messrs. Lonegro, Harris, Wallace and Goldman was 90% of base salary.
Table of Contents Compensation Discussion and Analysis What were the performance measures for the 2018 MICP? To determine the payout, the Committee assesses the Company’s performance against the performance goals for the year. In 2018, the financial goals for the 2018 MICP continued to focus on operating efficiency. The specific performance goals were operating income and operating ratio. Operating income is used to gauge the general health and profitability of the core business, while operating ratio indicates the efficiency of the Company’s operations. The operating income and operating ratio performance goals can each result in a payment between 0% and 100% of the NEO’s Target Incentive Opportunity, and each is weighted 50% of the potential total payout. Therefore, the actual payout can range between 0% and 200% of the NEO’s Target Incentive Opportunity. However, a threshold performance level must be achieved on either measure to receive a payout. As shown in theSummary Compensation Table, the actual 2018 payouts were paid in cash and reflect the Company’s financial performance and shareholder value creation;individual NEO performance. Operating Ratio
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| = | | Operating Revenue less | |  | | Operating Expenses | |
2018 MICP Targets and Potential Payout Percentages | Operating Income (100% maximum payout) | | Threshold (10% payout) | Target (50% payout) | Maximum (100% payout) | | $3.850 billion | $4.035 billion | $4.190 billion | | | | Operating Ratio (100% maximum payout)1 | | Threshold (10% payout) | Target (50% payout) | Maximum (100% payout) | | 66.3% | 64.8% | 63.5% |
| 1 | The 2018 MICP included a formulaic adjustment to the operating ratio performance goal by a pre-determined amount if the average cost of highway diesel fuel was outside the range of $2.65 to $3.15 per gallon. This adjustment is designed to account for the potential impact that volatile fuel prices have on expenses and operating ratio. Based on an average price per gallon of highway diesel fuel of $3.19 during 2018, the adjusted threshold, target and maximum targets were 66.4%, 64.9%, and 63.6%, respectively. | ● | |
Significant weighting towards long-termWhat was the payout under the 2018 MICP?
The operating income target for 2018 was set at $4.035 billion and the operating ratio target was set at 64.9% (adjusted for actual average price of highway diesel fuel) based on the Company’s business plan. For 2018, the Company achieved above-target operating income of $4.869 billion and an above-target operating ratio of 60.3%. Operating income and operating ratio performance resulted in a 200% payout of target incentive compensation discourages short-term risk-taking;opportunities, as both measures exceeded their maximum targets of $4.190 billion and 63.6%, respectively. | 1 | At the time the 2018 MICP was approved by the Committee, a provision was made for the adjustment of the operating ratio performance goals by a pre-determined amount if the cost of highway diesel fuel was outside the range of $2.65 - $3.15 per gallon. | ● | |
Multiple long-term incentive compensation vehicles with overlapping vesting periods are used, including performance units, nonqualified stock options and/or RSUs;
| ● | Rolling multi-year performance periods forSimilar to how management assesses the performance units portionof all eligible employees, the Committee annually assesses the individual performance of each NEO and determines payout amounts, which were capped at the maximum Company payout of 200% for 2018. The Committee approved a 200% annual incentive payout for all of the long-term incentive compensation program discourages short-term risk-taking;
| ● | Performance measures for short-termNEOs and long-term incentive awards apply to all eligible executives and employees alike, regardless of business unit;
| ● | Performance measures for short-term and long-term incentive awards align with the Company’s operating plan and business goals;
| ● | Clawback provisions in short-term and long-term incentive plans require repayment of awards in certain circumstances;
| ● | Financial performance measures have a strong, relevant correlation to long-term shareholder value creation;
| ● | Multiple financial performance measuressuch payouts were reflected in the short-term and long-term incentive plans provide a balanced approach associated with reduced risk;
| ● | Short-term and long-term incentive awards include maximum payout caps on financial performance measures;
| ● | The Committee may apply downward discretion to reduce short-term and long-term incentive compensation payouts for executive-level employees, including NEOs;
| ● | Internal controls over the measurement and calculation“Non-Equity Incentive Plan Compensation” column of performance measures protect against manipulation by employees; andtheSummary Compensation Table.
| ● | Share ownership guidelines reinforce alignment of executive and shareholder interests.
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The Company’s compensation program is designed to reward consistent performance by heavily weighting the NEOs’ compensation to long-term incentives that reward sustainable financial and operating performance. Moreover, the Committee believes that the Company’s approach to goal setting, establishment of targets with payouts at differing levels of performance, and evaluation of performance results serve to mitigate excessive risk-taking that could negatively impact shareholder value or reward poor performance by executives.
How does CSX evaluate its pay practices?
The Committee annually evaluates competitive compensation data, including information from peer railroads and general industry companies. Data sources include third-party surveys and available proxy disclosures of primarily U.S.-based companies and other major North American railroads. The Company reviews target compensation data for the NEOs, including base salary and short-term and long-term incentives with that of similar positions at peer railroads and general industry companies. For purposes of evaluating targeted compensation amounts for the NEOs, the Committee reviews base salary, short-term and long-term incentive targets and total compensation market data at the 25th, 50th and 75th percentiles of the comparator group. When making compensation decisions, the Committee considers this market data, the scope of the individual’s responsibilities, his or her individual performance in driving business results under the PSR operating model, as well as other factors previously discussed in this CD&A.
As has been done in the past, the Company used a customized comparison peer group for 2017 comprised of 15 primarily U.S.-based companies and North American railroads (the “Comparator Group”) to help guide compensation levels and mix at CSX. The Committee annually assesses and approves the Comparator Group to ensure that it reflects market characteristics comparable to those of the Company, including revenue, assets, net income, market capitalization, number of employees, industry type and business complexity. The Company believes the use of the Comparator Group allows for a refined analysis of various compensation components.
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(1) | RevenueHow has the 2018 MICP contributed to improved Company performance?
The Committee believes that the short-term measures are directly aligned with the Company’s financial goals, are well-understood by employees, support our long-term strategy, and help deliver shareholder value and retain critical talent. Improvements in operating performance have been driven by the adoption of the scheduled railroading operating model. The Committee believes that sustained improvements in operating efficiencies will continue to play a critical role in the continued creation of shareholder value. Does the 2018 MICP have a clawback provision? Payouts made under the 2018 MICP may be subject to recovery or clawback, and an employee who has received a payout will be required to promptly return the monies (or any portion of the monies requested by the Company) in each of the following circumstances: (i) if it is determined that the employee engaged in misconduct, including but not limited to, dishonesty, fraud (including reporting inaccurate financial information), theft, or other serious misconduct as determined by the Company, or (ii) if the payout is otherwise required to be recovered by law or court order (i.e. garnishment). The 2018 MICP contains provisions requiring NEOs to repay the Company portions of fiscal year-end 2017.any payment received if: (i) within the two-year period following the receipt of the payment, the Company is required to restate its financial statements due to accounting irregularities; and (ii) the payment amount received exceeded the otherwise proper payment based on the restated financials. | (2)LONG-TERM INCENTIVE COMPENSATION
| Market CapitalizationLong-term incentive compensation is intended to promote behaviors that support business initiatives to drive shareholder value over a multi-year period. This is accomplished by providing equity-based incentives focused on financial performance measures that: (i) have a historically high correlation to shareholder returns; (ii) are within management’s direct control; and (iii) encourage long-term commitment to delivering shareholder value. Long-term incentives have been granted under the shareholder-approved 2010 CSX Stock and Incentive Award Plan (the “2010 Stock Plan”). Subject to approval by shareholders at the Annual Meeting, the Company adopted the 2019 Stock and Incentive Award Plan (the “2019 Stock Plan” and together with the 2010 Stock Plan, the “Stock Plans”), under which future awards would be granted.
The 2010 Stock Plans allow for different types of equity-based awards and provide flexibility in compensation design to attract, retain and engage high-performing NEOs and eligible participants. The Committee determines the mix of equity vehicles annually to motivate the appropriate behaviors and align Company and NEO performance to shareholder interests and value creation. The mix has historically included performance units, stock options and/or RSUs to align the NEOs’ interests with those of shareholders, and achieve key performance goals and absolute stock price appreciation. What forms of long-term incentive compensation are granted to NEOs? A significant portion of the NEOs’ compensation is provided under the annual long-term incentive plan (“LTIP”). Each year, a market competitive long-term incentive target grant value is identified for each eligible position level and converted into the appropriate number of performance units, stock options and/or RSUs based on the average closing value of CSX common stock for the full three-month period prior to the grant or the Black-Scholes value for that same period, as applicable. The grants associated with each three-year cycle are reviewed and approved by the Committee each year for all eligible participants, including the NEOs. These grants are made and the performance targets set following the annual Board review of the Company’s business plan for the applicable upcoming three-year period. Each three-year LTIP cycle is comprised of equity-based awards that are designed to emphasize performance while aligning NEO interests with those of shareholders by: (i) linking the payout’s value to share price; (ii) focusing on long-term shareholder value creation; (iii) incenting the appropriate behaviors; and (iv) mitigating excessive risk. The three-year performance cycles run concurrently, so the Company may have up to three active cycles during a given year. The 2016-2018 performance cycle closed on December 31, 2017.2018, and was paid out in January 2019. The 2017-2019, 2018-2020 and 2019-2021 cycles remain in progress. For the 2016-2018 and 2017-2019 LTIPs, the NEOs received performance units, stock options and RSUs. For the 2018-2020 and 2019-2021 LTIPs, the NEOs received performance units and stock options. The removal of RSUs from the LTIP equity mix for NEOs was designed to increase the portion of the LTIP grant subject to performance conditions in further support of our pay-for-performance culture. |
What are the elements of the Company’s compensation program?
The various components of the Company’s compensation program include base salary and short-term and long-term incentive compensation. The Company also provides retirement and other employee benefits, non-qualified deferred compensation plans and limited perquisites.
The Committee makes its decisions concerning the specific compensation elements and total compensation paid or awarded to the Company’s NEOs within the framework described herein and after consultation with the Consultant. The objective is to provide total compensation opportunities that are competitive with those provided by companiesin the Comparator Group, with actual payment of incentive compensation dependent upon Company and individual performance. The Committee bases its specific decisions on whether each award or payment provides an appropriate incentive and reward for individual performance that is consistent with the Company’s compensation objectives.
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Table of Contents Compensation Discussion and Analysis | |
Base Salary
How is base salary determined?
The Committee determines a base salary for each executive based on its assessment of the individual’s experience, scope of responsibilities, individual performance and long-term shareholder value creation. For purposes of recruiting and retention, the Committee also considers, where appropriate salary data for similar positions within the Comparator Group. Base salary may represent a larger or smaller percentage of total compensation if actual Company and individual performance under the incentive plans discussed below falls short of or exceeds performance targets.
Short-Term Incentive Compensation
How is short-term incentive compensation determined?
Short-term incentive compensation is designed to reward executives and management employees for driving performance within a 12-month period. As discussed earlier in the CD&A, the Committee annually reviews the goals and measures used to drive positive business results and align to shareholder value creation with a balance to mitigate inappropriate risk-taking. The Committee then compares the Company’s performance to the preapproved performance goals for the year. In 2017, the Company moved away from a combination of strategic and financial goals, to focus on financial goals with an emphasis on operating efficiency. These performance goals were: (i) operating income—which can result in a payment between 0% and 120% of the NEO’s Target Incentive Opportunity (and weighted 60% of the potential total payout), and (ii) OR which can result in a payment between 0% and 80% of the NEO’s Target Incentive Opportunity (and weighted 40% of the potential target payout). Therefore, the actual payout can range between 0% and 200% of the NEO’s Target Incentive Opportunity. However, a threshold performance level must be achieved on the operating income measure to provide any payout.
NEOs have historically participated in the Senior Executive Incentive Plan (“SEIP”), which is the Company’s vehicle for providing annual incentive opportunities for these executives. Under this plan, the maximum amount payable is equal to the lesser of 0.3% of operating income for the CEO and 0.2% of operating income for each other NEO or $3 million. The Committee may adjust this amount downward in its sole discretion.
As has been done historically and in 2017, the Committee exercised its downward discretion with respect to the NEOs who are covered under Section 162(m) by using the same methodology and performance achievement used under the Company’s Management Incentive Compensation Plan (“MICP”). The MICP is the Company’s annual incentive plan for eligible management employees. The MICP is 100% performance-based and requires attainment of financial goals and is also impacted by individual performance. Applying the methodology used under the MICP, each NEO has an incentive opportunity expressed as a percentage of base salary earned during the year (“Target Incentive Opportunity”). Payments made pursuant to the MICP are made in cash.
In 2017, the Target Incentive Opportunity level for Mr. Harrison was 125%; however, as negotiated in his employment agreement, his guaranteed minimum payout for 2017 was $2.8 million. Mr. Foote was not eligible to participate in the 2017 short-term incentive plan, as he was hired after the date the plan allows for 2017 participation. The Target Incentive Opportunity level for Mr. Ward was 120%. For Messrs. Lonegro, Wallace and Eliasson and Ms. Fitzsimmons, the Target Incentive Opportunity level was 90%. The Target Incentive Opportunity for Ms. Brandt and Mr. Shudtz was 80%. The actual 2017 payouts are adjusted to reflect Company financial and individual performance and are shown and discussed in theSummary Compensation Table.
| 48 | | Performance Units. Performance units are granted at the beginning of the applicable performance period in accordance with the LTIP, as described below. Awards are paid in the form of CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contentscommon stock at the end of the performance period assuming the attainment of Company performance goals. Performance units are subject to forfeiture if a participant’s employment terminates before the end of the performance cycle for any reason other than death, disability, retirement or other limited circumstances, as approved by the Committee. In such instances, participants, other than Messrs. Foote and Harris, receive a pro-rata portion of their award based on the number of months completed in the LTIP cycle. The employment agreements for Messrs. Foote and Harris provide that, in connection with the retirement, their full awards will continue to vest through the end of any outstanding LTIP cycles.
| Compensation DiscussionPerformance unit payouts for each LTIP cycle, if any, do not occur until approved by the Committee in January of the year following the last year of the three-year performance cycle. These payouts can vary from the target grants in terms of both the number of shares paid out due to financial performance and Analysis |
What was the payout under the 2017 MICP?
The operating income target for 2017 was set at $3.3 billion and the OR target was set at 66.2% based on the Company’s business plan. The Company achieved a 2017 adjusted operating income of $3.85 billion and an adjusted OR of 66.3%. Operating income performance resulted in a 120% payout and OR performance resulted in a 39% payout, which resulted in a total overall payout of 159% of target incentive opportunities. In accordance with the Company’sperformance management program, MICP award payouts for each employee were adjusted upward or downward from the 159% based on individual performance with the majority of employees receiving a payout that was equivalent to the Company’s performance for operating income and OR.the market value of CSX common stock at the time of payout compared to the price on the original grant date. Based on actual performance, as discussed below, the performance unit payouts for the NEOs at the end of the performance cycle can range from 0% to 200% of the target grants (the 2019-2021 can range 0% to 225%), and can be of lessor or greater value than the original grant value based on the price of CSX common stock.
| 2017 MICP ACHIEVEMENT (POTENTIAL PAYOUT) PERCENTAGESStock Options.
|
| OPERATING INCOME (120% MAXIMUM PAYOUT) | | Threshold (10% payout) | | Target (60% payout) | | Maximum (120% payout) | | $2.8 billion | | $3.3 billion | | $3.6 billion | | | | OPERATING RATIO (80% MAXIMUM PAYOUT) | | Threshold (10% payout) | | Target (40% payout) | | Maximum (80% payout) | | 68.9% | | 66.2% | | 65.0% |
How does the 2017 payout compare to prior year payouts?
The table below illustrates the Company’s historical payout under the MICP since 2013.
| YEAR | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Overall Payout (as a percentage of Target Incentive Opportunity) | | 130% | | 116% | | 60% | | 143% | | 159% |
What was the 2017 payout for the NEOs?
Similar to how management assesses the performance of all eligible employees, the Committee annually assesses the individual performance of each NEO and determines payout amounts, which are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. As in prior years, the payouts for the NEOs were determined using the methodology applied to the MICP and, therefore, were substantially less than the maximum available to eligible participants under the SEIP. Consistent with MICP practices, awards for the NEOs may vary based on individual performance. Mr. Foote did not receive apayout for 2017 as he was hired after the eligible participation date under the plan. Mr. Foote will be an eligible participant in 2018. Mr. Harrison’s estate received a prorated payout for 2017, according to the terms of his employment agreement and as disclosed in theSummary Compensation Table. Based on his performance during 2017, Mr. Wallace received a payout of 200%. Ms. Fitzsimmons and Mr. Eliasson received a 200% payout based on the negotiated terms of their separation agreements. Mr. Ward also received a prorated payout as a result of his retirement. All other NEOs received a payout of 159%. Nonqualified stock options require stock price appreciation to deliver any value. As a result, they reinforce leadership’s focus on the importance of value creation for shareholders. Stock options provide participants with the right, but not the obligation, to buy CSX stock at an agreed-upon price within 10 years of the date of grant. The exercise price of the stock options is established as the closing stock price on the date of grant. The Stock Plans prohibit the repricing of outstanding stock options without the approval of shareholders. Stock options are subject to forfeiture if a participant’s employment terminates before the end of the vesting period for any reason other than death, disability, retirement or other limited circumstances, as approved by the Committee. In such instances, participants receive a pro-rata portion of the award based on the number of months completed in the cycle. The employment agreements for Messrs. Foote and Harris provide that, in connection with their retirement, their full awards will continue to vest in accordance with their terms.
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What were the performance measures for the 2016-2018 LTIP? Compensation DiscussionThe 2016-2018 LTIP used operating ratio and Analysis | |
Has the short-term incentive plan been effective in driving Company performance?
The Committee believes that the short-term incentive opportunities provided to the NEOs help drive the Company’s annual performance. Improvements in operating performance have been driven by the adoption of the PSR operating model, management restructuring and favorable economic environment. The Committee believes that sustained improvements in operating income and OR will continue to play a critical role in the creation of shareholder value and will annually assess the measures associated with the short-term incentive plan to continue to incent the NEOs to drive the Company’s performance and to create shareholder value.
Long-Term Incentive Compensation
Long-term incentive compensation is intended to incent behaviors that support strategic and business-aligned initiatives to drive shareholder value over a multi-year period. This is accomplished by providing equity-based incentives focused on financial performance measures that: (i) have a historically high correlation to shareholder returns; (ii) are within management’s direct control and impact; and (iii) encourage long-term commitment and perspective to driving shareholder value. Long-term incentives are granted under the shareholder-approved 2010 CSX Stock and Incentive Award Plan (the “Stock Plan”).
Each year, a market competitive long-term incentive target grant value is identifiedreturn on assets (“ROA”) on an equally weighted basis to measure the Company’s performance. These measures were selected prior to the implementation of the scheduled railroading operating model.
Operating ratio has a historically high correlation to the Company’s stock price and serves as a key financial performance measure for each eligible position level and converted into the appropriate number of performance shares, stock options or RSUs based on the average closing value of CSX common stock for the full three-month period prior to the grant or the Black-Scholes value for that same period, respectively. The grants associated with each three-year cycle are subsequently reviewed and approved by the Committee each year for all eligible participants, including the NEOs. What forms of long-term incentive compensation are granted to NEOs?
The Stock Plan allows for different equity-based awards and provides flexibility in compensation design to attract, retain and engage high-performing NEOs and eligible participants, including performance units, nonqualified stock options, stock appreciation rights, restricted stock units (“RSUs”) and restricted stock. The Committee determines the mix of equity vehicles annually to drive and incent the appropriate behaviors and align Company and the individual’s performance to shareholder interests and value creation. The mix has historically included performance units, stock options and RSUs to align NEOs with long-term shareholder value creation, achievement of key performance goals and absolute stock price appreciation.
Performance units are granted at the beginning of the performance period in accordance with the Company’s LTIP, as described below. Awards are paid in the form of CSX common stock at the end of the performance period based on attainment of pre-established Company performance goals. Dividend equivalents are not paid on performance units for the outstanding LTIP cycles. Performance units are subject to forfeiture if employment terminates before the end of the performance cycle for any reason other than death, disability, retirement or other limited circumstances, as approved by the Committee. In such instances, participants receive a pro-rata portion of the award based on the number of months completed in the LTIP cycle.
New LTIP cycles are reviewed and approved each year when the Committee grants awards to participants. These grants are made and the performance targets set following the annual Board review of the Company’s business plan for the applicable upcoming three-year period. Each LTIP cycle is designed to emphasize performance while aligning executives’ interests with those of shareholders by linking the payout’s value to share price, while focusing on long-term shareholder value creation, incenting the appropriate behaviors and mitigating excessive risk. The three-year performance cycles run concurrently, so the Company may have up to three active cycles during a given year. The 2015-2017 cycle closed on December 31, 2017. The 2016-2018, 2017-2019 and 2018-2020 cycles remain in progress.
Actual performance unit payouts for each LTIP cycle, if any, do not occur until approved by the Committee in January of the year following the last year in the three-year cycle. These payouts can vary from the target grants in terms of both the number of shares paid out due to financial performance and the market value of CSX common stock at the time of payout compared to the price on the original grant date. Based on actual performance, as discussed below, the performance unit payouts for the NEOs at the end of the performance cycle can range from 0% to 200% of the target grants.
Nonqualified stock options require stock price growth to deliver any value. As a result, they reinforce leadership’s focus on the importance of returns to shareholders. Stock options provide participants with the right, but not the obligation, to buy CSX stock at an agreed-upon price within 10 years from the date of grant. The exercise price of the stock options is established as the closing stock price on the date of grant. The Stock Plan prohibits the repricing of outstanding stock options without the approval of shareholders. Stock options
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| Compensation Discussion and Analysis |
are subject to forfeiture if employment terminates before the end of the vesting period for any reason other than death, disability, retirement or other limited circumstances, as approved by the Committee. In such instances, participants receive a pro-rata portion of the award based on the number of months completed in the cycle.
RSUs represent an agreement to issue shares of CSX common stock if a participant remains employed by the Company for a defined period of time referred to as the restriction period. RSUs granted in 2017 vest three years after the date of grant. Participants receive cashdividend equivalents on the unvested shares during the restriction period. Unlike performance units, RSUs are not subject to any performance requirements and are time-based. RSUs are subject to forfeiture if employment terminates before the end of the restriction period for any reason other than death, disability, retirement or other limited circumstances. In such instances, the participant receives a pro-rata award based on the number of months completed in the restriction period.
What were the performance measures for the 2015-2017 LTIP cycle?
OR and ROA were the performance measures for the 2015-2017 LTIP cycle. The Committee chose OR due to its historically high correlation to CSX’s stock price, alignment with shareholder value, the need for the Company to continue to focus on operating efficiently and the ability of all participants to understand the impact of their actions in relation to Company performance. For purposes of the 2015-2017 LTIP cycle, OR is defined as operating expense divided by operating revenue adjusted by excluding non-recurring items that are disclosed in the Company’s financial statements.
The Committee chose ROA because it indicates the level of return the Company is generating on its assets and how efficiently Company assets are being used. ROA is tax-adjusted operating income, excluding non-recurring items as disclosed in the Company’s financial statements, divided by net property. The tax-adjusted operating income uses a flat 38% tax rate to eliminate volatility of one-time tax issues. Net property is calculated by subtracting accumulated depreciation from gross property.
ORthe railroad industry. As such, the use of operating ratio has strengthened participants’ understanding of how they can impact Company performance and drive operating efficiency. Long-term improvements in operating ratio have increased operating income and earnings, and created value for shareholders. ROA was chosen as a performance measure to drive efficient asset utilization. Operating ratio and ROA were each weighted 50% of the total payout opportunity and were measured independently of the other.
Operating Ratio (OR) = | | Operating Expenses | | 50%Operating Ratio (OR)
| =
| | Operating Expenses | |
| | Operating Revenues | |
| | | | | | Return on Assets (ROA)
| = | | Tax-Adjusted Operating Income | | | | Net Property | | | | | | | Return |
The threshold, target and maximum payouts for each measure are 10%, 50% and 100%, respectively, generating a total target payout of 100% and a maximum possible payout of 200% for the 2016-2018 LTIP. The 2016-2018 LTIP measured cumulative operating ratio and average ROA over a 12-quarter period from January 2016 through December 2018. The ROA goals required a minimum capital spend of $6 billion during the cycle. In addition to operating ratio and ROA, the Committee maintained downward discretion on Assets (ROA) = | | Tax-Adjusted Operating Income | | 50% | | Net Property | |
The threshold, target and maximum payouts for each measure are 10%, 50% and 100%, respectively, generating a total target payout of 100% and a maximum possible payout of 200% for the 2015-2017 LTIP cycle. The 2015-2017 LTIP cycle measured cumulative OR and average ROA over a 12-quarter period from January 2015 to December 2017.the payouts for NEOs who received this grant (Messrs. Lonegro and Goldman) based on relative total shareholder return (“Relative TSR”). If the Company’s 2016-2018 Relative TSR was in the bottom quartile of any of three different performance comparison groups for the 12-quarter period, the Committee had discretion to reduce the payout by up to 30%.
The Committee recognizes that operating ratio is a measure in the short and long-term plans, but believes inclusion in both plans (beginning in 2017 with the implementation of scheduled railroading for the short-term plan) reflects the criticality of the alignment between operating ratio and the focus on operating efficiencies as a key principle of scheduled railroading. The Committee does not believe this overlap will create inappropriate risk-taking since the measurement periods are different (one vs. three years), and operational measures and reviews are in place to monitor risk. The Committee annually reviews the measures used for each short and long-term incentive cycle, and makes changes as appropriate. In addition to OR and ROA, the Committee maintained downward discretion on the payouts for the CEO and executive vice presidents who originally received this grant based on relative total shareholder return (“Relative TSR”). If CSX’s 2015-2017 Relative TSR is in the bottom quartile of any of the comparison groups for the 12-quarter period, the Committee had discretion to reduce the payout by up to 30%.
What were the financial goals for the 2015-2017 LTIP cycle?
The LTIP targets for the 2015-2017 LTIP cycle were set to provide an incentive to continue growing long-term shareholder value. Under the 2015-2017 LTIP cycle they were as follows:
| CUMULATIVE OPERATING RATIO (100% MAXIMUM PAYOUT) | | Threshold (10% payout) | | Target (50% payout) | | Maximum (100% payout) | | 73.0% | | 70.0% to 69% | | 66.0% | | | | RETURN ON ASSETS (100% MAXIMUM PAYOUT) | | Threshold (10% payout) | | Target (50% payout) | | Maximum (100% payout) | | 7.11% | | 8.12% to 8.47% | | 9.57% |
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Table of Contents Compensation Discussion and Analysis | What were the financial goals for the 2016-2018 LTIP? The LTIP targets for the 2016-2018 LTIP were set to provide an incentive to continue growing long-term shareholder value. The goals were set in February 2016 based on the three-year business plan at the time of the adoption and preceded the leadership change and implementation of scheduled railroading. At the time of approval of the 2016-2018 LTIP, the Company was forecasting an operating ratio for 2016, of 72.7%, which was higher than the prior year operating ratio of 69.7%. This projection was based on a forecasted 4% decrease in freight volume in 2016, driven largely by anticipated declines in coal and crude oil volumes. The cumulative operating ratio for the 2016-2018 LTIP was projected to be between 71.0% and 72.0%. Based on these assumptions, the targets under the 2016-2018 LTIP were as follows: | Cumulative Operating Ratio (100% maximum payout) | | Threshold (10% payout) | Target (50% payout) | Maximum (100% payout) | | 75.5% | 72.0% - 71.0% | 69.5% | | | | Return on Assets (100% maximum payout) | | Threshold (10% payout) | Target (50% payout) | Maximum (100% payout) | | 5.0% | 6.2% - 6.7% | 8.0% |
At the time the 2016-2018 LTIP was approved by the Committee, a provision was made for the adjustment of the operating ratio performance goals by a pre-determined amount if the average cost of highway diesel fuel was outside the range of $2.62 - $3.12 per gallon. A similar adjustment is included in the plan design for each LTIP due to the significant impact volatile fuel prices have on expenses and operating ratio. Based on an average price per gallon of highway diesel fuel of $2.72 during the 2016-2018 LTIP, no operating ratio goal adjustments were made. Beginning in 2017, the Company’s operating model was substantially changed with the implementation of scheduled railroading, which shifted focus to improved efficiencies and cost reduction. These changes had an overwhelmingly positive impact on operating performance, earnings, and shareholder value creation. | HISTORICAL OPERATING RATIO AND OPERATING INCOME |
OR performance levels were subject to adjustment based on the price per gallon of highway diesel fuel, as discussed below.
How are the performance levels adjusted for the price of fuel?
At the time the 2015-2017
 |
What was the actual payout for the 2016-2018 LTIP? Based on a cumulative operating ratio of 65.0% and an average ROA of 8.03% for the cycle, the 2016-2018 LTIP was paid out at 200% in January 2019. The Company’s Relative TSR performance against the S&P 500, S&P 500 Transportation Industry and peer railroads was in the top quartile of all three comparison groups for the cycle, so the Committee determined that there was no basis for a downward adjustment and did not exercise its downward discretion in this regard. Messrs. Foote, Harris and Wallace did not receive a payout under the 2016-2018 LTIP cycle was approved by the Committee, a provision was made for the adjustment of the OR performance goals by a pre-determined amount if the cost of highway diesel fuel was outside the range of $3.15 - $3.65 per gallon. This adjustment is included in the plan design for each LTIP cycle due to the significant impact volatile fuel prices have on expenses and OR. Based on the price per gallon of highway diesel fuel during the 2015-2017 cycle, the adjusted threshold, target and maximum payout targets for cumulative OR were reduced by 1% to 72.0%, 69.0% - 68.0% and 65.0%, respectively making these targets more challenging to achieve. What was the actual payout for the 2015-2017 LTIP cycle?
Based on the cumulative OR of 68.4% and an average ROA of 7.36% for the cycle, the payout for the 2015-2017 LTIP cycle was 64%. The Committee determined that the Company’s Relative TSR performance against the S&P 500, S&P 500 Transportation Industry and peer railroads was not in the bottom quartile of any of the comparison groups for the cycle. Accordingly, no downward discretion was applied. Messrs. Harrison, Foote and Wallace did not receive a payout under this cycle since they were not employed with CSX in 2015, when the cycle and awards were approved and granted by the Committee.
What types of long-term incentive compensation were granted to the NEOs in 2017?
In 2017, the LTIP mix included performance units, nonqualified stock options and RSUs. The LTIP mix was achieved by determining a market competitive LTIP grant value and allocating 50% of the value to performance units, 25% to stock options and 25% to time-based RSUs. This mix provides a strong link to shareholder value creation. In determining the number of performance units and RSUs to be granted, the target award value is divided by the average of CSX’s stock price during the three full months prior to the grant approval date, rather than the stock price on the date of grant. In determining the number of stock options to be granted the target value is divided by the Black-Scholes value of the average of CSX’s stock price during the three full months prior to the grant approval date. Using the three-month average reduces the impact of daily fluctuations in stock price. Mr. Harrison was not a participant of the 2017-2019 LTIP cycle, and thus did not receive any award under the cycle.
Because Mr. Foote did not start with CSX when the 2017-2019 LTIP cycle was approved and granted by the Committee, he received a separate sign-on equity award that will vest three years from his date of hire should the same performance measures of the 2017-2019 LTIP cycle be met on the performance units. This award consisted of performance units, tied to the same financial measures as other NEOs and participants, and nonqualified stock options. No RSUs were granted to Mr. Foote. In addition, the alignment of the award to the 2017 cycle, being performance-based, ensures a strong correlation to long-term shareholder value creation. The Committee also approved a special provision to allow this sign-on award and subsequent awards under the LTIP to fully vest upon Mr. Foote’s retirement from the Company. The Committee believes by granting full vesting and not pro-rata vesting, this provides him additional incentive to ensure the Company is creating long-term shareholder value and that senior leadership continues to develop talent to implement the PSR operating model. The award is disclosed in the applicable tables below.
As part of the negotiations to become CEO, Mr. Harrison was granted 9 million stock options, which represented his long-term incentive compensation for the four-year term of his employment agreement. The options were to vest ratably over 4 years with half of the stock options subject to performance vesting (“Performance Options”) and half subject to service vesting. For the Performance Options, half were subject to adjusted OR performance metrics and the other half subject to adjusted EBITDA performance metrics. Upon Mr. Harrison’s death in December 2017 all 9 million options were forfeited pursuant to the terms of his agreement.
| 52 | | CSX CORPORATIONin 2016, when the cycle and awards were approved and granted by the Committee.What are the performance measures for the outstanding LTIPs? Similar to the 2016-2018 LTIP, the 2017-2019 LTIP uses operating ratio and ROA on an equally weighted basis to measure the Company’s performance. Beginning with the 2018-2020 LTIP, ROA was replaced with free cash flow, which is a key driver of total shareholder return and can be impacted by all employees. The 2018-2020 and 2019-2021 LTIPs use operating ratio and free cash flow on an equally weighted basis to measure the Company’s performance. In determining the performance measures for each cycle, the Committee: (i) considers information on various return-based measures; and (ii) actively monitors the appropriateness of shifting measures to further the Company’s business strategies and drive shareholder returns. The 2018-2020 and 2019-2021 LTIPs are comprised of performance units and nonqualified stock options. The LTIP mix was achieved by determining a market competitive LTIP grant value and allocating 60% of the value to performance units, and 40% to stock options to continue to drive shareholder value in a pay-for-performance culture. The performance units for these two LTIP cycles have a formulaic linear upward or downward Relative TSR modifier of up to 25%, which applies only to the NEOs; however, the payouts are limited to a maximum of 200% and 225% for the 2018-2020 and 2019-2021 LTIPs, respectively. This modifier is designed to appropriately align NEO payouts with share price performance relative to a transportation-related peer group.
Table of Contents Compensation Discussion and Analysis Does the LTIP have a clawback provision? The clawback provision in each LTIP requires that the NEOs repay to the Company amounts in excess of an otherwise proper award in the event that the Company is required to restate its financial statements due to accounting irregularities discovered within three years after an LTIP payout. EMPLOYMENT AGREEMENTS Does the Company have separate employment agreements for the NEOs? In connection with the leadership changes in 2017 and 2018, PROXY STATEMENT | the Company provided individual employment letter agreements to Messrs. Foote, Harris and Wallace. Mr. Foote had an employment agreement upon his hiring as Executive Vice President and Chief Operating Officer in October 2017, which was canceled pursuant to a letter agreement entered into upon his promotion to President and CEO in December 2017, except for certain provisions relating to: (i) severance benefits; (ii) vesting of long-term incentive awards after retirement; and (iii) employment benefits following a change of control. Messrs. Harris and Wallace received employment letter agreements upon their recruitment and relocation to the Company’s headquarters. These agreements remain in place. No other NEOs have individual employment agreements. All individual employment agreements have been filed and can be reviewed on the U.S. Securities and Exchange Commission website at www.sec.gov. Non-Compete and Non-Solicitation Agreements: Vice presidents and above, including the President and CEO and executive vice presidents, as well as certain other key employees, are required to enter into formal non-compete and non-solicitation agreements with the Company as a condition for participation in each LTIP cycle. The non-compete agreements preclude an executive from working for a competitor of the Company. The non-compete conditions extend for a period of 18 months following separation from employment. SEVERANCE AND CHANGE-OF-CONTROL AGREEMENTS Are NEOs eligible for severance benefits? Yes. As of December 31, 2018, each NEO was eligible for certain severance benefits under the Company’s “Section 16 Officer Severance Plan,” which expired on February 22, 2019, or his employment agreement, as applicable. Mr. Foote is eligible for the following severance benefits under his employment letter agreement with the Company dated December 22, 2017: | ● | Pro-rata vesting of his unvested equity awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals; | | ● | Pro-rata vesting of his MICP awards; and | | ● | Lump sum cash payment equal to two times his then base salary and two times the executive’s then target annual bonus. |
As of December 31, 2018, Messrs. Lonegro and Goldman each were eligible for the following severance benefits under the Section 16 Officer Severance Plan: | ● | Lump sum cash payment equal to two times his then base salary and one times his target MICP; | | ● | Pro-rata vesting of his unvested equity and MICP awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals; | | ● | Outplacement services for up to one year; | | ● | A pension enhancement crediting with three additional years of age and two additional years of service; and | | ● | Medical and Dental coverage for the duration of the severance payments (up to two years) if periodic separation payments are selected. |
The Section 16 Officer Severance Plan provided eligible executives with severance payments and benefits in the event that an individual’s employment with the Company or one of its subsidiaries was terminated involuntarily by the Company other than “for cause” or terminated voluntarily by the eligible employee for “good reason” (each as defined in the Section 16 Officer Severance Plan). Following expiration of the Section 16 Officer Severance Plan on February 22, 2019, Messrs. Lonegro and Goldman were eligible for benefits under the Company’s general severance policy available to all management employees. Under the general severance policy, the NEOs are eligible to receive: (i) up to one year’s salary for 20 or more years of service; (ii) continuation of medical and dental coverage for up to one year if periodic separation payments are selected; (iii) financial planning for up to 1 year; and (iv) proration of certain outstanding incentive awards. 44 CSX Corporation 2019 Proxy Statement |
Table of Contents | Compensation Discussion and Analysis Messrs. Harris and Wallace negotiated separate employment letter agreements upon their recruitment and relocation to the Company’s headquarters, and as a result have different severance benefits. In the event their employment is terminated by the Company other than “for cause” or terminated by the executive for “good reason,” they are entitled to receive the benefits outlined below. The severance benefits for Mr. Harris include: | ● | Lump sum cash payment equal to two times his then-current base salary and one times the executive’s then-current target annual bonus; |
Does the Company have separate employment agreements for the NEOs?
In connection with the leadership changes in 2017, the Company negotiated individual employment agreements with Messrs. Harrison, Wallace and Foote. Mr. Harrison had an individually negotiated employment agreement given the unique circumstances of his hiring as CEO. Mr. Foote had an individually negotiated employment agreement upon his hiring as Executive Vice President – Chief Operating Officer in October 2017. However, the terms of his change-in-control and non-compete provisions were the same as other senior executive officers and he continues to have these same protections. His employment agreement wassubsequently canceled upon his promotion to President and CEO in December 2017, except for the provision that states his long-term incentive awards will continue to fully vest after he retires from the Company and certain severance protections, as described in theSeverance and Change-of-Control Agreementssection. Mr. Wallace negotiated a separate employment agreement upon his recruitment and relocation to the Company’s headquarters. This agreement remains in place. No other NEOs have an individual employment agreement. All individual employment agreements have been filed and can be reviewed on the SEC website.
Does the Company have non-compete agreements and clawback provisions?
Yes. The Company has non-compete agreements and clawback provisions for its compensation plans, as described below.
Non-Compete Agreements:
Vice Presidents and above, including the CEO and executive vice presidents, are required to enter into formal non-compete agreements with the Company as a condition for participation in each LTIP cycle. The non-compete agreements preclude an executive from working for a competitor of the Company. The non-compete conditions extend for a period of 18 months following separation from employment.
Clawbacks:
Short-term Incentive Plan.The short-term incentive plan contains provisions requiring NEOs to repay the Company portions of any payment received if: (i) within the two-year period following the receipt of the payment, the Company is required to restate its financial statements due to accounting irregularities; and (ii) the payment amount received exceeded the otherwise proper payment based on the restated financials.
Long-term Incentive Plan.If the Company is required to restate its financial statements due to accounting irregularities discovered within three years after a payout, the clawback provision in each LTIP cycle requires that amounts in excess of the otherwise proper awardbe repaid to the Company. Each LTIP also contains provisions that require the repayment to the Company of portions of any award received if, within the two-year period following the receipt of the award, the employee violates certain conditions, including: (i) separation from the Company and working for a competitor in a similar capacity as the participant has functioned during the past five years at the Company; or (ii) engaging in conduct that puts the Company at a competitive disadvantage.
| | WWW.CSX.COM | | 53 | | | ● | Full vesting of the unvested equity (includes sign-on equity award); | | ● | Pro-rata vesting of MICP awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals; and | | ● | Retain sign-on cash bonus. |
The severance benefits for Mr. Wallace include: | ● | Lump sum cash payment equal to two times his then-current base salary and two times the executive’s then-current target annual bonus; | | ● | Pro-rata vesting of his unvested equity awards and MICP awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals; | | ● | Retain sign-on cash bonus; | | ● | Any relocation amounts and tax equalization and advisory amounts that may be due to the executive; and | | ● | Reimbursement for all reasonable costs, as stated in the Company’s relocation policy, related to relocating from Jacksonville, FL to another area in North America provided that relocation takes place within one year of termination. |
Notwithstanding the foregoing, if an NEO is entitled to severance benefits under his respective Change-of-Control Agreement, he shall not be entitled to the severance benefits outlined above. Severance amounts that would have been payable had the NEOs terminated employment with the Company as of December 31, 2018 are described herein. Does the Company provide Change-of-Control Agreements to its NEOs? Yes. The Company provides “double-trigger” change of control benefits pursuant to agreements that are designed to ensure management objectivity as it makes strategic business decisions. The Company’s policy for severance benefits upon a change-of-control: (i) requires a “double-trigger” (i.e., payments are conditioned upon a change-of-control as well as separation from employment) to receive severance; (ii) prohibits Company reimbursement for the payment of excise taxes; (iii) defines “bonus” as the current “target” amount; and (iv) requires a contract term not to exceed three years. The policy also provides that the payment of severance benefits, without shareholder approval, is limited to 2.99 times base salary plus bonus for NEOs. All NEOs are subject to the terms of the change-of-control agreements described above and as further detailed under the section entitled “Post-Termination and Change-of-Control Payments.” BENEFITS What types of Retirement, Health and Group Benefits are provided to the NEOs? Retirement Programs: CSX’s retirement programs consist of two components: a defined contribution 401(k) plan and a defined benefit pension plan. The retirement programs described below are provided to the NEOs under the following plans: | ● | The CSX Corporation 401(k) Plan (“CSXtra Plan”); | | ● | CSX Pension Plan (the “Pension Plan”); and | | ● | Special Retirement Plan for CSX Corporation and Affiliated Corporations (the “Special Retirement Plan”). |
CSXtra Plan The NEOs, along with all other CSX non-union employees, may contribute to the CSXtra Plan, a defined contribution 401(k) plan. Participants may contribute on a pre-tax and after-tax basis and receive Company matching contributions. The Company’s matching contribution is equal to 100% on the employee’s first 1% contribution, and 50% on the employee’s additional contributions up to 6% of base salary, for a Company match up to 3.5%. Participants may invest contributions in various investment funds.
Table of Contents Compensation Discussion and Analysis | |
Pension Plan Benefits
What types of Retirement and Health and Group Benefits are provided to the NEOs?
Retirement Programs:
CSX’s retirement programs consist of two components: a defined benefit pension plan and a defined contribution 401(k) plan. The retirement programs described below are provided to the NEOs under the following plans:
● | CSX Pension Plan is qualified under the Internal Revenue Code (the “Pension Plan”“Code”); | | | ● | and covers the NEOs and all of CSX’s non-union employees. In general, pension benefits accrue in two different ways: (i) for employees externally hired or promoted from CSX union positions on or after January 1, 2003, benefits accrue based on a “cash balance” formula; and (ii) for employees externally hired or promoted from CSX union positions before January 1, 2003, benefits accrue based on a “final average pay” formula. Mr. Lonegro is the only NEO under the “final average pay” formula. All other NEOs are under the “cash balance” formula. Further information on the Pension Plan can be found in the discussion following thePension Benefits Table. Special Retirement Plan The Special Retirement Plan is a nonqualified plan for CSX Corporationall employees, including the NEOs, whose base salary and Affiliated Corporations (the “Special Retirement Plan”); and | | | ● | The CSX Corporation 401(k) Plan (“CSXtra Plan”). |
Pension Plan
The Pension Plan is qualified under the Code and covers CSX’s non-union employees. In general, pension benefits accrue in two different ways: (i) for employees externally hired or promoted from CSX union positions before January 1, 2003, benefits accrue based on a “final average pay” formula; and (ii) for employees externally hired or promoted from CSX union positions on or after January 1, 2003, benefits accrue based on a “cash balance” formula. Further information on the Pension Plan can be found in the discussion following thePension Benefits Table.
Special Retirement Plan
short-term incentive exceeds the current year IRS compensation limit. The Special Retirement Plan is a nonqualified plan and primarily provides benefits that are otherwise limited under the Pension Plan due to the qualified plan Code provisions. Further information on the Special Retirement Plan can be found in the discussion following thePension Benefits Table. CSXtra Plan
All CSX non-union employees may contribute to the CSXtra Plan, a defined contribution 401(k) plan. Participants may contribute on a pre-tax and after-tax basis and receive Company matching contributions. The Company’s matching contribution is equal to 100% on the employee’s first 1% contribution, and 50% on the employee’s additional contributions up to 6% of base salary, for a Company match up to 3.5%. Participants may invest contributions in various investment funds, including but not limited to target date funds, equity, bonds and CSX stock.
Executive Deferred Compensation Plan:
CSX offers a voluntary, nonqualified executive deferred compensation plan (“EDCP”) for the benefit of its executives and other eligible employees. The purpose of the EDCP is to provide participants with the opportunity to:
● | defer compensation in excess of qualified plan limits until retirement or another specified date or event;Code provisions. Further information on the Special Retirement Plan can be found in the discussion following thePension Benefits Table.Health and | | | ● | defer compensation to allow them to receive the full Company matching contribution of 3.5% of base salary not otherwise available to them under the CSXtra Plan. |
The types of compensation eligible for deferral include base salary, short-term incentive compensation and LTIP awards.
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Table of Contents Group Benefits:
| Compensation Discussion and Analysis |
Health and Group Benefits:
CSX provides the same health and group benefits to the NEOs as those available to all non-union employees. The Company also provides basic life insurance and accidental death and dismemberment insurance coverage to all management employees, each of which is equal to two times their respective annual salaries, up to $1 million. The Company also provides NEOs, on the same basis as other management employees, salary continuance in the event of short-term or long-term disability, travel accident insurance and vacation based on length of service. CSX sponsors a post-retirement medical plan for management employees hired or promoted from a union position prior to January 1, 2003. The Company stopped providing post-retirement medical benefits for all management employees, including executive-level employees, hired or promoted from a union position on or after that date.
Does the Company provide perquisites to its NEOs?
The perquisites provided to NEOs in 2017 included: (i) financial planning services of either $9,000 or $12,000 depending on level; (ii) excess liability insurance; and (iii) an annual health and wellbeing examination. These perquisites were valued at approximately $15,000 for each NEO.
When Mr. Harrison became CEO in March 2017, he was required to travel by Company aircraft at all times for security purposes and to ensure efficient use of his time. Similarly, when Mr. Foote became CEO in December 2017, he was required to travel by Company aircraftat all times for the same reasons. Other senior-level executives have access to the Company aircraft and may use it on a limited basis for personal reasons. The amounts related to the NEO’s use of the Company aircraft are disclosed in theSummary Compensation Table.
Severance and Change-of-Control Agreements
Are there any special severance plans or related arrangements provided to the NEOs?
During 2017, executives were covered under the Company’s general severance policy available to all salaried, non-union employees whose positions are eliminated, pursuant to the terms of CSX’s severance plan, which pays benefits based on years of service. The benefits ranged from 1 month of base pay (if 1 to 3 years of CSX service has been attained) to 1 year of base pay (if at least 20 years of CSX service has been attained).
In 2017, due to leadership changes and in an effort to retain the Company’s executives and ensure their focus continued on the Company’s business goals and shareholder interests, the Company adopted separate severance programs for its Vice Presidents (the “Executive Severance Plan”) and for its more senior executives covered by Section 16 of the Securities Exchange Act of 1934 (the “Section 16 Officer Severance Plan”). For the executives covered by these plans, the benefits were available in lieu of benefits under the Company’s general severance policy. The Section 16 Officer Severance Plan provides eligible executives with severance payments and benefits in the event that an individual’s employment with the Company or one of its subsidiaries is terminated on or before February 22, 2019, involuntarily by the Company other than “for cause” or voluntarily by the eligible employee for “good reason.”
The severance payments that could be received by eligible officers covered under Section 16 of the Securities Exchange Act of 1934 (“Section 16 Officers”) include:
● | Lump sum cash payment equal to two times their respective annual salaries, up to $1 million. The Company also provides NEOs, on the executive’s then base salary; | | | ● | Lump sum cash payment equalsame basis as other management employees, salary continuance in the event of short-term or long-term disability, travel accident insurance and vacation based on length of service.CSX sponsors a post-retirement medical plan for management employees hired or promoted from a union position prior to January 1, 2003. Only Mr. Lonegro is eligible for benefits under the executive’s target bonuspost-retirement medical plan. The Company stopped providing post-retirement medical benefits for all management employees, including executive-level employees, hired or promoted from a union position on or after that date. Executive Deferred Compensation Plan: CSX offers a voluntary, nonqualified Executive Deferred Compensation Plan (“EDCP”) for the yearbenefit of separation; | | | ● | Credit for an additional three years of ageits executives and two years of service for purposes of calculating the executive’s pension benefit; and | | | ● | Pro-rata vestingother eligible employees. The purpose of the executive’s unvested equity and MICP awards with any performance-based awards remaining subjectEDCP is to satisfaction of pre-established performance goals. |
Mr. Eliasson and Ms. Fitzsimmons received severance benefits under this program and as disclosed in theSummary Compensation Table.
Table of Contents
Compensation Discussion and Analysis | |
Messrs. Foote, Wallace and Shudtz are NEOs not covered under the Section 16 Officer Severance Plan. In connection with his promotion to President and CEO, Mr. Foote retained certain severance protections that were included in his employment agreement that was effected upon his joining the Company in October 2017. Should he be involuntarily terminated by the Company other than “for cause” or voluntarily terminate his employment for “good reason”, he would receive a lump sum cash payment equal to two times his then base salary plus two times his target annual bonus and pro-rata vesting of his unvested equity and annual awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals.
Mr. Wallace negotiated a separate employment agreement upon his recruitment and relocation to the Company’s headquarters that contains the following severance protections should he be involuntarily terminated by the Company other than “for cause” or voluntarily terminate his employment for “good reason”: a lump sum cash payment equal to two times his then base salary plus two times his target annual bonus, pro-rata vesting of his unvested equity and annual awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals, relocation/tax advisory services and a relocation benefit if he relocated from Jacksonville within one year of termination.
Mr. Shudtz has severance benefit protections under the Executive Severance Plan that are in effect until February 22, 2019, should he be involuntarily terminated by the Company other than “for cause” or voluntarily by the eligible employee for “good reason” as follows:
● | Lump sum cash payment equal to one times the employee’s then base salary; | | | ● | Lump sum cash payment of one times the employee’s target bonus for the year of separation; | | | ● | Credit for an additional three years of age and two years of service for purposes of calculating the employee’s pension benefit; and | | | ● | Pro-rata vesting of the employee’s unvested equity and MICP awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals. |
Does the Company provide Change-of-Control Agreements to its NEOs?
Yes. These agreements are designed to ensure management objectivity in the face of a potential transaction. Since payment is subject to a “double-trigger” (i.e., payments are conditioned upon a change-of-control as well as separation from employment), NEOs are financially protected and thereby properly positioned to negotiate in the best interests of shareholders. Mr. Ward agreed to cancel his Change-of-Control Agreement in February 2017, and Mr. Eliasson and Ms. Fitzsimmons agreed to waive their Change-of Control Agreements in November 2017.
A detailed description of the Change-of-Control Agreements is set forth under the section entitled “Post-Termination and Change-of-Control Payments.”
Are there limits on severance amounts paid to the NEOs pursuant to Change-of-Control Agreements?
Yes. The Company’s policy for severance benefits (the “Policy”): (i) requires a “double-trigger” to receive severance; (ii) prohibits Company reimbursement for the payment of excise taxes; (iii) defines “bonus” as the current “target” amount; and (iv) requires a contract term not to exceed three years. The Policy also provides that the payment of severance benefits, without shareholder approval, is limited to 2.99 times base salary plus bonus for Section 16 Officers and 2.00 times base salary plus bonus for other eligible executives. The Policy is available on the Company’s website athttp://investors.csx.comunder the heading “Corporate Governance.” All of the NEOs’ Change-of-Control Agreements are in compliance with the Policy.
| 56 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation Discussion and Analysis |
Does the Company have stock ownership guidelines for the NEOs?
Yes. CSX believes that, in order to align the interests of management with those of its shareholders, it is important that NEOs and other senior leaders hold a significant ownership position in CSX common stock relative to their base salary. To achieve this linkage, CSX has established the following formal stock ownership guidelines.
POSITION | | MINIMUM VALUE | Chief Executive Officer | | 6 times base salary | Executive Vice Presidents | | 4 times base salary | Senior Vice Presidents | | 3 times base salary | Vice Presidents | | 1 times base salary |
Each of the individuals covered by these guidelines must retain 100% of their net shares issued until the guidelines are achieved and have five years in which to do so.
What are the accounting, tax and dilution considerations of CSX’s compensation programs?
As discussed above, a significant portion of each NEO’s total compensation is performance-based. Section 162(m) of the Code imposes a $1 million limit on the amount that CSX may deduct for compensation paid to the NEOs who are “covered employees” under this section. Before 2018, however, performance-based compensation paid under a plan that was approved by shareholders was excluded from the $1 million limit if, among other requirements, the compensation was payable only if pre-established, objective performance goals were achieved and the Committee that established and certified attainment of the goals consisted only of outside directors. The Tax Cuts and Jobs Act (P.L. 115-97, Dec. 22, 2017) changes section 162(m) by repealing this exception for performance-based compensation for payments made in years after 2017 so that even performance-based compensation will not be deductible if paid to NEOs who are covered employees, unless a prescribed grandfather exception applies.
While the tax effect of any compensation arrangement is a factor to be considered, the effect is evaluated by the Committee in light of CSX’s overall compensation philosophy and objectives. CSX’s compensation program for NEOs has primarily objective elements with individualperformance factored in for the short-term incentive plan. Generally, the Committee wishes to maximize CSX’s federal income tax deductions for compensation expense. Therefore, until the recent tax law change, the Company endeavored to structure the short-term and long-term performance based incentive elements to meet the requirements for deductibility under Section 162(m) while retaining the ability to apply permissible negative discretion in determining the ultimate award payouts. Nonetheless, the Committee does not believe that compensation decisions should be unduly constrained by how much compensation is deductible for federal tax purposes and use this as one element of their review and approval of compensation-related items. Accordingly, the Committee is not limited to paying compensation under plans that are qualified under Section 162(m) and the Committee’s ability to retain flexibility in this regard may, in certain circumstances, outweigh the advantages of qualifying all compensation as deductible under Section 162(m).
The Committee seeks to balance the tax, earnings and dilutive impact of the compensation plans with the need to attract, retain and motivate highly-qualified executives.
Table of Contents
Compensation Discussion and Analysis | |
2017 Summary Compensation Table
TheSummary Compensation Table presents the amount and type of compensation for the NEOs in 2017.
| NAME AND PRINCIPAL POSITION | | YEAR | | SALARY | | BONUS(1) | | STOCK
AWARDS(2) | | OPTION
AWARDS(3) | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION(4) | | CHANGE IN PENSION
VALUE AND NONQUALIFIED
DEFERRED COMPENSATION
EARNINGS(5) | | ALL OTHER
COMPENSATION(6) | | TOTAL | | James M. Foote(7) | | 2017 | | $ | 149,919 | | $ | 400,000 | | $ | 1,027,812 | | $ | 1,045,626 | | | — | | $ | 8,849 | | $ | 15,355 | | $ | 2,647,561 | | President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | Frank A. Lonegro | | 2017 | | $ | 500,000 | | | — | | $ | 1,950,165 | | $ | 743,772 | | $ | 715,500 | | $ | 869,559 | | $ | 35,684 | | $ | 4,813,680 | | Executive Vice President and Chief Financial Officer | | 2016 | | $ | 500,000 | | | — | | $ | 1,520,986 | | $ | 386,150 | | $ | 643,500 | | $ | 484,797 | | $ | 31,825 | | $ | 3,567,258 | | | 2015 | | $ | 365,518 | | | — | | $ | 706,112 | | | — | | $ | 173,072 | | $ | 27,056 | | $ | 18,064 | | $ | 1,289,822 | | Mark K. Wallace | | 2017 | | $ | 450,362 | | $ | 550,000 | | $ | 2,316,531 | | $ | 582,595 | | $ | 825,000 | | $ | 108,187 | | $ | 378,989 | | $ | 5,211,664 | | Executive Vice President and Chief Administrative Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | Sarah K. Brandt | | 2017 | | $ | 395,000 | | | — | | $ | 731,318 | | $ | 278,915 | | $ | 502,440 | | $ | 1,243,469 | | $ | 22,890 | | $ | 3,174,032 | | Senior Vice President and Chief Information Officer | | 2016 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2015 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Peter J. Shudtz | | 2017 | | $ | 354,113 | | $ | 112,667 | | $ | 292,518 | | $ | 111,568 | | $ | 450,432 | | $ | 1,398,306 | | $ | 11,450 | | $ | 2,731,054 | | Vice President — Federal Regulation | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | E. Hunter Harrison | | 2017 | | $ | 1,885,703 | | | — | | | — | | $ | 115,884,000 | (3) | $ | 3,490,368 | | $ | 600,339 | | $ | 29,286,876 | | $ | 151,147,286 | | Former President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael J. Ward | | 2017 | | $ | 557,692 | | | — | | $ | 8,775,720 | | $ | 3,346,976 | | $ | 954,000 | | $ | 752,814 | | $ | 195,743 | | $ | 14,582,945 | | Former Chief Executive Officer | | 2016 | | $ | 1,200,000 | | | — | | $ | 6,317,982 | | $ | 2,316,907 | | $ | 2,059,200 | | $ | 1,563,377 | | $ | 122,638 | | $ | 13,580,104 | | | 2015 | | $ | 1,200,000 | | | — | | $ | 7,064,833 | | | — | | $ | 864,000 | | | — | | $ | 80,728 | | $ | 9,209,561 | | Fredrik J. Eliasson(7) | | 2017 | | $ | 687,500 | | | — | | $ | 2,437,695 | | $ | 929,716 | | $ | 1,400,000 | | $ | 3,493,162 | | $ | 2,120,907 | | $ | 11,068,980 | | Former Executive Vice President and Chief Sales and | | 2016 | | $ | 600,000 | | | — | | $ | 1,872,005 | | $ | 514,867 | | $ | 772,200 | | $ | 901,672 | | $ | 35,567 | | $ | 4,696,311 | | Marketing Officer | | 2015 | | $ | 565,720 | | | — | | $ | 2,018,535 | | | — | | $ | 305,489 | | $ | 199,435 | | $ | 27,174 | | $ | 3,116,353 | | Ellen M. Fitzsimmons(7) | | 2017 | | $ | 625,000 | | | — | | $ | 1,950,165 | | $ | 743,772 | | $ | 1,125,000 | | $ | 4,015,780 | | $ | 1,849,755 | | $ | 10,309,472 | | Former Executive Vice President – Law and Public Affairs, | | 2016 | | $ | 616,965 | | | — | | $ | 1,052,985 | | $ | 386,150 | | $ | 705,807 | | $ | 659,817 | | $ | 37,315 | | $ | 3,459,039 | | General Counsel and Corporate Secretary | | 2015 | | $ | 550,000 | | | — | | $ | 1,513,900 | | | — | | $ | 264,000 | | $ | 103,737 | | $ | 34,952 | | $ | 2,466,589 |
(1) | Bonus – The amounts included in this column represent the cash sign-on bonuses for Messrs. Foote and Wallace. Should either leave prior to their one-year anniversary date, they will be required to repay these amounts. For Mr. Shudtz, this amount represents a cash retention bonus.
| (2) | Stock Awards – Amounts disclosed in this column are related to LTIP performance units, RSUs and restricted stock granted in 2015, 2016 and 2017, and reflect the aggregate grant date fair value of such stock awards computed in accordance with FASB ASC Topic 718. For performance units, the grant date fair value is based on the probable outcome of performance conditions at the time of grant. For more information and assumptions used in valuing these awards, see Note 4, Stock Plans and Share-Based Compensation in the Notes to the Consolidated Financial Statements in the 2017 Annual Report, which was filedprovide participants with the SEC on February 7, 2018. Ifopportunity to:
| ● | defer compensation in excess of qualified plan limits until retirement or another specified date or event; and | | ● | defer compensation to allow them to receive the full Company matching contribution of 3.5% of base salary not otherwise available to them under the CSXtra Plan. |
Under the highest levelEDCP, participants are entitled to voluntarily elect to defer up to: (i) 75% of performancebase pay; (ii) 100% of awards payable in cash under each LTIP cycle is achieved, the maximum grant date fair value of the performance |
| 58 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation DiscussionCSX’s short-term incentive plans; and Analysis |
| units (which does not include stock options, RSUs or restricted stock) for each NEO by year of grant would be: 2017: Mr. Foote’s sign-on equity grant (as described in the CD&A) - $2,055,624, Mr. Lonegro - $2,600,188, Mr. Wallace - $2,259,984, Ms. Brandt - $975,058, Mr. Shudtz - $390,024, Mr. Ward - $11,700,992, Mr. Eliasson - $3,250,260 and Ms. Fitzsimmons - $2,600,188; 2016: Mr. Lonegro - $1,403,980, Mr. Ward - $8,423,976, Mr. Eliasson - $1,872,006 and Ms. Fitzsimmons - $1,403,980; 2015: Mr. Lonegro - $302,758, Mr. Ward - $10,597,268, Mr. Eliasson - $3,027,802 and Ms. Fitzsimmons - $2,270,832. It should be noted Messrs. Ward and Eliasson and Ms. Fitzsimmons subsequently forfeited part of their awards due to their retirements and/or resignation.
| (3) | Option Awards – The values included in this column represent the grant date fair value of stock options granted to each NEO computed in accordance with FASB ASC Topic 718. For more information and assumptions used in valuing these awards, see Note 4, Stock Plans and Share-Based Compensation in the Notes to the Consolidated Financial Statements in the 2017 Annual Report, which was filed with the SEC on February 7, 2018. Mr. Harrison’s amount represents the grant date fair value of the 9 million stock options granted as part of the compensation package designed to encourage Mr. Harrison to join CSX.Due to his death, all 9 million stock options were forfeited per the terms of his negotiated employment agreement.
| (4) | Non-Equity Incentive Plan Compensation – The 2017 annual incentive compensation was paid in February 2018 based on a 159% payout of the 2017 MICP. Based upon his 2017 performance, Mr. Wallace received a 200% payout. The amounts for Mr. Eliasson and Ms. Fitzsimmons are calculated using 200%, per their negotiated severance agreements. Mr. Harrison’s award was a prorated award, per his negotiated employment agreement.
| (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings – The values in this column reflect changes in the actuarial present value of pension benefits. The changes in values result from increases in each individual’s years of service, final average compensation calculation and age, revised mortality assumptions, as well as from a decrease in the pension discount rate from 4.08% to 3.56%. In addition, Mr. Eliasson’s and Ms. Fitzsimmons’ amounts also reflect an extra three years added to their age and an extra two years of service per their negotiated severance agreements and as previously discussed in the Severance and Change of Control Agreements section of the CD&A. CSX measured its pension values as of December 31, 2017.
| (6)
| All Other Compensation – The values in this column include amounts for personal usage of Company aircraft, financial planning services, health and wellness examination at Mayo Clinic, annual health savings account contribution associated with participation in the medical plan, excess liability insurance, severance, relocation, temporary and/or corporate housing, and the Company’s match under the 401(k) and nonqualified deferred compensation plans. For Mr. Foote, this column includes, along with the items discussed above, $12,301 for temporary housing. Mr. Wallace’s amount includes $293,642 for reimbursed relocation expenses that includes a tax gross-up of $49,239, which is provided to all other CSX management employees who receive relocation benefits and $47,318 for personal aircraft usage and $25,757 for temporary housing, both of which were associated with his relocation from Calgary, Canada to Jacksonville, Florida. For Mr. Harrison, this includes the $29 million shareholder approved reimbursement, $233,041 for Company-mandated aircraft usage, $27,466 for security and $14,012 for personal use of corporate housing. Mr. Ward’s amount includes a $100,000 matching charitable contribution and $62,787 for Company-mandated aircraft usage. As part of the “Section 16 Officer Severance Plan” Mr. Eliasson and Ms. Fitzsimmons received severance amounts of $2,100,000 and $1,812,500, respectively as previously described in the CD&A.
| | The aircraft usage amount was calculated using the direct hourly operating cost of $2,264 and $3,501, depending upon the type of aircraft used, per flight hour for 2017, plus taxes. The aggregate incremental cost to the Company for use of the Company aircraft for personal travel is calculated by multiplying the hourly variable cost rate (including fuel, oil, airport and hangar fees, crew expenses, maintenance, catering and taxes) for the aircraft by the hours the executive used the aircraft. For these purposes, hours occupied by any “deadhead” aircraft legs are included in the total hours the aircraft was used by the executive.
| (7) | On October 25, 2017, Mr. Foote joined CSX as Chief Operating Officer and was subsequently appointed President and Chief Executive Officer on December 22, 2017. On November 15, 2017, Mr. Eliasson resigned as Executive Vice President and Chief Sales and Marketing Officer, and Ms. Fitzsimmons retired as Executive Vice President – Law and Public Affairs, General Counsel and Corporate Secretary.
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Table of Contents
Compensation Discussion and Analysis | |
2017 Grants of Plan-Based Awards Table
In 2017, the NEOs received the plan-based awards as shown in the table below.
| | | | ESTIMATED POSSIBLE
PAYOUTS UNDER NON-EQUITY
INCENTIVE PLAN AWARDS(1) | | ESTIMATED FUTURE
PAYOUTS UNDER EQUITY
INCENTIVE AWARDS (# UNITS)(2) | | ALL OTHER | | ALL OTHER | | EXERCISE
PRICE OF
OPTION | | GRANT DATE FAIR
VALUE OF STOCK | | | NAME | | GRANT DATE | | THRESHOLD
($) | | | TARGET
($) | | MAXIMUM
($) | | THRESHOLD
(UNITS) | | TARGET
(UNITS) | | MAXIMUM
(UNITS) | | STOCK AWARDS
(UNITS)(3) | | OPTION
AWARDS (#)(4) | | AWARDS
($) | | AND OPTION
AWARDS(5) | | | James M. Foote | | October 25, 2017 | | | | | | | | | | | | 1,942 | | 19,422 | | 38,844 | | | | | | | | | $ | 1,027,812 | | | | October 25, 2017 | | | | | | | | | | | | | | | | | | | | 76,040 | | $ | 52.92 | | $ | 1,045,626 | | | | | | $ | 0 | | | $ | 0 | | $ | 0 | | | | | | | | | | | | | | | | | | | Frank A. Lonegro | | February 22, 2017 | | | | | | | | | | | | 2,687 | | 26,867 | | 53,734 | | | | | | | | | $ | 1,300,094 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | 13,434 | | | | | | | $ | 650,071 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | | 59,312 | | $ | 48.39 | | $ | 743,772 | | | | | | $ | 45,000 | | | $ | 450,000 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | | Mark K. Wallace | | March 29, 2017 | | | | | | | | | | | | 2,390 | | 23,900 | | 47,800 | | | | | | | | | $ | 1,129,992 | | | | March 29, 2017 | | | | | | | | | | | | | | | | | | 11,950 | | | | | | | $ | 564,996 | | | | March 29, 2017 | | | | | | | | | | | | | | | | | | 13,146 | | | | | | | $ | 621,543 | | | | March 29, 2017 | | | | | | | | | | | | | | | | | | | | 47,966 | | $ | 47.28 | | $ | 582,595 | | | | | | $ | 41,250 | | | $ | 412,500 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | | Sarah K. Brandt | | February 22, 2017 | | | | | | | | | | | | 1,008 | | 10,075 | | 20,150 | | | | | | | | | $ | 487,529 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | 5,038 | | | | | | | $ | 243,789 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | | 22,242 | | $ | 48.39 | | $ | 278,915 | | | | | | $ | 31,600 | | | $ | 316,000 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | | Peter J. Shudtz | | February 22, 2017 | | | | | | | | | | | | 403 | | 4,030 | | 8,060 | | | | | | | | | $ | 195,012 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | 2,015 | | | | | | | $ | 97,506 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | | 8,897 | | $ | 48.39 | | $ | 111,568 | | | | | | $ | 28,329 | | | $ | 283,290 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | | E. Hunter Harrison | | March 6, 2017 | | | | | | | | | | | | | | | | | | | | 9,000,000 | | $ | 49.79 | | $ | 115,884,000 | (5) | | | | | $ | 2,800,000 | | | $ | 2,800,000 | | $ | 5,600,000 | | | | | | | | | | | | | | | | | | | Michael J. Ward | | February 22, 2017 | | | | | | | | | | | | 12,090 | | 120,903 | | 241,806 | | | | | | | | | $ | 5,850,496 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | 60,451 | | | | | | | $ | 2,925,224 | | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | | 266,904 | | $ | 48.39 | | $ | 3,346,976 | | | | | | $ | 60,000 | | | $ | 600,000 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | |
| 60 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation Discussion and Analysis |
| NAME | | GRANT DATE | | ESTIMATED POSSIBLE
PAYOUTS UNDER NON-EQUITY
INCENTIVE PLAN AWARDS(1) | | ESTIMATED FUTURE
PAYOUTS UNDER EQUITY
INCENTIVE AWARDS (# UNITS)(2) | | ALL OTHER
STOCK AWARDS
(UNITS)(3) | | ALL OTHER
OPTION
AWARDS (#)(4) | | EXERCISE
PRICE OF
OPTION
AWARDS
($) | | GRANT DATE FAIR
VALUE OF STOCK
AND OPTION
AWARDS(5) | | | THRESHOLD
($) | | TARGET
($) | | MAXIMUM
($) | | THRESHOLD
(UNITS) | | TARGET
(UNITS) | | MAXIMUM
(UNITS) | | Fredrik J. Eliasson | | February 22, 2017 | | | | | | | | | | | 3,358 | | 33,584 | | 67,168 | | | | | | | | | $ | 1,625,130 | | | February 22, 2017 | | | | | | | | | | | | | | | | | 16,792 | | | | | | | $ | 812,565 | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | 74,140 | | $ | 48.39 | | $ | 929,716 | | | | | $ | 68,250 | | $ | 682,500 | | $ | 3,000,000 | | | | | | | | | | | | | | | | | | Ellen M. Fitzsimmons | | February 22, 2017 | | | | | | | | | | | 2,687 | | 26,867 | | 53,734 | | | | | | | | | $ | 1,300,094 | | | February 22, 2017 | | | | | | | | | | | | | | | | | 13,434 | | | | | | | $ | 650,071 | | | February 22, 2017 | | | | | | | | | | | | | | | | | | | 59,312 | | $ | 48.39 | | $ | 743,772 | | | | | $ | 55,729 | | $ | 557,292 | | $ | 3,000,000 | | | | | | | | | | | | | | | | |
(1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards – The amounts in these columns reflect what the payments could have been for 2017 under the SEIP as typically administered by the Committee using the Target Incentive Opportunities and Company performance measures under the MICP. The values reflect a threshold payout of 10%, a target payout of(iii) 100% and a maximum payout that cannot exceed the lesser of 0.3% of Operating Income for the CEO and 0.2% of Operating Income for each covered NEO or $3 million under the shareholder approved SEIP, or 200% for each NEO not covered. Mr. Harrison’s employment agreement provided a minimum payout for 2017 of $2.8 million and, as such, was not covered under the SEIP in 2017. | (2) | Estimated Future Payouts Under Equity Incentive Plan Programs – The values in these columns reflect the potential payout in shares under the 2017-2019 LTIP cycle and Mr. Foote’s sign-on equity award based on pre-established financial performance goals. The Company’s performance will determine a payout of shares that can range from 0% to 200% of the LTIP grants. The values reflect payouts of 10% at threshold, 100% at target, and 200% at maximum. The 10% threshold assumes that only one financial performance measure were to reach threshold performance level. If both financial performance measures were to reach threshold performance level, the resulting payout would be 20%. | (3) | All Other Stock Awards – The value in this column reflects the number of RSUs and restricted stock awards granted in 2017. | (4) | All Other Option Awards – The value provided for Mr. Foote represents the number of nonqualified stock options granted October 25, 2017, when he joined CSX as Executive Vice President and Chief Operating Officer, which vest and become exercisable on October 25, 2020. Mr. Foote’s options were granted with an exercise price equal to the closing price on the date of grant of $52.92 and as approved by the Committee. The amount shown for Mr. Wallace represents the number of nonqualified stock options granted on March 29, 2017, which vest and become exercisable on March 29, 2020. Mr. Wallace’s options were granted with an exercise price equal to the closing price on the date of grant of $47.28, and as approved by the Committee. For Mr. Harrison, the value in this column represents the number of nonqualified stock options granted on March 6, 2017 as part of his employment agreement with an exercise price equal to the closing stock price on the date of grant of $49.79. The options would have vested ratably over four years should performance and time-based measures be obtained, but were forfeited due to his death. For all other NEOs, the amount in this column represents the number of nonqualified stock options granted on February 22, 2017, which vest and become exercisable on February 22, 2020. These options were granted with an exercise price equal to the closing stock price on the date of grant of $48.39. | (5) | Grant Date Fair Value of Stock and Option Awards – The values in this column reflect the grant date fair value of performance units (based on the probable outcome of the performance conditions, which is the target number); RSUs, restricted stock and stock options granted in 2017, calculated in accordance with FASB ASC Topic 718.Upon Mr. Harrison’s death in December 2017, all 9 million stock options were forfeited. |
Table of Contents
Compensation Discussion and Analysis | |
2017 Outstanding Equity Awards at Fiscal Year End
The table below presents information pertaining to all outstanding equity awards held by the NEOs as of December 31, 2017. Stock awards are comprised of outstanding performance units, stock options, RSUs and restricted stock.
| | OPTIONS | | STOCK AWARDS | | NAME | | NUMBER OF
SECURITIES
UNDERLYING
EXERCISABLE
OPTIONS
(#) | | NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISABLE
OPTIONS
(#) | | OPTION
EXERCISE
PRICE | | OPTION
EXPIRATION
DATE | | NUMBER OF SHARES
OR UNITS OF STOCK
THAT HAVE NOT
VESTED(1)
(#) | | MARKET VALUE OF
SHARES OR UNITS
OF STOCK THAT
HAVE NOT VESTED(2)
($) | | EQUITY INCENTIVE PLAN
AWARDS: NUMBER OF
UNEARNED SHARES,
UNITS OR OTHER
RIGHTS THAT HAVE
NOT VESTED(3)
(#) | | EQUITY INCENTIVE PLAN
AWARDS: MARKET OR
PAYOUT VALUE OF
UNEARNED SHARES,
UNITS OR OTHER
RIGHTS THAT HAVE
NOT VESTED(4)
($) | | James M. Foote | | | | 76,040 | | $52.92 | | 10/25/27 | | — | | — | | 38,844 | | $2,136,808 | | Frank A. Lonegro | | | | 59,312 | | $48.39 | | 02/22/27 | | 48,799 | | $2,683,333 | | 111,918 | | $6,156,609 | | Frank A. Lonegro | | | | 82,599 | | $24.13 | | 02/10/26 | | | | | | | | — | | Mark K. Wallace | | | | 47,966 | | $47.28 | | 03/29/27 | | 18,523 | | $1,018,950 | | 47,800 | | $2,629,478 | | Sarah K. Brandt | | | | 22,242 | | $48.39 | | 02/22/27 | | 8,381 | | $461,039 | | 27,908 | | $1,535,219 | | Sarah K. Brandt | | | | 11,013 | | $24.13 | | 02/10/26 | | — | | — | | — | | — | | Sarah K. Brandt | | | | 38,241 | | $24.99 | | 12/08/25 | | — | | — | | — | | — | | Peter J. Shudtz | | | | 8,897 | | $48.39 | | 02/22/27 | | 7,030 | | $386,720 | | 19,696 | | $1,083,477 | | Peter J. Shudtz | | | | 16,520 | | $24.13 | | 02/10/26 | | — | | — | | | | — | | Peter J. Shudtz | | | | 38,241 | | $24.99 | | 12/08/25 | | — | | — | | | | — | | E. Hunter Harrison(5) | | | | — | | — | | — | | — | | — | | — | | — | | Michael J. Ward(6) | | | | 118,624 | | $48.39 | | 02/22/27 | | 94,749 | | $5,212,142 | | 395,412 | | $21,751,614 | | Michael J. Ward(6) | | | | 385,463 | | $24.13 | | 02/10/26 | | | | | | — | | | | Fredrik J. Eliasson | | | | 26,773 | | $48.39 | | 02/22/27 | | 78,268 | | $4,305,523 | | 82,150 | | $4,519,072 | | Fredrik J. Eliasson | | | | 76,481 | | $24.13 | | 02/10/26 | | | | | | — | | | | Ellen M. Fitzsimmons | | | | 21,418 | | $48.39 | | 02/22/27 | | 38,511 | | $2,118,490 | | 62,918 | | $3,461,119 | | Ellen M. Fitzsimmons | | | | 57,360 | | $24.13 | | 02/10/26 | | — | | — | | — | | — |
(1) | Number of Shares or Units That Have Not Vested—The units reflected in this column represent RSUs granted in February 2015, 2016 and 2017 that will vest in 2018, 2019 and 2020, respectively, assuming continued employment. This column also includes 19,395 shares of restricted stock awarded to Mr. Lonegro in February 2016 that will vest in February 2021. Per Mr. Eliasson’s severance agreement, this column includes 20,282 prorated shares of restricted stock that will vest in May 2018 as well as another 7,758 prorated shares that will vest in February 2021, awarded in May 2013 and February 2016, respectively. | (2) | Market Value of Shares or Units of Stock That Have Not Vested—The market values are based on the Company’s closing stock price as of December 29, 2017, the last trading day of 2017, of $55.01. | (3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested—In accordance with the SEC requirements for this table, the number of shares shown in the column above represents the sum of the performance units that would be payable under the 2016-2018 and 2017-2019Company’s LTIP cycles if the Company’s cumulative performance through 2017 was applied to each plan’s performance measures. The Company’s 2017 performance would have resulted in a 178% payout for the 2016-2018 cycle and 200% for the 2017-2019 cycle, even though these cycles are not yet complete. Because this performance would have exceeded the target performance goals, the SEC requires that projected payouts be shown at the next higher performance measure; therefore, the number of performance units shown is equal to the maximum payout for both the 2016-2018 cycle (200%) and the 2017-2019 cycle (200%). |
| 62 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation Discussion and Analysis |
(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested—The market values are based on the Company’s closing stock price as of December 29, 2017, the last trading day of 2017, of $55.01. | (5) | Per Mr. Harrison’s negotiated employment agreement, all stock options were forfeited upon his death. | (6) | Per Mr. Ward’s separation agreement, he will be prorated out of all outstanding equity awards as of May 31, 2018; the amounts shown in the table above represent the number of equity awards he retained. |
2017 Option Exercises and Stock Vested Table
The table below presents the value of performance units, stock options, RSUs and restricted stock that vested in 2017.
| | OPTION AWARDS | | STOCK AWARDS | | NAME | | SHARES ACQUIRED
ON EXERCISE | | VALUE REALIZED
ON EXERCISE | | SHARES ACQUIRED
ON VESTING(1) | | VALUE REALIZED
ON VESTING(2) | | James M. Foote | | — | | — | | — | | | — | | Frank A. Lonegro | | — | | — | | 4,477 | | $ | 249,035 | | Mark K. Wallace | | — | | — | | 6,573 | | $ | 370,323 | | Sarah K. Brandt | | — | | — | | 4,031 | | $ | 225,620 | | Peter J. Shudtz | | — | | — | | 6,715 | | $ | 373,526 | | E. Hunter Harrison | | — | | — | | — | | | — | | Michael J. Ward | | — | | — | | 156,677 | | $ | 8,715,245 | | Fredrik J. Eliasson | | — | | — | | 44,765 | | $ | 2,490,080 | | Ellen M. Fitzsimmons | | — | | — | | 33,574 | | $ | 1,867,572 |
(1) | Shares Acquired on Vesting – Shares acquired through stock awards include: (i) performance units that were paid out pursuant to the 2015-2017 LTIP cycle; (ii) RSUs that vested in May 2017; and (iii) restricted stock units that vested for Mr. Wallace. | (2) | Value Realized on Vesting – The values in this column reflect: (i) the number of performance units paid out pursuant to the 2015-2017 LTIP cycle multiplied by $57.69, the closing stock price on January 17, 2018; and (ii) the aggregate number of restricted stock and RSUs that vested in 2017 multiplied by the closing price of CSX common stock on the applicable vesting date. |
Table of Contents
Compensation Discussion and Analysis | |
Pension Benefits Table
As reflected by thePension Benefits Table, and as described below, CSX maintains defined benefit plans (qualified and nonqualified) under which the NEOs are eligible for benefits.
| NAME | | PLAN NAME | | NUMBER OF YEARS
CREDITED SERVICE | | PRESENT VALUE OF
ACCUMULATED BENEFITS | | PAYMENTS DURING
LAST FY | | James M. Foote | | Qualified CSX Pension Plan | | 0.250 | | $ | 3,562 | | | | | | Nonqualified Special Retirement Plan | | 0.250 | | $ | 5,287 | | | | | Frank A. Lonegro | | Qualified CSX Pension Plan | | 17.583 | | $ | 703,067 | | | | | | Nonqualified Special Retirement Plan | | 17.583 | | $ | 1,683,347 | | | | | Mark K. Wallace | | Qualified CSX Pension Plan | | 0.833 | | $ | 18,683 | | | | | | Nonqualified Special Retirement Plan | | 0.833 | | $ | 89,504 | | | | | Sarah K. Brandt | | Qualified CSX Pension Plan | | 32.500 | | $ | 1,382,319 | | | | | | Nonqualified Special Retirement Plan | | 32.500 | | $ | 2,092,680 | | | | | Peter J. Shudtz(1) | | Qualified CSX Pension Plan | | 41.167 | | $ | 2,427,630 | | | | | | Nonqualified Special Retirement Plan | | 44.000 | | $ | 4,563,178 | | | | | E. Hunter Harrison | | Qualified CSX Pension Plan | | 0.833 | | $ | 24,167 | | | | | | Nonqualified Special Retirement Plan | | 0.833 | | $ | 576,172 | | | | | Michael J. Ward(1)(2) | | Qualified CSX Pension Plan | | 40.000 | | $ | 2,069,368 | | $ | 75,339 | | | Nonqualified Special Retirement Plan | | 44.000 | | $ | 21,829,658 | | $ | 21,829,658 | | Fredrik J. Eliasson | | Qualified CSX Pension Plan | | 22.583 | | $ | 1,279,138 | | | | | | Nonqualified Special Retirement Plan | | 22.583 | | $ | 5,345,292 | | | | | Ellen M. Fitzsimmons | | Qualified CSX Pension Plan | | 26.333 | | $ | 1,966,608 | | | | | | Nonqualified Special Retirement Plan | | 26.333 | | $ | 7,425,093 | | | |
(1) | Nonqualified Special Retirement Plan—Messrs. Shudtz and Ward have 44 years of credited service under the Special Retirement Plan; this includes additional years of service credited in accordance with the Special Retirement Plan (see section entitled “Special Retirement Plan of CSX and Affiliated Corporations—Additional Service Credit”); their actual years of service are 41.167 and 40.00 years, respectively. The present value of this accumulated benefit under the Special Retirement Plan that is attributable to their credited years of service above their actual years of service is $1,040,462 and $2,999,233, respectively. Mr. Ward stopped receiving accruals of extra years of service in 2006. | (2) | Under the terms of the Special Retirement Plan, nonqualified pension benefits can be paid in the same form as under the Pension Plan, except that Mr. Ward was permitted and elected to receive his Special Retirement Plan pension benefits in the form of a lump sum. No other NEOs have this option available. |
| 64 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation Discussion and Analysis |
Qualified CSX Pension Plan
Final Average Pay Formula
For management employees hired or promoted from a union position prior to January 1, 2003, the final average pay formula provides for a benefit in the form of a life annuity starting at age 65. The compensation used under this formula includes the highest aggregate base salary and short-term incentive payments for the employee’s highest consecutive 60-month period. The benefit is equal to 1.5% of the employee’s final average pay multiplied by their years of CSX service. This amount is then reduced by 40% of the employee’s Social Security benefits or 60% of the employee’s Railroad Retirement benefits, or both, as applicable. Messrs. Lonegro, Shudtz, Ward and Eliasson and Ms. Brandt and Ms. Fitzsimmons were hired before January 1, 2003, and as such, are eligible for benefits based on the final average pay formula.
The resulting benefit is subject to a cap imposed under Code Section 415 (the “415 Limit”). The 415 Limit for 2017 was $215,000 (for a life annuity at age 65) and is subject to adjustment for future cost of living changes. Further, under the Code, the maximum amount of pay that may be taken into account for any year is limited. This limit (the “Compensation Limit”) is $270,000 for 2017 and is also subject to adjustment for future cost of living changes.
● | Transfer Benefits—The Pension Plan provides an enhancementstock. Participants also are entitled to the pension benefits of those participants who transfer from a position covered by Railroad Retirement to a position covered by Social Security before January 1, 2015. This enhancement is to make up for any retirement benefit lost due to discontinuance of Railroad Retirement service. This provision is applicable to Messrs. Lonegro, Shudtz, Ward and Eliasson. This is not applicable to Mmes. Fitzsimmons and Brandt as theyreceive matching contributions that would have been coveredreceived under Railroad Retirement benefits for their entire length of service. | ● | Vesting—Benefits under this formula vest uponCSX’s 401(k) plan assuming that: (i) certain compensation limits prescribed by the earlier of the completion of five years of service or attainment of age 65. The aforementioned NEOs covered under this formula are all vested. | ● | Early Retirement—Normal retirement age is 65. However, employees with 10 years of service may retire as early as age 55, but with a reduction from full benefits to reflect early commencement of the benefit prior to age 65. If an active participant reaches age 55 with 10 years of service, the reduction for early retirement is 1/360th of the pension benefit for each month the benefit commences prior to age 60 (rather than age 65). | ● | Form of Payment of Benefits—Benefits under this formula are payable in various annuity forms at retirement. The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in the table are described in the 2017 Annual Report. |
Cash Balance Formula for Employees Hired on or After January 1, 2003
Non-union employees who become eligible to participate in the Pension Plan on or after January 1, 2003 earn pension benefits under the cash balance formula. These benefits are expressed in the form of a hypothetical account balance. For each month of service, the participant’s account is credited with a percentage of the participant’s pay for that month. The percentage of pay credited is determined based on the participant’s age and years of service. Messrs. Foote and Wallace are covered under the Cash Balance Pay Formula as described below. Mr. Harrison was also covered under this formula prior to his death.
The hypothetical account earns interest credits on a monthly basis based on the annual 10-year Treasury bond rate and the participant’s account balance as of the end of the prior month. The average annual interest crediting rate used for 2017 was 3.66%. Pay for purposes of the cash balance formula is defined in the same way as for the final average pay formula. The 415 Limit and Compensation Limit also apply in determining benefits under the cash balance formula.
● | Vesting—Benefits under this formula vest upon the earlier of the completion of three years of service or attainment of age 65. | ● | Form of Payment of Benefits—Benefits under this formula may be paid upon termination of employment or retirement as a lump sum or in various annuity forms. The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in the table are described in the 2017 Annual Report. |
Table of Contents
Compensation Discussion and Analysis | |
Special Retirement Plan of CSX and Affiliated Corporations
The Special Retirement Plan is a nonqualified plan that covers CSX employees, including the NEOs, whose compensation exceeds the Compensation Limit. The purpose of the Special Retirement Plan is to assist CSX in attracting and retaining key executives by allowing the Company to offer competitive pension benefits on the basis described below.
Benefits
The Special Retirement Plan formula replicates the qualified plan formula but provides for the payment of benefits that would otherwise not be provided under the Pension Plan due to the 415 Limit and the Compensation Limit, both described above.
Additional Service Credit
The Special Retirement Plan previously provided additional service credit to executives where it was necessary to do so in order to provide competitive retirement benefits. Messrs. Shudtz and Ward were covered by the Special Retirement Plan’s additional service crediting provisions since September 2, 1995. Pursuant to the Special Retirement Plan’s applicable service crediting rules, an eligible executive was credited with one additional year of servicefor each actual year of service worked beginning no earlier than age 45 and continuing until age 65. Total service cannot exceed a maximum of 44 years, unless actual service exceeds 44 years. Messrs. Shudtz and Ward attained the maximum level of creditable service under this provision. The additional two-for-one service credits were awarded in the mid-1990’s under a plan provision that is no longer available to new participants.
Executive-Specific Benefits
The Special Retirement Plan allows for the payment of individually negotiated nonqualified pension benefits. Mr. Ward was the only NEO that has such benefits. Mr. Ward’s benefit ensures that any shortfall that may arise under the transfer benefit (from Railroad Retirement to Social Security) will be paid under the Special Retirement Plan.
Form of Payment of Benefits; Certain Forfeiture Provisions
Under the terms of the Special Retirement Plan, nonqualified pension benefits can be paid in the same form as under the Pension Plan, except that Mr. Ward was permitted and elected to receive his Special Retirement Plan pension benefits in the form of a lump sum. Pension benefits under the Special Retirement Plan are subject to: (i) suspension and possible forfeiture if a retired executive competes with the Company or engages in acts detrimental to the Company; or (ii) forfeiture if an executive is terminated for engaging in acts detrimental to the Company.
The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in the Pension Benefits Table for the Special Retirement Plan are described in the 2017 Annual Report.
| 66 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents
| Compensation Discussion and Analysis |
Nonqualified Deferred Compensation Table
TheNonqualified Deferred Compensation Tablepresents a summary of 2017 contributions made under the Executive Deferred Compensation Plan (“EDCP”), as well as 2017 earnings, distributions and year-end balances. Two types of deferrals are represented below: cash and CSX stock deferrals. Cash deferrals include deferred portions of an NEO’s base salary and short-term incentive payments. CSX stock deferrals include deferred portions of compensation payable in the form of CSX common stock.
| NAME | | EXECUTIVE
CONTRIBUTIONS IN
LAST FISCAL YEAR(1)
($) | | REGISTRANT
CONTRIBUTIONS IN
LAST FISCAL YEAR(2)
($) | | AGGREGATE
EARNINGS IN
LAST FISCAL YEAR(3)
($) | | AGGREGATE
DISTRIBUTIONS IN
LAST FISCAL YEAR(4)
($) | | AGGREGATE
BALANCE AT
LAST FISCAL YEAR END
($) | | James M. Foote | | | — | | | — | | | — | | | — | | | — | | Frank A. Lonegro | | $ | 243,375 | | $ | 8,064 | | $ | 204,362 | | | — | | $ | 918,732 | | Mark K. Wallace | | | — | | | — | | | — | | | — | | | — | | Sarah K. Brandt | | $ | 6,850 | | $ | 3,996 | | $ | 205,909 | | | — | | $ | 811,911 | | Peter J. Shudtz | | | — | | | — | | $ | 6,492 | | | — | | $ | 57,804 | | E. Hunter Harrison | | | — | | | — | | | — | | | — | | | — | | Michael J. Ward | | $ | 27,925 | | $ | 16,290 | | $ | 8,256,023 | | $ | 403,899 | | $ | 23,211,335 | | Fredrik J. Eliasson | | $ | 24,351 | | $ | 3,857 | | $ | 1,622 | | $ | 30,216 | | $ | 59,014 | | Ellen M. Fitzsimmons | | $ | 21,325 | | $ | 12,440 | | $ | 69,379 | | | — | | $ | 364,906 |
(1) | Executive Contributions Last Fiscal Year - Executive contributions in 2017 under the EDCP are also reported in the Salary column of the Summary Compensation Table.
| (2) | Registrant Contributions Last Fiscal Year - Company contributions in 2017 are also reported in the All Other Compensation column of the Summary Compensation Table.
| (3) | Aggregate Earnings Last Fiscal Year - Earnings on cash deferrals include the total gains and losses credited in 2017 based on the hypothetical investment of those amounts in the manner described below. Earnings on CSX stock deferrals reflect the difference between the closing stock price on the last trading day of 2016 and 2017, plus any dividends credited in 2017.
|
Eligible Deferrals
Under the EDCP, participants are entitled to voluntarily elect to defer up to: (i) 75% of base pay; (ii) 100% of awards payable in cash under CSX’s short-term incentive plans; and (iii) 100% of performance units payable under the Company’s LTIP in the form of stock. Participants also are entitled to receive matching contributions that would have been received under CSX’s 401(k) plan assuming that: (i) certain Code limits did not apply; and (ii) contributions made under the EDCP were instead made under CSX’s 401(k) plan.
Investment of Deferred Amounts
In accordance with a participant’s individual elections, deferred amounts, other than stock awards, are treated as if they were invested among the investment funds available under the qualified 401(k) plan. Participants may elect to change the investment of deferred amounts, other than deferred stock awards.
Table of Contents
EDCP participants may elect to receive payment of their deferred amounts, including earnings, upon separation from service, the attainment of a specified date or upon a change-of-control. Participants may elect to receive payment in the form of a lump sum or in semi-annual installments over a period of up to 20 years. Compensation DiscussionA participant may apply for accelerated payment of deferred amounts in the event of certain hardships and Analysis | |
Timing and Form of Payments
EDCP participants may elect to receive payment of their deferred amounts, including earnings, upon separation from service, the attainment of a specified date or upon a change-of-control. Participants may elect to receive payment in the form of a lump sum or in semi-annual installments over a number of years but not to exceed 20 years.
A participant may apply for accelerated payment of deferred amounts in the event of certain hardships and unforeseeable emergencies. A participant also may elect to receive accelerated distribution of amounts deferred before January 1, 2005 (and earnings thereon) other than forhardshipunforeseeable emergencies. A participant also may elect to receive accelerated distribution of amounts deferred before January 1, 2005 (and earnings thereon) other than for hardship or an unforeseeable emergency, but the participant is required to forfeit a percentage of the amount to be distributed. Under the EDCP, cash deferrals are distributed in the form of cash and deferred stock awards are paid in the form of CSX common stock.
Potential Payouts Under Change-of-Control Agreements
The following table presents the severance benefits to which each of the NEOs would be entitled as of December 31, 2017 under his or her Change-of-Control Agreement upon the hypothetical termination of employment following a change-of-control: (i) by CSX other than for “cause” or “disability”; (ii) by the NEO for “good reason”; or (iii) upon a “constructive termination.” A change-of-control would not result in retirement benefit increases or excisetax gross ups. Further, the pro-rata bonus payment would be based on target bonus instead of the highest annual bonus. Messrs. Harrison, Ward and Eliasson and Ms. Fitzsimmons are not included in the table above due to Mr. Harrison’s passing prior to year-end, and the remaining NEOs agreeing to cancel/waive their Change-in-Control Agreements prior to year-end.
| NAME | | SEVERANCE(1) | | PRO-RATA BONUS
PAYMENT(2) | | EQUITY(3) | | WELFARE BENEFIT
VALUES(4) | | OUTPLACEMENT(5) | | AGGREGATE
PAYMENTS | | James M. Foote | | $ | 8,173,000 | | | — | | $ | 1,227,328 | | $ | 32,652 | | $ | 20,000 | | $ | 9,452,980 | | Frank A. Lonegro | | $ | 2,882,167 | | $ | 715,500 | | $ | 8,936,643 | | $ | 92,448 | | $ | 20,000 | | $ | 12,646,757 | | Mark K. Wallace | | $ | 3,170,383 | | $ | 825,000 | | $ | 2,704,466 | | $ | 92,448 | | $ | 20,000 | | $ | 6,812,298 | | Sarah K. Brandt | | $ | 2,186,133 | | $ | 502,440 | | $ | 3,095,669 | | $ | 91,397 | | $ | 20,000 | | $ | 5,895,639 | | Peter J. Shudtz | | $ | 1,323,591 | | $ | 450,432 | | $ | 2,993,043 | | $ | 46,895 | | $ | 20,000 | | $ | 4,833,961 |
(1) | Severance—Severance payment equal to 2.99 times (2.00 times for Mr. Shudtz) the sum of the NEO's annual base salary at the time of the termination and the “target bonus”.
| (2) | Pro-rata Bonus Payment—The “annual bonus” based upon the Executive’s Target Incentive Opportunity and the plan’s achievement percentage pro-rated for the number of days in the calendar year prior to a hypothetical termination of employment as of December 31, 2017.
| (3) | Equity—Full LTIP performance unit payout based on 100% attainment of target levels under the 2015-2017, 2016-2018 and 2017-2019 LTIP cycles; full vesting of outstanding RSUs and restricted stock awards; as well as the value of outstanding stock options, each based upon closing stock price on December 29, 2017, the last trading day of 2017, of $55.01.
| (4) | Welfare Benefit Values—Estimated values associated with the continuation of medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance for three (two for Mr. Shudtz) years post-termination following a change-of-control.
| (5) | Outplacement—Executive is provided with outplacement services not to exceed $20,000.
|
| 68 | | CSX CORPORATION 2018 PROXY STATEMENT | | 46 CSX Corporation 2019 Proxy Statement |
Table of Contents | Compensation Discussion and Analysis |
How is change-of-control defined?
Under the agreements described below, a “change-of-control” generally includes any of the following:
● | The acquisitionEmployee Stock Purchase Plan
In 2018, shareholders approved the CSX Employee Stock Purchase Plan (“ESPP”), which provides eligible employees the right to purchase shares of beneficial ownership of 20% or more of CSX’s outstandingCSX common stock orin accordance with the combined voting power of CSX’s outstanding voting stock by an individual or group as defined under applicable SEC rules; | ● | If individuals, who asterms of the date ofESPP. All employees who have been employed by the Change-of-Control Agreement, constitute the Board (the “Incumbent Board”) cease for any reason to constituteCompany at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or group (as defined under applicable SEC rules);
| ● | A business combination (such as a merger, consolidation or disposition of substantially all of the assets of CSX or its principal subsidiary), excluding business combinations that will not result in a change in the equity and voting interests held in CSX, or a change in the composition of the Board over a specified percentage; or
| ● | The liquidation or dissolution of CSX or its principal subsidiary.
|
Each Change-of-Control Agreement provides for salary and certain benefits to be continued at no less than specified levels generally for a period of up to three years after a change-of-control (the “Employment Period”), and for certain payments and other benefits to be paid or provided by CSX upon an executive’s termination of employment within the Employment Period. No payments have been made to any NEO pursuant to the Change-of-Control Agreements.
If a change-of-control occurs, what benefits are provided during the Employment Period where no termination has occurred?
During the Employment Period, CSX is required to:
● | Pay the executive an annual base salary that is at least equal to the highest base salary payable to the executive in the 12-month period immediately preceding the Employment Period (although certain reductions in salary that are also applicable to similarly situated peer executives may be permitted);
| ● | Provide the executive with an opportunity to earn an annual incentive at a minimum, target and maximum level that is not less favorable than the executive’s opportunity to earn such annual incentives30 days prior to the Employment Period (although certain reductions also applicable to similarly situated peer executives may be permitted); and
| ● | Ensurebeginning of the executive isenrollment period are eligible to participate in incentive, retirement,the ESPP.
Under the ESPP, employees may purchase shares at the lesser of: (i) 85% of the fair market value of a share of CSX common stock on the grant date; and (ii) 85% of the fair market value of a share of CSX common stock on the expiration date. The ESPP limits the number of shares of CSX common stock that an employee may purchase in a calendar year to a number of shares that have a fair value (as of the applicable grant date) equal to $25,000. What perquisites were provided to the NEOs in 2018? The perquisites provided to NEOs in 2018 included: (i) financial planning services of $12,000; (ii) excess liability insurance; and (iii) an annual health and group benefitswell-being examination. These perquisites were valued at approximately $15,000 for each NEO. Additionally, pursuant to Company policy, Mr. Foote, as CEO, is required to travel by Company aircraft at all times for security purposes and to ensure efficient use of his time. Other senior-level executives have access to the Company aircraft and may use it on a limited basis for personal reasons. The amounts related to the NEO’s use of the Company aircraft are disclosed in theSummary Compensation Table. Does the Company have stock ownership guidelines for the NEOs? Yes. CSX believes that, in order to align the interests of management with those of its shareholders, it is important that NEOs and other retirement–related benefit planssenior leaders hold a significant ownership position in CSX common stock relative to their base salary. To achieve this linkage, CSX has established the following formal stock ownership guidelines. | Position | Minimum Value | | Chief Executive Officer | 6 times base salary | | Executive Vice Presidents | 4 times base salary | | Senior Vice Presidents | 3 times base salary | | Vice Presidents | 1 times base salary |
Each of the individuals covered by these guidelines must retain 100% of their net shares issued until the guidelines are achieved and have five years in which to benefitdo so. Does the Company have an anti-hedging / anti-pledging policy? Yes. CSX’s insider trading policy prohibits officers and directors from paid vacationentering into transactions to hedge their ownership positions in CSX securities. In addition, the policy prohibits officers and other policiesdirectors from pledging CSX securities. The Mantle Ridge group of entities, which are controlled by Mr. Hilal, pledged shares of CSX common stock as collateral under a secured credit facility with a third-party lender prior to Mr. Hilal becoming a director.
Table of Contents Compensation Discussion and its affiliates, on a basis not less favorable thanAnalysis 2018 SUMMARY COMPENSATION TABLE TheSummary Compensation Tablepresents the benefits generally available toamount and type of compensation for the executive before the Employment Period (or the benefits generally available to peer executives at any time after the beginning of the Employment Period, whichever is more favorable).NEOs in 2018. Name and Principal
Position | Year | Salary | Bonus(1) | Stock
Awards(2) | Option
Awards(3) | Non-Equity
Incentive Plan
Compensation(4) | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(5) | All Other
Compensation(5) | Total | James M. Foote
President and Chief
Executive Officer | 2018 | $ | 1,220,833 | | — | $ | 5,310,204 | $ | 3,524,190 | $ | 3,052,083 | $ | 441,428 | $ | 221,863 | $ | 13,770,601 | | 2017 | $ | 149,919 | $ | 400,000 | $ | 1,027,812 | $ | 1,045,626 | | — | $ | 8,849 | $ | 15,355 | $ | 2,647,561 | | | | | | | | | | | | | | | | | | Frank A. Lonegro
Executive Vice
President and Chief
Financial Officer | 2018 | $ | 500,000 | | — | $ | 1,180,057 | $ | 783,158 | $ | 900,000 | $ | 357,103 | $ | 20,741 | $ | 3,741,059 | | 2017 | $ | 500,000 | | — | $ | 1,950,165 | $ | 743,772 | $ | 715,500 | $ | 869,559 | $ | 34,684 | $ | 4,813,680 | | 2016 | $ | 500,000 | | — | $ | 1,520,986 | $ | 386,150 | $ | 643,500 | $ | 484,797 | $ | 31,825 | $ | 3,567,258 | Edmond L. Harris
Executive
Vice President
Operations – CSX
Transportation, Inc. | 2018 | $ | 589,130 | $ | 250,000 | $ | 2,824,310 | $ | 1,455,954 | $ | 1,060,435 | $ | 179,196 | $ | 154,621 | $ | 6,513,646 | Mark K. Wallace
Executive Vice
President Sales and
Marketing
| 2018 | $ | 550,000 | | — | $ | 3,367,141 | $ | 783,158 | $ | 990,000 | $ | 139,665 | $ | 118,199 | $ | 5,948,163 | | 2017 | $ | 450,362 | $ | 550,000 | $ | 2,316,531 | $ | 582,595 | $ | 825,000 | $ | 108,187 | $ | 378,989 | $ | 5,211,664 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nathan D. Goldman
Executive Vice
President, Chief Legal
Officer and Corporate
Secretary | 2018 | $ | 500,000 | | — | $ | 1,180,057 | $ | 783,158 | $ | 900,000 | $ | 182,544 | $ | 36,523 | $ | 3,582,282 |
| (1) | Bonus – The amounts included in this column represent the cash sign-on bonuses in 2018 for Mr. Harris and in 2017 for Messrs. Foote and Wallace. |
| | WWW.CSX.COM | | 69 | | | (2) | Stock Awards – Amounts disclosed in this column are related to LTIP performance units, RSUs and restricted stock granted in 2016, 2017 and 2018, and reflect the aggregate grant date fair value of such stock awards computed in accordance with FASB ASC Topic 718. For performance units, the grant date fair value is based on the probable outcome of performance conditions at the time of grant. For more information and assumptions used in valuing these awards, see Note 4, Stock Plans and Share-Based Compensation in the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which was filed with the SEC on February 6, 2019. If the highest level of performance under each LTIP cycle is achieved, the maximum grant date fair value of the performance units (which does not include stock options, RSUs or restricted stock) for each NEO by year of grant would be: 2018: Mr. Foote - $10,620,408, Messrs. Lonegro, Harris, Wallace and Goldman - $2,360,114; 2017: Mr. Foote’s sign-on equity grant - $2,055,624, Mr. Lonegro - $2,600,188, Mr. Wallace - $2,259,984, Mr. Goldman - $260,048; 2016: Mr. Lonegro - $1,403,980, Mr Goldman. - $187,200. | | (3) | Option Awards – The values included in this column represent the aggregate grant date fair value of stock options granted to each NEO computed in accordance with FASB ASC Topic 718. For more information and assumptions used in valuing these awards, see Note 4, Stock Plans and Share-Based Compensation in the Notes to the Consolidated Financial Statements in the 2018 Annual Report, which was filed with the SEC on February 6, 2019. | | (4) | Non-Equity Incentive Plan Compensation – The 2018 annual incentive compensation was paid on February 22, 2019 based on a 200% payout of the 2018 MICP since plan targets were exceeded. | | (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings – The values in this column reflect aggregate changes in the actuarial present value of pension benefits. The changes in values result from increases in each individual’s years of service, final average compensation calculation and age, revised mortality assumptions, as well as from an increase in the pension discount rate from 3.56% to 4.24%. CSX measured its pension values as of December 31, 2018. | | (6) | All Other Compensation – The values in this column include amounts for personal usage of Company aircraft, financial planning/tax preparation services, executive physical, annual health savings account contribution associated with participation in the medical plan, excess liability insurance, matching charitable contributions, relocation, temporary housing, and the Company’s match under the 401(k) and nonqualified deferred compensation plans. For Mr. Foote, this column includes, along with the items discussed above, $164,178 for Company-mandated aircraft usage, as described in the CD&A, and a $35,073 nonqualified deferred contribution Company match. Mr. Harris’ amount includes $101,338 for temporary corporate housing, which was negotiated as part of his hiring package. Mr. Wallace’s amount includes $57,878 for relocation tax equalization per his employment agreement, and a $25,000 charitable contribution made on his behalf. | | The aircraft usage amount was calculated using the direct hourly operating cost of $2,302 and $3,619, depending upon the type of aircraft used, per flight hour for 2018, plus taxes. The aggregate incremental cost to the Company for use of the Company aircraft for personal travel is calculated by multiplying the hourly variable cost rate (including fuel, oil, airport and hangar fees, crew expenses, maintenance, catering and taxes) for the aircraft by the hours the executive used the aircraft. For these purposes, hours occupied by any “deadhead” aircraft legs are included in the total hours the aircraft was used by the executive. |
48 CSX Corporation 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis 2018 GRANTS OF PLAN-BASED AWARDS TABLE In 2018, the NEOs received the plan-based awards as shown in the table below. | | Estimated Possible Payouts Under
Non-Equity
Incentive Plan Awards(1) | Estimated Future Payouts
Under Equity
Incentive Awards (# units)(2) | All Other
Stock
Awards
(units)(3) | All Other
Option
Awards
(#)(4) | Exercise
Price of
Option
Awards
($) | Grant Date
Fair Value
of Stock
and Option
Awards(5) | | Name | Grant Date | Threshold
($) | Target
($) | Maximum
($) | Threshold
(units) | Target
(units) | Maximum
(units) | | James M. Foote | Feb. 6, 2018 | | | | | | | 9,867 | 98,666 | 197,332 | | | | | $ | 5,310,204 | | Feb. 6, 2018 | | | | | | | | | | | 242,229 | $ | 53.82 | $ | 3,524,190 | | | $ | 152,604 | $ | 1,526,041 | $ | 3,052,081 | | | | | | | | | | | Frank A. Lonegro | Feb. 6, 2018 | | | | | | | 2,193 | 21,926 | 43,852 | | | | | $ | 1,180,057 | | Feb. 6, 2018 | | | | | | | | | | | 53,829 | $ | 53.82 | $ | 783,158 | | | $ | 45,000 | $ | 450,000 | $ | 900,000 | | | | | | | | | | | Edmond L. Harris | Feb. 6, 2018 | | | | | | | 2,193 | 21,926 | 43,852 | | | | | $ | 1,180,057 | | Feb. 6, 2018 | | | | | | | | | | | 53,829 | $ | 53.82 | $ | 783,158 | | Jan.10, 2018 | | | | | | | | | | | 53,652 | $ | 58.48 | $ | 851,886 | | Aug. 3, 2018 | | | | | | | | | | 23,074 | | | | $ | 1,644,253 | | | $ | 53,022 | $ | 530,217 | $ | 1,060,435 | | | | | | | | | | | Mark K. Wallace | Feb. 6, 2018 | | | | | | | 2,193 | 21,926 | 43,852 | | | | | $ | 1,180,057 | | Feb. 6, 2018 | | | | | | | | | | | 53,829 | $ | 53.82 | $ | 783,158 | | Aug. 2, 2018 | | | | | | | | | | 30,765 | | | | $ | 2,187,084 | | | $ | 49,500 | $ | 495,000 | $ | 990,000 | | | | | | | | | | | Nathan D. Goldman | Feb. 6, 2018 | | | | | | | 2,193 | 21,926 | 43,852 | | | | | $ | 1,180,057 | | Feb. 6, 2018 | | | | | | | | | | | 53,829 | $ | 53.82 | $ | 783,158 | | | $ | 45,000 | $ | 450,000 | $ | 900,000 | | | | | | | | | |
| (1) | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards – The amounts in these columns reflect what the payments could have been for 2018 under the MICP using the Target Incentive Opportunities and Company performance measures under the MICP. The values reflect a threshold payout of 10%, a target payout of 100% and a maximum payout of 200%. |
| (2) | Estimated Future Payouts Under Equity Incentive Plan Programs – The values in these columns reflect the potential payout in shares under the 2018-2020 LTIP cycle based on pre-established financial performance goals. The Company’s performance will determine a payout of shares that can range from 0% to 200% of the LTIP performance unit grants. The values reflect payouts of 10% at threshold, 100% at target, and 200% at maximum. The 10% threshold assumes that only one financial performance measure met the threshold performance level. If both financial performance measures reach threshold performance level, the resulting payout would be 20%. | | (3) | All Other Stock Awards – The value in this column reflects the number of RSUs and restricted stock awards granted in 2018. | | (4) | All Other Option Awards – The value provided for Mr. Harris with respect to the options granted to him on January 10, 2018, represents the number of nonqualified stock options granted as part of his hiring on January 10, 2018, when he joined CSX as Executive Vice President, Operations, which vest and become exercisable on January 10, 2021. The options grant to Mr. Harris on January 10, 2018, were granted with an exercise price equal to the closing price on the date of grant of $58.48. For all other NEOs, and with respect to the options granted to Mr. Harris on February 6, 2018, the amount in this column represents the number of nonqualified stock options granted on February 6, 2018, which vest and become exercisable on February 6, 2021. These options were granted with an exercise price equal to the closing stock price on the date of grant of $53.82. | | (5) | Grant Date Fair Value of Stock and Option Awards – The values in this column reflect the grant date fair value of performance units (based on the probable outcome of the performance conditions, which is the target number); RSUs, restricted stock and stock options granted in 2018, calculated in accordance with FASB ASC Topic 718. |
|
Table of Contents Compensation Discussion and Analysis 2018 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The table below presents information pertaining to all outstanding equity awards held by the NEOs as of December 31, 2018. Stock awards are comprised of outstanding performance units, stock options, RSUs and restricted stock. | Options | Stock Awards | | Name | Number of
Securities
Underlying
Exercisable
Options
(#) | Number of
Securities
Underlying
Unexercisable
Options
(#) | Option
Exercise
Price | Option
Expiration
Date | Number
of Shares
or Units
of Stock
That
Have Not
Vested(1)
(#) | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(2)
($) | Equity
Incentive Plan
Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested(3)
(#) | Equity
Incentive Plan
Awards:
Market or
Payout Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested(4)
($) | | James M. Foote | — | 242,229 | $ | 53.82 | 02/06/28 | — | | — | 236,176 | $ | 14,673,615 | | — | 76,040 | $ | 52.92 | 10/25/27 | — | | — | — | | — | | Frank A. Lonegro | — | 53,829 | $ | 53.82 | 02/06/28 | 47,375 | $ | 2,943,409 | 97,586 | $ | 6,063,018 | | — | 59,312 | $ | 48.39 | 02/22/27 | — | | — | — | | — | | — | 82,599 | $ | 24.13 | 02/10/26 | — | | — | — | | — | | Edmond L. Harris | — | 53,829 | $ | 53.82 | 02/06/28 | 23,074 | $ | 1,433,588 | 43,852 | $ | 2,724,525 | | — | 53,652 | $ | 58.48 | 01/10/28 | — | | — | — | | — | | Mark K. Wallace | — | 53,829 | $ | 53.82 | 02/06/28 | 42,715 | $ | 2,653,883 | 91,652 | $ | 5,694,339 | | — | 47,966 | $ | 47.28 | 03/29/27 | — | | — | — | | — | | Nathan D. Goldman | — | 53,829 | $ | 53.82 | 02/06/28 | 27,016 | $ | 1,678,504 | 49,226 | $ | 3,058,411 | | — | 5,931 | $ | 48.39 | 02/22/27 | — | | — | — | | — | | — | 11,013 | $ | 24.13 | 02/10/26 | — | | — | — | | — | | 38,241 | — | $ | 24.99 | 12/08/25 | — | | — | — | | — |
| (1) | Number of Shares or Units of Stock That Have Not Vested—The units reflected in this column represent RSUs granted in February 2016 and 2017 that will vest in 2019 and 2020, respectively, assuming continued employment. This column also includes 19,395 shares of restricted stock awarded to Mr. Lonegro in February 2016 that will vest in February 2021; also included are 23,074 and 30,765 shares of restricted stock awarded to Messrs. Harris and Wallace, respectively, in August 2018 that will vest in August 2021; and 23,734 shares of restricted stock awarded to Mr. Goldman in May 2016 that will vest in May 2019. | | (2) | Market Value of Shares or Units of Stock That Have Not Vested—The market values are based on the Company’s closing stock price as of December 31, 2018, the last trading day of 2018, of $62.13. | | (3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested—In accordance with the SEC requirements for this table, the number of shares shown in the column above represents the sum of the performance units that would be payable under the 2017-2019 and 2018-2020 LTIPs if the Company’s cumulative performance through 2018 was applied to each plan’s performance measures. The Company’s 2018 performance would have resulted in a 200% payout for the 2017-2019 LTIP and 200% for the 2018-2020 LTIP, even though these cycles are not yet complete. Because this performance would have exceeded the target performance goals, the SEC requires that projected payouts be shown at the next higher performance measure; therefore, the number of performance units shown is equal to the maximum payout for both the 2017-2019 LTIP (200%) and the 2018-2020 LTIP (200%). | | (4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested—The market values are based on the Company’s closing stock price as of December 31, 2018, the last trading day of 2018, of $62.13. |
50 CSX Corporation 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis 2018 OPTION EXERCISES AND STOCK VESTED TABLE The table below presents the value of performance units, RSUs and restricted stock that vested in 2018. | | Option Awards | | | Stock Awards | | Name | | Shares Acquired
on Exercise | Value Realized
on Exercise | | | Shares Acquired
on Vesting(1) | Value Realized
on Vesting(2) | | James M. Foote | | — | — | | | — | | — | | Frank A. Lonegro | | — | — | | | 59,588 | $ | 3,861,834 | | Edmond L. Harris | | — | — | | | — | | — | | Mark K. Wallace | | — | — | | | 6,573 | $ | 408,380 | | Nathan D. Goldman | | — | — | | | 9,162 | $ | 579,605 |
| (1) | Shares Acquired on Vesting – Shares acquired through stock awards include: (i) performance units that were paid out pursuant to the 2016-2018 LTIP; (ii) RSUs that vested in May 2018; and (iii) RSUs that vested for Mr. Wallace on December 31, 2018, as part of his hiring package. Messrs. Foote, Harris and Wallace did not receive awards under the 2016-2018 LTIP as they were not employed with CSX at the time of grant. | | (2) | Value Realized on Vesting – The values in this column reflect: (i) the number of performance units paid out pursuant to the 2016-2018 LTIP cycle multiplied by $65.09, the closing stock price on January 17, 2019; and (ii) the aggregate number of restricted stock and RSUs that vested in 2018 multiplied by the closing price of CSX common stock on the applicable vesting date. |
2018 PENSION BENEFITS TABLE As reflected by thePension Benefits Table, and as described below, CSX maintains defined benefit plans (qualified and nonqualified) under which the NEOs are eligible for benefits. | Name | | Plan Name | Number of Years
Credited Service | Present Value
of Accumulated
Benefits(1) | Payments During
Last FY | | James M. Foote | | Qualified CSX Pension Plan | 1.25 | $ | 31,402 | — | | Nonqualified Special Retirement Plan | 1.25 | $ | 418,875 | — | | Frank A. Lonegro | | Qualified CSX Pension Plan | 18.583 | $ | 680,917 | — | | Nonqualified Special Retirement Plan | 18.583 | $ | 2,062,600 | — | | Edmond L. Harris | | Qualified CSX Pension Plan | 1.000 | $ | 29,778 | — | | Nonqualified Special Retirement Plan | 1.000 | $ | 149,418 | — | | Mark K. Wallace | | Qualified CSX Pension Plan | 1.833 | $ | 43,597 | — | | Nonqualified Special Retirement Plan | 1.833 | $ | 204,255 | — | | Nathan D. Goldman | | Qualified CSX Pension Plan | 15.583 | $ | 353,107 | — | | Nonqualified Special Retirement Plan | 15.583 | $ | 447,430 | — |
| (1) | Under the terms of the Special Retirement Plan, nonqualified pension benefits can be paid in the same form as under the Pension Plan. |
Qualified CSX Pension Plan Cash Balance Formula for Employees Hired on or After January 1, 2003 Non-union employees who become eligible to participate in the Pension Plan on or after January 1, 2003 earn pension benefits under the cash balance formula. These benefits are expressed in the form of a hypothetical account balance. For each month of service, the participant’s account is credited with a percentage of the participant’s pay for that month. The percentage of pay credited is determined based on the participant’s age and years of service. Messrs. Foote, Goldman, Harris and Wallace are covered under the Cash Balance Pay Formula as described below. The hypothetical account earns interest credits on a monthly basis based on the annual 10-year Treasury bond rate and the participant’s account balance as of the end of the prior month. The average annual interest crediting rate used for 2018 was 3.66%. The resulting benefit is subject to a cap imposed under Section 415 of the Code (the “415 Limit”). The 415 Limit for 2018 was $220,000 (for a life annuity at age 65) and is subject to adjustment for future cost of living changes. Further, under the Code, the maximum amount of pay that may be taken into account for any year is limited. This limit (the “Compensation Limit”) is $275,000 for 2018 and is also subject to adjustment for future cost of living changes.
Table of Contents Compensation Discussion and Analysis | ● | Vesting—Benefits under this formula vest upon the earlier of the completion of three years of service or attainment of age 65. | | ● | Form of Payment of Benefits—Benefits under this formula may be paid upon termination of employment or retirement as a lump sum or in various annuity forms. The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in the table are described in the 2018 Annual Report. |
Final Average Pay Formula For management employees hired or promoted from a union position prior to January 1, 2003, the final average pay formula provides for a benefit in the form of a life annuity starting at age 65. The compensation used under this formula includes the highest aggregate base salary and short-term incentive payments for the employee’s highest consecutive 60-month period. The benefit is equal to 1.5% of the employee’s final average pay multiplied by their years of CSX service. This amount is then reduced by 40% of the employee’s Social Security benefits or 60% of the employee’s Railroad Retirement benefits, or both, as applicable. Mr. Lonegro was hired before January 1, 2003, and as such, is eligible for benefits based on the final average pay formula. He is the only NEO under this formula. The 415 Limit and Compensation Limit also apply in determining benefits under the final average pay formula. | ● | Transfer Benefits—The Pension Plan provides an enhancement to the pension benefits of those participants who transfer from a position covered by Railroad Retirement to a position covered by Social Security before January 1, 2015. This enhancement is to make up for any retirement benefit lost due to discontinuance of Railroad Retirement service. This provision is applicable to Mr. Lonegro. | | ● | Vesting—Benefits under this formula vest upon the earlier of the completion of five years of service or attainment of age 65. The benefits under this formula have vested for Mr. Lonegro. | | ● | Early Retirement—Normal retirement age is 65. However, employees with 10 years of service may retire as early as age 55, but with a reduction from full benefits to reflect early commencement of the benefit prior to age 65. If an active participant reaches age 55 with 10 years of service, the reduction for early retirement is 1/360thof the pension benefit for each month the benefit commences prior to age 60 (rather than age 65). | | ● | Form of Payment of Benefits—Benefits under this formula are payable in various annuity forms at retirement. The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in the table are described in the 2018 Annual Report. |
Special Retirement Plan of CSX and Affiliated Corporations The Special Retirement Plan is a nonqualified plan that covers CSX employees, including the NEOs, whose compensation exceeds the Compensation Limit. The purpose of the Special Retirement Plan is to assist CSX in attracting and retaining key executives by allowing the Company to offer competitive pension benefits. The formula duplicates the qualified plan formula but provides for the payment of benefits that would otherwise not be provided under the Pension Plan due to the 415 Limit and the Compensation Limit, both described above. Nonqualified pension benefits can be paid in the same form as under the Pension Plan. Pension benefits under the Special Retirement Plan are subject to: (i) suspension and possible forfeiture if a retired executive competes with the Company or engages in acts detrimental to the Company; or (ii) forfeiture if an executive is terminated for engaging in acts detrimental to the Company. The valuation method and actuarial factors used to determine the present value of accumulated benefits shown in thePension Benefits Tablefor the Special Retirement Plan are described in the 2018 Annual Report. 52 CSX Corporation 2019 Proxy Statement |
Table of Contents Compensation Discussion and Analysis 2018 NONQUALIFIED DEFERRED COMPENSATION TABLE TheNonqualified Deferred Compensation Tablepresents a summary of 2018 contributions made under the EDCP, as well as 2018 earnings, distributions and year-end balances. Two types of deferrals are represented below: cash and CSX stock deferrals. Cash deferrals include deferred portions of an NEO’s base salary and short-term incentive payments. CSX stock deferrals include deferred portions of compensation payable in the form of CSX common stock. | Name | Executive
Contributions in
Last Fiscal
Year(1)
($) | Registrant
Contributions in
Last Fiscal
Year(2)
($) | Aggregate
Earnings in
Last Fiscal
Year(3)
($) | | Aggregate
Distributions in
Last Fiscal
Year(4)
($) | Aggregate
Balance Last in
Fiscal Year
($) | | James M. Foote | $ | 73,250 | $ | 35,073 | ($ | 8,479 | ) | — | $ | 90,896 | | Frank A. Lonegro | $ | 13,500 | $ | 7,875 | ($ | 21,450 | ) | — | $ | 918,697 | | Edmond L. Harris | $ | 17,875 | $ | 10,427 | $ | 27 | | — | $ | 25,756 | | Mark K. Wallace | | — | | — | | — | | — | | — | | Nathan D. Goldman | $ | 13,500 | $ | 7,875 | $ | 142 | | — | $ | 46,235 |
| (1) | Executive Contributions Last in Fiscal Year - Executive contributions in 2018 under the EDCP are also reported in the Salary column of the Summary Compensation Table. | | (2) | Registrant Contributions in Last Fiscal Year - Company contributions in 2018 are also reported in the All Other Compensation column of the Summary Compensation Table. | | (3) | Aggregate Earnings in Last Fiscal Year - Earnings on cash deferrals include the total gains and losses credited in 2018 based on participant investment elections. Earnings on CSX stock deferrals reflect the difference between the closing stock price on the last trading day of 2017 and 2018, plus any dividends credited in 2018. |
POTENTIAL PAYOUTS UNDER CHANGE-OF-CONTROL AGREEMENTS The following table presents the severance benefits to which each of the NEOs would be entitled as of December 31, 2018, under his or her Change-of-Control Agreement upon the hypothetical termination of employment following a change-of-control: (i) by CSX other than for “cause” or “disability”; (ii) by the NEO for “good reason”; or (iii) upon a “constructive termination.” A change-of-control would not result in retirement benefit increases or excise tax gross ups. Further, the pro-rata bonus payment would be based on target bonus instead of the highest annual bonus. | Name | Severance(1) | Pro-rata
Bonus
Payment(2) | Equity(3) | Welfare
Benefit
Values(4) | Outplacement(5) | Aggregate
Payments | | James M. Foote | $ | 8,513,542 | $ | 3,052,081 | $ | 10,050,059 | $ | 29,416 | $ | 20,000 | $ | 21,665,098 | | Frank A. Lonegro | $ | 2,882,167 | $ | 900,000 | $ | 10,445,034 | $ | 73,368 | $ | 20,000 | $ | 14,320,569 | | Edmond L. Harris | $ | 3,458,600 | $ | 1,060,435 | $ | 3,438,999 | $ | 5,256 | $ | 20,000 | $ | 7,983,290 | | Mark K. Wallace | $ | 3,170,383 | $ | 990,000 | $ | 5,918,213 | $ | 73,368 | $ | 20,000 | $ | 10,171,964 | | Nathan D. Goldman | $ | 2,882,167 | $ | 900,000 | $ | 4,552,980 | $ | 73,368 | $ | 20,000 | $ | 8,428,515 |
| (1) | Severance—Severance payment equal to 2.99 times the sum of the NEO’s annual base salary at the time of the termination and the “target bonus”. | | (2) | Pro-rata Bonus Payment—The “annual bonus” based upon the Executive’s target incentive opportunity and the plan’s achievement percentage pro-rated for the number of days in the calendar year prior to a hypothetical termination of employment as of December 31, 2018. | | (3) | Equity—Full LTIP performance unit payout based on 100% attainment of target levels under the 2016-2018, 2017-2019 and 2018-2020 LTIPs; full vesting of outstanding RSUs and restricted stock awards; as well as the value of outstanding stock options, each based upon the closing stock price on December 31, 2018, the last trading day of 2018, of $62.13. | | (4) | Welfare Benefit Values—Estimated values associated with the continuation of medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance for three years post-termination following a change-of-control. | | (5) | Outplacement—Executive is provided with outplacement services not to exceed $20,000. |
Table of Contents Compensation Discussion and Analysis How is change-of-control defined? Under the agreements described below, a “change-of-control” generally includes any of the following: | ● | the acquisition of beneficial ownership of 20% or more of CSX’s outstanding common stock or the combined voting power of CSX’s outstanding voting stock by an individual or group as defined under applicable SEC rules; | | ● | if individuals, who as of the date of the Change-of-Control Agreement, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or group (as defined under applicable SEC rules); | | ● | a business combination (such as a merger, consolidation or disposition of substantially all of the assets of CSX or its principal subsidiary), excluding business combinations where: (i) the individuals or entities who held more than 50% of the outstanding voting securities immediately prior to such combination continue to beneficially own more than 50% of the outstanding shares and the combined voting power of the then outstanding voting shares; (ii) no person (excluding any corporation resulting from such a business combination or any employee benefit plan of the Company) beneficially owns, directly or indirectly, 20% or more of the then outstanding shares of common stock of the entity resulting from such business combination; and (iii) at least a majority of the board of directors of the entity resulting from such a business combination were members of the board at the time of the action of the board approving the business combination; or | | ● | the liquidation or dissolution of CSX or its principal subsidiary. |
Each Change-of-Control Agreement provides for salary and certain benefits to be continued at no less than specified levels generally for a period of up to three years after a change-of-control (the “Employment Period”), and for certain payments and other benefits to be paid or provided by CSX upon an executive’s termination of employment within the Employment Period. No payments have been made to any NEO pursuant to the Change-of-Control Agreements. If a change-of-control occurs, what benefits are provided during the Employment Period where no termination has occurred? During the Employment Period, CSX is required to: | ● | Pay the executive an annual base salary that is at least equal to the highest base salary payable to the executive in the 12-month period immediately preceding the Employment Period (although certain reductions in salary that are also applicable to similarly situated peer executives may be permitted); | | ● | Provide the executive with an opportunity to earn an annual incentive at a minimum, target and maximum level that is not less favorable than the executive’s opportunity to earn such annual incentives prior to the Employment Period (although certain reductions also applicable to similarly situated peer executives may be permitted); and | | ● | Ensure the executive is eligible to participate in incentive, retirement, health and group benefits and other retirement–related benefit plans and to benefit from paid vacation and other policies of CSX and its affiliates, on a basis not less favorable than the benefits generally available to the executive before the Employment Period (or the benefits generally available to peer executives at any time after the beginning of the Employment Period, whichever is more favorable). |
If a change-of-control occurs, what benefits are provided if the NEO is terminated? Under the Change-of-Control Agreements, CSX will provide severance payments and other benefits to NEOs upon their termination of employment during the Employment Period. The amount of benefits depends on the reason for termination as discussed below. Termination Without “Cause,” Resignation for “Good Reason” or “Constructive Termination.”CSX will pay to the NEO the severance benefits described below if, during the Employment Period, CSX terminates the NEO’s employment without “cause”, the NEO resigns for “good reason” or upon a “constructive termination.” An NEO whose employment is terminated without “cause” in anticipation of a change-of-control is also entitled to the following benefits.
Cash Severance Payment—A lump sum cash payment equal to the sum of the following:
● | Executive’s accrued pay (unpaid salary and unused vacation) and pro-rated bonus determined using the “annual bonus” based upon the Executive’s Target Incentive Opportunity and the plan’s achievement percentage pro-rated for the number of days in the calendar year prior to a hypothetical termination of employment; and
| ● | 2.99 times the sum of the NEO’s annual base salary and the NEO’s “target bonus” (the Company provides the best-net-benefit meaning that to the extent an NEO would have a higher net benefit if he or she avoided excise taxes due to an excess parachute payment, the Change-of-Control Agreement provides for an automatic downward adjustment to prevent an excess parachute payment). Mr. Shudtz is eligible for a benefit multiplier of 2.00 times since he was not a Section 16 Officer of the Company as of December 31, 2017.
|
Medical and Other Group Benefits—The equivalent of continued medical and life insurance and other health and group benefits coverage for three years after termination of employment at a level at least as favorable as the benefits provided to the NEO during the Employment Period (or the benefits then generally available to peer executives, whichever is more favorable). Mr. Shudtz is eligible to receive the equivalent of continued benefits for two years after termination.
Outplacement—Outplacement services at a cost to CSX not to exceed $20,000.
Termination for Other Reasons—If the executive’s employment is terminated due to the executive’s death or disability, or voluntarily by the executive, CSX will make a lump sum cash payment equal to the executive’s accrued pay (which includes unpaid base salary and unused vacation). If the executive’s employment is terminated by CSX for “cause,” CSX will pay the executive a lump-sum cash payment of any unpaid portion of his or her annual base salary through the date of termination.
Definitions:
“Cause” generally refers to: (i) the willful and continued failure of the NEO to perform his or her duties to CSX; or (ii) the willful engagement in illegal conduct or gross misconduct that is materially and demonstrably injurious to CSX.
“Constructive termination” applies in the case of a business combination subject to the approval of the Surface Transportation Board, and refers to the occurrence of any of the following during the portion of the Employment Period prior to that agency’s final decision:
● | the substantial diminution of the NEO’s duties or responsibilities;
| ● | a reduction in compensation payable during the Employment Period (other than a reduction in incentive opportunities, benefits and perquisites where the NEO’s peer executives suffer a comparable reduction);
| ● | CSX’s requiring the NEO to be based more than 35 miles from his or her location or to travel on business to a materially greater extent than before; or
| ● | any purported termination by CSX of the NEO’s employment other than for “cause.”
|
“Disability” generally refers to the NEO’s absence from duties for 180 consecutive business days as a result of total and permanent mental or physical illness.
“Good reason” generally refers to the occurrence of any of the following:
● | the assignment to the NEO of duties inconsistent with, or a diminution of his or her position, authority, duties or responsibilities;
| ● | any failure of CSX to comply with its compensation obligations during the Employment Period;
| ● | CSX’s requiring the NEO to be based more than 35 miles from his or her location or to travel on business to a materially greater extent than before;
| ● | any purported termination by CSX of the NEO’s employment other than as permitted by the Change-of-Control Agreements; or
| ● | any failure of CSX to require a successor to assume the Change-of-Control Agreement.
|
| 70 | | CSX CORPORATION 2018 PROXY STATEMENT | | 54 CSX Corporation 2019 Proxy Statement |
Table of Contents | Compensation Discussion and Analysis Termination Without “Cause,” Resignation for “Good Reason” or “Constructive Termination.” CSX will pay to the NEO the severance benefits described below if, during the Employment Period, CSX terminates the NEO’s employment without “cause”, the NEO resigns for “good reason” or upon a “constructive termination.” An NEO whose employment is terminated without “cause” in anticipation of a change-of-control is also entitled to the following benefits. Cash Severance Payment—A lump sum cash payment equal to the sum of the following: | ● | Executive’s accrued pay (unpaid salary and unused vacation) and pro-rated bonus determined using the “annual bonus” based upon the Executive’s target incentive opportunity and the plan’s achievement percentage pro-rated for the number of days in the calendar year prior to a hypothetical termination of employment; and |
Is there a confidentiality clause in the Change-of-Control Agreements?
Yes. Each of the Change-of-Control Agreements requires the NEO to keep confidential any proprietary information or data relating to CSX and its affiliates. After
| | ● | 2.99 times the sum of the NEO’s annual base salary and the NEO’s “target bonus” (the Company provides the best-net-benefit meaning that to the extent an NEO would have a higher net benefit if he or she avoided excise taxes due to an excess parachute payment, the Change-of-Control Agreement provides for an automatic downward adjustment to prevent an excess parachute payment). |
Medical and Other Group Benefits—The equivalent of continued medical and life insurance and other health and group benefits coverage for three years after termination of employment an NEO may not disclose confidential information without prior express written permission from CSX. Are there any other “change-of-control” rights available to the NEOs other than those contained in the executives’ Change-of-Control Agreements?
Yes. Pursuant to the terms of the Stock Plan, in the event of a change-of-control combined with involuntary employment termination, equity awards are impacted as follows:
● | Performance grants vest at target levels;a level at least as favorable as the benefits provided to the NEO during the Employment Period (or the benefits then generally available to peer executives, whichever is more favorable).Outplacement—Outplacement services at a cost to CSX not to exceed $20,000. Termination for Other Reasons—If the executive’s employment is terminated due to the executive’s death or disability, or voluntarily by the executive, CSX will make a lump sum cash payment equal to the executive’s accrued pay (which includes unpaid base salary and unused vacation). If the executive’s employment is terminated by CSX for “cause,” CSX will pay the executive a lump-sum cash payment of any unpaid portion of his or her annual base salary through the date of termination. Definitions: “Cause” generally refers to: (i) the willful and continued failure of the NEO to perform his or her duties to CSX; or (ii) the willful engagement in illegal conduct or gross misconduct that is materially and demonstrably injurious to CSX. “Constructive termination” applies in the case of a business combination subject to the approval of the Surface Transportation Board, and refers to the occurrence of any of the following during the portion of the Employment Period prior to that agency’s final decision: | ● | the substantial diminution of the NEO’s duties or responsibilities; | | ● | a reduction in compensation payable during the Employment Period (other than a reduction in incentive opportunities, benefits and perquisites where the NEO’s peer executives suffer a comparable reduction); | | ● | CSX’s requiring the NEO to be based more than 35 miles from his or her location or to travel on business to a materially greater extent than before; or | | ● | any purported termination by CSX of the NEO’s employment other than for “cause.”
| “Disability” generally refers to the NEO’s absence from duties for 180 consecutive business days as a result of total and permanent mental or physical illness. “Good reason” generally refers to the occurrence of any of the following:
| | ● | the assignment to the NEO of duties inconsistent with, or a diminution of his or her position, authority, duties or responsibilities; | | ● | any failure of CSX to comply with its compensation obligations during the Employment Period; | | ● | CSX’s requiring the NEO to be based more than 35 miles from his or her location or to travel on business to a materially greater extent than before; | | ● | any purported termination by CSX of the NEO’s employment other than as permitted by the Change-of-Control Agreements; or | | ● | any failure of CSX to require a successor to assume the Change-of-Control Agreement. |
Are there any other “change-of-control” rights available to the NEOs other than those contained in the executives’ Change-of-Control Agreements? Yes. Pursuant to the terms of the 2010 Stock Plan, in the event of a change-of-control combined with involuntary employment termination, equity awards are impacted as follows: | ● | Performance grants vest at target levels; | | ● | RSUs and unvested stock options are payable immediately in cash; and | | ● | Restricted stock immediately vests. |
Table of Contents Compensation Discussion and unvested stock options are payable immediately in cash;Analysis What is the impact of a change-of-control on deferred compensation (EDCP) and retirement plan benefits? In accordance with the terms of the EDCP, distribution of the entire account balance shall be made to participants upon a change-of-control unless the individual participant elects otherwise. The Special Retirement Plan also contains certain change-of-control provisions. Does the Company provide tax gross-ups for excess parachute payments? No. The Company does not provide gross-up payments for excess parachute excise taxes. Post-Employment Compensation - Termination without Cause by the Company or by the Executive for Good Reason The following table presents the severance benefits to which each of the NEO’s would be entitled as of December 31, 2018, under the applicable severance arrangement assuming the NEO was terminated “without cause” by the Company or by the executive for “good reason.” | Name | Severance(1) | Stock
Awards(2) | Option
Awards(2) | Non-Equity
Incentive Plan
Compensation(3) | Pension
Enhancement(4) | Other
Compensation(5) | Total
Compensation
Payable | | James M. Foote | $ | 5,625,000 | $ | 7,336,807 | $ | 2,713,251 | $ | 3,052,081 | | — | $ | 32,876 | $ | 18,760,015 | | Frank A. Lonegro | $ | 1,450,000 | $ | 5,469,180 | $ | 3,796,108 | $ | 900,000 | $ | 2,678,045 | $ | 52,304 | $ | 14,400,580 | | Edmond L. Harris | $ | 1,740,000 | $ | 2,795,850 | $ | 643,149 | $ | 1,060,435 | | — | $ | 32,000 | $ | 6,271,434 | | Mark K. Wallace | $ | 2,090,000 | $ | 2,130,748 | $ | 591,761 | $ | 990,000 | | — | $ | 151,668 | $ | 5,954,177 | | Nathan D. Goldman | $ | 1,450,000 | $ | 2,246,621 | $ | 590,074 | $ | 900,000 | $ | 176,729 | $ | 52,304 | $ | 5,415,728 |
| (1) | Per their employment agreements, Messrs. Foote and Wallace would receive two times their annual salary plus two times their target annual bonus and Mr. Harris would receive two times his annual salary plus one times his target annual bonus. Under the Section 16 Officer Severance Plan, Messrs. Lonegro and Goldman would receive two times their annual salary plus one times their target annual bonus. The Section 16 Officer Severance Plan expired on February 22, 2019. As such, Messrs. Lonegro and Goldman would receive one year’s annual salary and nine months’ salary, respectively. | | (2) | This includes a prorated amount of all outstanding equity awards as of December 31, 2018, except for Messrs. Foote and Harris who would receive their full award (not prorated), per their respective employment agreements. However, all equity would be settled according to each grant’s original vesting schedule. All performance unit calculations in the table assume a target performance; however, actual vesting would be based on Company performance. All equity awards have been valued using the closing stock price on December 31, 2018 (the last trading day of 2018) of $62.13. The Option Awards have been calculated using the difference between the respective grant’s exercise price and the closing stock price on December 31, 2018, multiplied by the prorated number of Options held by each NEO. The prorated Options would remain outstanding until the end of their originally scheduled term. Mr. Foote’s stock and option awards are also subject to vesting at retirement. | | (3) | These amounts represent what each NEO would receive as a prorated 2018 annual bonus award, adjusted for Company performance. | | (4) | Per the Section 16 Officer Severance Plan and the Executive Severance Plan, these amounts represent what Messrs. Lonegro and Goldman would receive as a pension enhancement credit equivalent to an additional three years of age and two years of service. This provision expired on February 22, 2019. | | (5) | In accordance with the Section 16 Officer Severance Plan, each NEO would receive outplacement and financial planning services not to exceed $20,000 and $12,000, respectively. In addition, each would also have the option to continue their medical and dental benefits if they elected to receive their severance as monthly installments over a period of one year. Per Mr. Wallace’s employment agreement, he also would receive a relocation benefit estimated at $100,000. | ● | Restricted stock immediately vests. |
What is the impact of a change-of-control on deferred compensation (EDCP) and retirement plan benefits?
In accordance with the terms of the EDCP, distribution of the entire account balance shall be made to participants upon a change-of-control unless the individual participant elects otherwise. As discussed in the narrative accompanying thePension Benefits Table, the Special Retirement Plan also contains certain change-of-control provisions.
Does the Company provide tax gross-ups for excess parachute payments?
No. The Company does not provide gross-up payments for excess parachute excise taxes.
Are there other severance protections in place for NEOs?
Yes, the Section 16 Officer Severance Plan. The potential benefits under this plan (and the one that Mr. Shudtz participates under), which are in effect until February 22, 2019, are as previously described. The NEOs are not entitled to receive benefits under the Section 16 Officer Severance Plan (or the one that Mr. Shudtz participates under) or the generalseverance plan if they receive benefits under their change-of-control agreements. In addition, Messrs. Foote and Wallace have severance protections as provided in their respective employment agreements.
56 CSX Corporation 2019 Proxy Statement |
Table of Contents 
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis | |
Post-Employment Compensation - Termination without Cause by the Company or by the Executive for Good Reason
The following table presents the severance benefits to which each of the NEO’s would with management. Based on its review and on the discussion described above, the Compensation Committee recommended to the full Board that the Compensation Discussion and Analysis be entitled as of December 31, 2017, under the applicable severance arrangement assuming the NEO was terminated “without cause” by the Company or by the executive for “good reason.” Messrs. Harrison, Ward and Eliasson and Ms. Fitzsimmons are not included in the table as: (i) Mr. Harrison passed away prior to year-end; (ii) Mr. Ward retired prior to year-end; (iii) Mr. Eliasson resigned prior to year-end; and (iv) Ms. Fitzsimmons retired prior to year-end. Mr. Eliasson and Ms. Fitzsimmons received their severance benefits, as reported in the Summary Compensation Table.
| NAME | | SEVERANCE(1) | | STOCK
AWARDS(2) | | OPTION
AWARDS(2) | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION(3) | | PENSION
ENHANCEMENT(4) | | OTHER
COMPENSATION(5) | | TOTAL
COMPENSATION
PAYABLE | | James M. Foote | | $ | 2,400,000 | | $ | 59,356 | | $ | 58,924 | | | - | | | - | | | - | | $ | 2,618,280 | | Frank A. Lonegro | | $ | 1,450,000 | | $ | 2,687,844 | | $ | 2,022,245 | | $ | 715,500 | | $ | 379,162 | | $ | 52,304 | | $ | 7,307,055 | | Mark K. Wallace | | $ | 2,090,000 | | $ | 811,287 | | $ | 370,777 | | $ | 599,452 | | | - | | $ | 175,000 | | $ | 4,046,516 | | Sarah K. Brandt | | $ | 1,120,000 | | $ | 479,797 | | $ | 1,161,725 | | $ | 502,440 | | $ | 794,110 | | $ | 52,304 | | $ | 4,110,376 | | Peter J. Shudtz | | $ | 646,823 | | $ | 423,412 | | $ | 1,182,017 | | $ | 450,432 | | | - | | $ | 45,428 | | $ | 2,748,112 |
(1) | Per their employment agreements, Messrs. Foote and Wallace would receive two times their annual salary plus two times their target annual bonus; however, since Mr. Foote's employment began after the cutoff to participate in the 2017 annual bonus, his annual bonus amount is zero. Under the Section 16 Officer Severance Plan, Mr. Lonegro and Ms. Brandt would receive two times their annual salary plus one times their target annual bonus. In accordance with the Executive Severance Plan, Mr. Shudtz would receive one times his annual salary plus one times his target annual bonus.
| (2) | This includes a prorated amount of all outstanding equity awards as of December 29, 2017; however, all equity would be settled according to each grant's original vesting schedule. All performance unit calculations in the table assume a target performance; however, actual vesting would be based on company performance. All equity awards have been valued using the closing stock price on December 29, 2017 (the last trading day of 2017) of $55.01. The Option Awards have been calculated using the difference between the respective grant's exercise price and the closing stock price on December 29, 2017, multiplied by the prorated number of Options held by each NEO. The prorated Options would remain outstanding until the end of their originally scheduled term.
| (3) | These amounts represent what each NEO would receive as a prorated 2017 annual bonus award, adjusted for company performance. As noted above, since Mr. Foote's employment began after the cutoff to participate in the 2017 annual bonus his amount is zero.
| (4) | Per the Section 16 Officer Severance Plan and the Executive Severance Plan, these amounts represent what Messrs. Lonegro and Shudtz and Ms. Brandt would receive as a pension enhancement credit equivalent to an additional three years of age and two years of service. Messrs. Foote and Wallace did not have this benefit included in their respective employment agreements. Mr. Shudtz would not receive a pension enhancement credit since he is over age 65 (so the additional age does not affect his pension), and he has constructive service that is limited to 44 years (so the additional service does not affect his pension).this Proxy Statement.
| (5)Compensation Committee
| In accordance with the Section 16 Officer Severance Plan and the Executive Severance Plan, Messrs. Lonegro and Shudtz and Ms. Brandt would receive outplacement and financial planning services not to exceed $20,000 and $12,000, respectively. In addition, each would also have the option to continue their medical and dental benefits if they elected to receive their severance as monthly installments over a period of one year. Per Mr. Wallace's employment agreement, he would receive relocation/tax advisory services estimated at $75,000 plus a relocation benefit estimated at $100,000. Per Mr. Foote's employment agreement, no other compensation would be due.Steven T. Halverson (Chair)
Donna M. Alvarado
Linda H. Riefler
John J. Zillmer
|
March 12, 2019 | 72 | | CSX CORPORATION 2018 PROXY STATEMENT | | WWW.CSX.COM 57 |
Table of Contents Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on its review and on the discussion described above, the Compensation Committee recommended to the full Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation Committee
John J. Zillmer, Chair
Donna M. Alvarado
Steven T. Halverson
Edward J. Kelly, III
Linda H. Riefler
March 16, 2018
Table of Contents
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and Item 402(u) of Regulation S-K, the Company is providing the following information about the ratio of the annual total compensation of CSX’s median employees
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and Item 402(u) of Regulation S-K, the Company is providing the following information about the ratio of the annual total compensation of CSX’s median employee and the annual total compensation of Mr. Foote as of December 31, 2017. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. For 2017, the last completed fiscal year:
● | The total annual compensation of the Company’s median employee, other than the CEO, was $98,697. | ● | The total annual compensation of the CEO was $2,647,933. | ● | Based on this information, the ratio for 2017 of the total annual compensation of Mr. Foote toas of December 31, 2018. The pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.For 2018, the last completed fiscal year: | ● | The annual total annual compensation of the individual identified as the Company’s employee, other than the CEO, was $105,169. | | ● | The annual total compensation of the CEO was $13,781,988. | | ● | Based on this information, the ratio for 2018 of the annual total compensation of Mr. Foote to the annual total compensation of the median employee was 131 to 1. |
Due to changes in the Company’s workforce from 2017, the Company identified a new median employee as of year-end 2018. To identify the median employee, was 27 to 1. |
To identify the median employees, as well as to determine the annual total compensation of Mr. Foote, the following analysis occurred:
1. | As of December 31, 2017, the Company’s employee population consisted of approximately 24,215 (as reported in Item 1, Business, in the 2017 Annual Report filed with the SEC on February 7, 2018). The Company used December 31, 2017
1. | As of December 31, 2018, the Company’s employee population consisted of approximately 22,475 employees (as reported in Item 1, Business, in the 2018 Annual Report filed with the SEC on February 6, 2019). The Company used December 31, 2018 as the date to determine the “median employee” because this date provides the most accurate representation of the Company’s workforce through the full fiscal year. | 2. | The median employee was identified by using 2018 Medicare Wages for all individuals, excluding Mr. Foote, that were reflected in the Company’s payroll records as reported to the Internal Revenue Service on Forms W-2 for 2018. | 3. | All employees who were full-time, part-time, or seasonal, including management and union, as well as furloughed employees who received any wages within the calendar year were included in the analysis. Employees from the Company’s consolidated subsidiaries were also included. | 4. | Annualized compensation was determined for any full or part-time employees who were employed at year-end but did not work for the Company the entire fiscal year. | 5. | The use of Medicare Wages is a consistently applied measure because it includes all forms of taxable compensation, which is most representative of the Company’s employee base since there are union and management workforces. All non-U.S. employees who reside in Canada (49) and Mexico (5) represent less than 1% of the Company’s overall employee population and were thus excluded.No cost-of-living adjustments were made in identifying the median employee. | 6. | Once the median employee was identified, the Company determined the sum of all elements of such employee’s compensation for 2018 in accordance with Item 402(c)(2)(x) of Regulation S-K, which resulted in annual total compensation of $105,169. The difference between such employee’s base salary, wages, and overtime pay ($85,901) and the employee’s total annual compensation was the value of the health care benefits for the employee and eligible dependents, which was $19,268. | 7. | The annual total compensation for Mr. Foote includes the amount reported in the “Total” column of theSummary Compensation Tableincluded in this Proxy Statement which was determined in accordance with Item 402(c)(2)(x) of Regulation S-K, plus the added value of his health care benefits, which was $11,388. This resulted in total annual compensation of $13,781,988 for Mr. Foote. | 2. | The median employee was identified by using 2017 Medicare Wages for all individuals, excluding Mr. Foote, that were reflected in the Company’s payroll records as reported to the Internal Revenue Service on Forms W-2 for 2017.
| 3. | All employees who were full-time, part-time, or seasonal including management and union, as well as furloughed employees who received any wages within the calendar year were included in the analysis. Employees from the Company’s consolidated subsidiaries were also included.
| 4. | Annualized compensation was determined for any employees who were employed at year-end but did not work for the Company the entire fiscal year.
| 5. | The use of Medicare Wages is a consistently applied measure because it includes all forms of taxable compensation, which is most representative of the Company’s employee base since there are union and management workforces. All non-U.S. employees who reside in Canada (49) and Mexico (5) represent less than 1% of the Company’s overall employee population and were thus excluded. No cost-of-living adjustments were made in identifying the median employee.
| 6. | Once the median employee was identified, the Company determined the sum of all elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, which resulted in annual total compensation of $98,697. The difference between such employee’s base salary, wages, and overtime pay ($79,919) and the employee’s total annual compensation was the value of the health care benefits for the employee and eligible dependents, which was $18,778.
| 7. | The annual total compensation for Mr. Foote includes the amount reported in the “Total” column of theSummary Compensation Tableincluded in this Proxy Statement which was determined in accordance with Item 402(c)(2)(x) of Regulation S-K, plus the added value of his dental benefits. This resulted in total annual compensation of $2,647,933 for Mr. Foote.
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58 CSX Corporation 2019 Proxy Statement
| 74 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
Table of Contents 
In accordance with the Dodd-Frank Act and Section 14A of the Securities Exchange Act of 1934, CSX is providing shareholders with the opportunity to vote on a non-binding, advisory resolution to approve the compensation of the Company’s NEOs, which is disclosed pursuant to Item 402 of Regulation S-K and described in the CD&A section, the accompanying compensation tables and the related narrative disclosures in this Proxy Statement. Accordingly, the following resolution will be submitted for a shareholder vote at the Annual Meeting: “RESOLVED, that the shareholders of CSX Corporation (the ”Company“) approve, on an advisory (non-binding) basis, the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the Proxy Statement.” The Company currently holds an advisory vote on the compensation of the Company’s NEOs on an annual basis (in accordance with the results of the advisory shareholder vote held at the Company’s 2017 Annual Meeting to determine the frequency of an advisory vote on NEO compensation), and will continue to hold the vote annually until the next frequency vote is held (which is not required until 2023). As described in the CD&A, the Company’s executive compensation program is designed to align executive pay with the Company’s financial performance and the creation of sustainable long-term shareholder value. The compensation program is structured to provide a competitive level of compensation necessary to attract and retain talented and experienced executives and to motivate them to achieve short and long-term strategic goals. In order to align executive pay with the Company’s financial performance and the creation of sustainable shareholder value, a significant portion of compensation paid to our NEOs is allocated to performance-based, long-term equity incentive awards. The Company makes compensation payout decisions based on an assessment of the Company’s performance, as well as the performance of each executive against goals that promote CSX’s success by focusing on shareholders, customers, employees and the communities in which we operate. Shareholders are urged to read the CD&A, the accompanying compensation tables and the related narrative disclosure in this Proxy Statement, which more thoroughly discuss the Company’s compensation policies and procedures. The Compensation Committee and the Board believe that these policies and procedures are effective in implementing the Company’s overall pay-for-performance compensation philosophy. While this advisory vote is required by law, it will neither be binding on the Company, the Compensation Committee or the Board, nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duties on, the Company or the Board. The Board and the Compensation Committee will consider the outcome of the vote when developing future executive compensation programs. The Company currently intends to hold the next advisory (non-binding) vote to approve NEO compensation at its 2020 Annual Meeting of Shareholders, unless the Board modifies its policy of holding an advisory (non-binding) vote to approve the compensation of the Company’s NEOs on an annual basis. | | | The Board unanimously recommends that the shareholders vote FOR this proposal. |
 | | WWW.CSX.COM 59 |
Table of ContentsItem 3: Advisory (Non-Binding) Vote In its efforts to Approveattract, motivate and retain highly qualified employees, the Company provides equity-based incentive awards designed to align employee interests with those of shareholders. In this regard, the Board is seeking shareholder approval of the CSX 2019 Stock and Incentive Plan (the “2019 Stock Plan”), which gives the Company the ability to provide these incentives through issuances of stock, restricted stock, stock options, and other stock-based awards. The 2019 Stock Plan is intended to replace the Company’s existing equity compensation plan, the CSX Stock and Incentive Award Plan (as amended, the “2010 Stock Plan”), which was previously approved by shareholders. CONSIDERATIONS FOR THE APPROVAL OF THE 2019 STOCK PLAN In designing the 2019 Stock Plan, the Board and the Compensation Committee carefully considered the Company’s anticipated future equity needs, historical equity compensation practices and the advice of CSX’s Named Executive Officers the Compensation Committee’s independent compensation consultant. The Board unanimously recommends thataggregate number of shares of CSX common stock, $1.00 par value (“Shares”) being requested for authorization under the 2019 Stock Plan pursuant to awards granted after the 2019 Stock Plan’s approval is 28 million Shares. If the 2019 Stock Plan is approved by shareholders, voteFORthe 2019 Stock Plan will replace the 2010 Stock Plan (which is the only equity plan of the Company in place as of the date of this proposal.Proxy Statement), and no additional grants will be made under the 2010 Stock Plan. Among the factors considered by the Compensation Committee in determining the share reserve under the 2019 Stock Plan were the following: |
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), CSX is providing shareholders with the opportunity to vote on a non-binding, advisory resolution to approve the compensation of the Company's NEOs, which is described in the CD&A section, the accompanying compensation tables and the related narrative disclosures in this Proxy Statement. Accordingly, the following resolution will be submitted for a shareholder vote at the Annual Meeting:
“RESOLVED, that the shareholders of CSX Corporation (the ”Company“) approve, on an advisory (non-binding) basis, the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure in the Proxy Statement.”
As described in the CD&A, the Company’s executive compensation program is designed to align executive pay with the Company’s financial performance and the creation of sustainable long-term shareholder value. The compensation program is structured to provide a competitive level of compensation necessary to attract and retain talented and experienced executives and to motivate them to achieve short- and long-term strategic goals. In order to align executive pay with the Company’s financial performance and the creation of sustainable shareholder value, a significant portion of compensation paid to our NEOs is allocated toperformance-based, long-term equity incentive awards. The Company makes compensation payout decisions based on an assessment of the Company’s performance, as well as the performance of each executive against goals that promote CSX’s success by focusing on shareholders, customers, employees and the communities in which we operate.
Shareholders are urged to read the CD&A, the accompanying compensation tables and the related narrative disclosure in this Proxy Statement, which more thoroughly discuss the Company’s compensation policies and procedures. The Compensation Committee and the Board believe that these policies and procedures are effective in implementing the Company’s overall pay-for-performance compensation philosophy.
While this advisory vote is required by law, it will neither be binding on the Company, the Compensation Committee or the Board, nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duties on, the Board. The Board and the Compensation Committee will consider the outcome of the vote when developing future executive compensation programs. The Company currently intends to hold the next advisory (non-binding) vote to approve NEO compensation at its 2019 Annual Meeting, unless the Board modifies its policy on the frequency of the advisory (non-binding) vote to approve the compensation of the Company’s NEOs.
| | WWW.CSX.COM | | 75| ● | Overhang Percentage. As of the date of this Proxy Statement, and as provided in the table below, there were approximately 5.8 million Shares subject to outstanding equity awards and 25.7 million Shares available for future equity awards under the 2010 Stock Plan, which represented approximately 3.9% of the Company’s Shares outstanding on a fully-diluted basis. These numbers do not include any additional Shares subject to equity awards that might be granted under the 2010 Stock Plan between the date of this Proxy Statement and the Annual Meeting (such as awards in connection with new hires and promotions), although the Company does not anticipate granting awards covering more than an aggregate of 100,000 additional Shares during this period. The numbers also do not reflect the Share pool requested under the 2019 Stock Plan for which the Company is seeking approval. |
| Number of Stock Options Outstanding | | 4,394,000 | | Weighted Average Exercise Price | | $43.80 | | Weighted Average Term (in years) | | 8.1 | | Number of Full-Value Stock Awards Outstanding | | 1,473,000 | | Number of Shares Remaining for Future Grant: | | | | 2010 CSX Stock and Incentive Award Plan (“2010 Plan”) | | 22,242,743 | | Common Shares Outstanding (as of March 4, 2019, the Record Date) | | 812,686,737 |
|  | | The Board unanimously recommends that the shareholders vote FOR this proposal. |
60 CSX Corporation 2019 Proxy Statement |
Table of Contents | | Item 4: Vote to Approve the 2018 CSX Employee2019 Stock Purchaseand Incentive Award Plan If approved, the 28 million Shares reserved for issuance under the 2019 Stock Plan would, when combined with Shares subject to outstanding equity awards under the 2010 Stock Plan as reflected in the table above, increase the overhang percentage to approximately 4%. As noted above, if the 2019 Stock Plan is approved by shareholders, no additional equity awards will be granted under the 2010 Stock Plan after the date of the Annual Meeting and all such future awards will be granted under the 2019 Stock Plan. | ● | Historical Equity Award Grant Rate. The following table sets forth information regarding awards granted and the annualized grant rate for each of the last three years: |
| | (Amounts in Thousands) | | | 2017 | | 2018 | 2019 | | Stock options granted | | 10,462 | (1) | 1,009 | 843 | | Service-based restricted shares and restricted share units granted | | 328 | | 164 | 65 | | Actual performance-based shares and units earned | | 460 | | 1,172 | — | | Weighted average basic common shares outstanding during the fiscal year | | 911 | | 857 | — |
| (1) | Includes 9 million stock options as part of an equity inducement award for the hiring of Mr. Harrison in March 2017. Following his death in December 2017, all 9 million options were forfeited per the terms of his employment agreement. |
The 2019 Stock Plan has been designed to build upon the effectiveness of the 2010 Stock Plan and incorporates additional corporate governance best practices to further align the Company’s equity compensation programs with the interests of shareholders. Some of the corporate governance best practices included in the 2019 Stock Plan, or that relate to stock ownership, are as follows:  | Minimum vesting requirements.The 2019 Stock Plan requires awards to be subject to a minimum vesting period of one year from the date of grant, with only narrow exceptions, which the Company believes strengthens employees’ interest in creating long-term value for shareholders. | | No repricings.Repricing of stock options and stock appreciation rights (“SARs”) is not permitted without shareholder approval, except for adjustments with respect to certain specified extraordinary corporate transactions. | | No “liberal” share counting provisions.Shares underlying any award granted under the 2019 Stock Plan that is forfeited, cancelled, expires, terminates or otherwise lapses or is settled in cash are added back to the Share reserve; however, the following Shares are not added back to the share reserve under the 2019 Stock Plan: (i) Shares that are withheld to satisfy the exercise price of a stock option or any applicable tax withholding obligations, (ii) Shares that are subject to a stock-settled SAR that are not issued upon the exercise of such SAR and (iii) Shares that are repurchased by the Company on the open market with option proceeds. | | Clawback of awards.The 2019 Stock Plan provides the Compensation Committee with the authority to subject awards granted under the 2019 Stock Plan to any clawback or recoupment policies that the Company has in effect from time to time. | | Stock ownership guidelines.The Company’s executive officers (including all NEOs) and directors are subject to share ownership guidelines to ensure that they face the same downside risk and upside potential as shareholders. Additional details regarding the Company’s share ownership guidelines are included in the CD&A. |
The following paragraphs summarize the material terms of the 2019 Stock Plan, including the provisions regarding eligibility, the types of awards that may be made, the performance criteria that may be applied to awards. The summary is qualified in its entirety by reference to the full text of the 2019 Stock Plan attached hereto asAppendix A. GENERAL The 2019 Stock Plan provides for the grants of stock options (both nonqualified and incentive stock options), SARs, RSUs, restricted stock units, performance awards, dividend equivalents and other cash- and stock-based awards (collectively, “Incentive Awards”) to the Company’s employees, non-employee directors and individual consultants. Any award may be granted alone or in tandem with other awards, and may be granted in addition to, or in substitution for, other types of awards. Compensation payable to Board members in the form of Shares will also be paid from the 2019 Stock Plan. STOCK SUBJECT TO 2019 STOCK PLAN; ADJUSTMENTS The Board has reserved a total of 28 million shares of common stock for issuance under the 2019 Stock Plan. If an Incentive Award is forfeited, cancelled, expires, terminates or is otherwise settled in cash without the issuance of Shares, the Shares subject to such awards will become available for further awards under the 2019 Stock Plan. Shares (i) tendered or withheld in payment of an exercise price of a stock option or to satisfy tax withholding obligations associated with an award, (ii) subject to a stock-settled SAR granted under the 2019 Stock Plan that were not issued upon the exercise of such SAR, and (iii) repurchased by the Company on the open market with option proceeds in respect of the exercise of a stock option will not again be available for issuance under the 2019 Stock Plan.
Table of Contents Item 4: Vote to Approve the CSX 2019 Stock and Incentive Award Plan In the event the Compensation Committee determines that, as a result of any dividend or other distribution (other than an ordinary dividend or distribution), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, separation, rights offering, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, issuance of Shares pursuant to the anti-dilution provisions of securities of the Company, or other similar corporate transaction or event affecting Shares, or of changes in applicable laws, regulations or accounting principles, an adjustment is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the 2019 Stock Plan, the Compensation Committee will adjust equitably any or all of: (i) the number and type of Shares or other securities that thereafter may be made the subject of awards, including the aggregate limits under the 2019 Stock Plan; (ii) the number and type of Shares or other securities subject to outstanding awards; and (iii) the grant, purchase, exercise or hurdle price for any award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding award. Purpose The Boardpurpose of the 2019 Stock Plan is recommending shareholders voteto motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of the Company, thereby furthering the best interests of the Company and its shareholders. FOREligibility this proposal.
The Company’s employees, non-employee directors and individual consultants, including advisors, are eligible to receive awards under the 2019 Stock Plan to the extent the receipt of such awards is permitted by applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. As of March 4, 2019, there were approximately 22,314 employees and 10 non-employee directors eligible to receive awards under the 2010 Stock Plan. The average number of individuals who received awards under the Company’s 2010 Stock Plan during each of the last three years was approximately 600, although the Compensation Committee reserves the power to make grants more widely in the future. The basis for participation in the 2019 Stock Plan is the Compensation Committee’s decision, in its sole discretion, that an Incentive Award to an eligible participant will further the 2019 Stock Plan’s purposes of motivating and rewarding participants to perform at the highest level and contribute to the Company’s success. In exercising its discretion, the Compensation Committee will consider the recommendations of management and the purposes of the 2019 Stock Plan. Administration The 2019 Stock Plan is administered by the Compensation Committee, unless another committee is designated by the Board. The Compensation Committee may delegate the authority to grant awards under the 2019 Stock Plan, to the extent permitted by applicable law, to (i) one or more officers of the Company (except that such delegation will not be applicable to any award for a person then covered by Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”)) and (ii) one or more committees of the Board. All decisions of the Compensation Committee are final, conclusive and binding upon all parties. The Compensation Committee has authority under the 2019 Stock Plan to: | ● | designate participants; | | ● | determine the types of Incentive Awards to grant, the number of Shares to be covered by Incentive Awards, the terms and conditions of Incentive Awards, whether Incentive Awards may be settled or exercised in cash, Shares, other awards, other property, net settlement or any combination thereof, the circumstances under which Incentive Awards may be canceled, forfeited or suspended, and whether Incentive Awards may be deferred automatically, or at the election of the holder or the Compensation Committee; |
Our shareholders are being asked to approve the CSX Corporation 2018 Employee Stock Purchase Plan (the “ESPP”). The Compensation Committee unanimously adopted the ESPP on February 6, 2018, subject to the approval of our shareholders. The purpose of the ESPP is to assist the Company and its Participating Subsidiaries (defined below) to recruit and retain employees by enabling such persons to participate in the future success of the Companythrough the purchase of shares of CSX common stock under the ESPP. The ESPP is also intended to encourage employees to align their interests with the interests of the Company and our shareholders.
The following sections summarize the material terms of the ESPP. These sections are qualified in their entirety by the full text of the ESPP, which is included as Appendix A to this Proxy Statement.
Description of the ESPP:
Purchase Rights
The ESPP provides eligible employees the right to purchase shares of CSX common stock in accordance with the terms of the ESPP. Purchase rights are granted with respect to each offering during the term of the ESPP. Each offering begins on its grant date and ends on its expiration date.
The initial grant date under the ESPP will be September 1, 2018, and the initial expiration date will be December 31, 2018. Beginning in 2019, the ESPP provides that there will be two offering periods in each calendar year during the term of the ESPP. The first offering period in the calendar year will have a grant date of January 2 and an expiration date of June 30. The second offering period in the calendar year will have a grant date of July 1 and an expiration date of December 31. The grant dates and expiration dates are subject to adjustments so that they occur on business days.
Administration
The ESPP will be administered by the Compensation Committee or a designee assigned by the Compensation Committee to administer the Plan (the “Committee”). The Committee has the authority to construe and interpret the ESPP and may adopt such rules and regulations for the administration of the ESPP as the Committee deems appropriate.
Eligibility
All employees who have been employed by the Company at least 30 days prior to the beginning of the enrollment period and on an applicable grant date are eligible to participate in the ESPP. Employees of a subsidiary designated by the Committee as eligible to participate in the ESPP (a “Participating Subsidiary”) who have been employed at least 30 days priorto the beginning of the enrollment period and on an applicable grant date are also eligible to participate in the ESPP. However, an employee who owns, or is deemed to own under applicable attribution rules, at least five percent of the total voting power of the Company or any subsidiary is not eligible to participate in the ESPP.
| 76 | | CSX CORPORATION 2018 PROXY STATEMENT | | | ● | amend the terms of any outstanding Incentive Awards; | | ● | correct any defect, supply any omission or reconcile any inconsistency in the 2019 Stock Plan or any award agreement, in the manner and to the extent it shall deem desirable to carry the 2019 Stock Plan into effect; | | ● | interpret and administer the 2019 Stock Plan and any instrument or agreement relating to, or Incentive Awards made under, the 2019 Stock Plan; | | ● | establish, amend, suspend or waive rules and regulations and appoint agents, trustees, brokers, depositories and advisors and determine the terms of their engagement, in each case, as it deems appropriate for the proper administration of the 2019 Stock Plan and compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations; and | | ● | make any other determination and take any other action that it deems necessary or desirable to administer the 2019 Stock Plan, in each case, as it deems appropriate for the proper administration of the 2019 Stock Plan and compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. |
62 CSX Corporation 2019 Proxy Statement |
Table of Contents | Item 4: Vote to Approve the 2018 CSX Employee2019 Stock Purchaseand Incentive Award Plan Stock Options The 2019 Stock Plan authorizes the grant of incentive stock options and nonqualified stock options. Incentive stock options are stock options that satisfy the requirements of Section 422 of the Code. Nonqualified stock options are stock options that do not satisfy the requirements of Section 422 of the Code. Options granted under the 2019 Stock Plan entitle the grantee, upon exercise, to purchase a specified number of Shares from CSX at a specified exercise price per Share. The Compensation Committee determines the period of time during which an option may be exercised, the vesting schedule, the method and form by which each option is to be exercised, and the expiration date of each option, provided that no option will be exercisable more than 10 years after the grant date. The exercise price per Share covered by an option will be determined by the Compensation Committee and may not be less than 100 percent of the fair market value of a Share on the date of grant. Stock Appreciation Rights The Compensation Committee may grant SARs under the 2019 Stock Plan. Subject to the terms of the award, SARs entitle the participant to receive a distribution in an amount equal to the number of Shares subject to the portion of the SAR exercised multiplied by the excess, if any, of the fair market value of a Share on the date of exercise of the SAR over the exercise or hurdle price of the SAR. Such distributions are payable in cash or Shares, or a combination thereof, as determined by the Compensation Committee. The terms and conditions applicable to stock options also apply to SARs. Restricted Stock The 2019 Stock Plan also authorizes the grant of restricted stock on terms and conditions established by the Compensation Committee, which will include the designation of a restriction period during which the shares are not transferable and are subject to forfeiture. Restricted Stock Units RSUs may be granted subject to terms and conditions as determined by the Compensation Committee. In the case of RSUs, no shares are issued at the time of grant. Rather, upon the lapse of any applicable vesting schedule and other restriction, an RSU entitles a participant to receive Shares or cash, or a combination thereof, as determined by the Compensation Committee. Performance Awards The Compensation Committee may grant performance awards to participants subject to terms and conditions as determined by the Compensation Committee. Performance awards may be denominated in cash, Shares or units, or a combination thereof, and may be earned based on the achievement of one or more performance conditions specified by the Compensation Committee. The Compensation Committee will make all determinations regarding the achievement of performance goals. Settlement of performance awards will be in cash, Shares, other awards or property, net settlement, or any combination thereof. The Compensation Committee may, in its discretion, increase or reduce the amount of a settlement to be made in connection with a performance award. Dividend Equivalents The 2019 Stock Plan authorizes grants of dividend equivalents to any participant either in combination with, or separately from, Incentive Awards. A dividend equivalent permits the participant to receive payments equivalent to the dividends paid to holders of Shares. Dividend equivalents are payable in cash or Shares, or a combination thereof, as determined by the Compensation Committee. Other Cash and Stock-Based Awards The 2019 Stock Plan authorizes the making of other cash- or stock-based awards. The Compensation Committee will establish the terms and conditions applicable to each award. Change in Control The 2019 Stock Plan provides that, upon termination of employment by the employer without cause or by the participant with good reason, within three years after a change in control event: | ● | stock options and SARs will be cancelled in exchange for a single sum cash payment equal to the excess of the fair market value of the Shares on the termination date over the option strike price or SAR initial value price; | | ● | restricted stock conditions will be deemed met and the stock will be transferred; | | ● | all performance awards are deemed earned and paid out at target value; and |
Stock Subject to the ESPP
The Board has reserved a total of 4,000,000 shares of CSX common stock for issuance under the ESPP. If any shares of CSX common stock subject to purchase rights are not purchased in an offering, then the unpurchased shares shall again be available for issuance under subsequent offerings. The number and kind of shares authorized for issuance under the ESPP, the number and kind of shares subject to an outstanding offering and the purchase price for an outstanding offering can be adjusted by the Committee in the event of an extraordinary cash dividend or any change in CSX’s outstanding common stock by reason of a stock dividend, spin-off, split-up, stock split, reclassification, merger, consolidation or similar events that affect CSX common stock.
Enrollment
An eligible employee may elect to participate in the ESPP with respect to an offering in accordance with the procedures prescribed by the Committee. The election to participate must be made during the applicable enrollment period. The initial enrollment period will begin on July 20, 2018 and end on August 10, 2018. Thereafter the enrollment periods typically will be during the month of November (for each January 2 grant date) and May (for each July 1 grant date). Elections to participate must be made in accordance with the Company’s Insider Trading Policy, and will remain in effect for successive offering periods unless an employee amends or terminates his or her election.
The election to participate in the ESPP will include the employee’s instruction as to the amounts to be deducted from the employee’s compensation and accumulated for the purchase of shares of CSX common stock under that offering. An eligible employee may direct that from 1% to 10% (in whole percentages) will be deducted from the employee’s compensation for ESPP purposes. The ESPP defines the term “compensation” as the base compensation (which includes regular salary wages, and salary continuance during a short-term disability paid to an employee by the Company or a Participating Subsidiary, prior to withholding and prior to employee elective contributions to a plan described in Sections 125 or 401(k) of the Code, during the applicable pay period). Compensation also includes any differential wage payments made by the Company or a Participating Subsidiary to an employee during active military duty in the uniformed services. Compensation does not include commissions, bonus, award, or incentive payments, including sales incentive compensation or any other remuneration paid to the employee, such as relocation expenses, tax gross ups, tuition reimbursement, the imputed value of life insurance, or any income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or a Participating Subsidiary. An employee may reduce the percentage of his or her contributions one time during each offering but the election must be made in accordance with the Company’s Insider Trading Policy and at least one month prior to the end of the offering.
Withdrawal
An employee who is participating in an offering may withdraw from the offering at any time prior to the expiration date by delivering a notice of withdrawal in the form and manner prescribed by the Committee and in accordance with the Company’s Insider Trading Policy. A participating employee also is considered to have withdrawn from an offering if such employee reduces his or her election to 0% at least one month prior to the end of an offering. Upon a withdrawal, no further contributions will be deducted from the employee’s compensation for that offering, the accumulated contributions for that offering will be distributed to the employee, without interest, and his or her purchase rights for that offering will be terminated.
A termination of an employee’s employment for any reason will result in the termination of the employee’s rights under the ESPP. In that event, the accumulated contributions for that offering will be distributed to the employee (or the employee’s estate, if applicable) and the employee’s purchase rights for that offering will be terminated.
Purchase of Shares
Unless an employee withdraws from an offering no later than one month before the expiration date or has terminated employment prior to the expiration date, shares of CSX common stock will be purchased automatically on the expiration date of the offering and deposited to the employee’s designated brokerage account. Subject to the limit described below, the number of shares that will be purchased for each participating employee will equal the number of shares of CSX common stock determined by dividing the employee’s accumulated contributions by the purchase price for the offering.
The purchase price per share in each offering will equal the lesser of: (i) 85% of the fair market value of a share of CSX common stock on the grant date; and (ii) 85% of the fair market value of a share of CSX common stock on the expiration date. The “fair market value” of a shareof CSX common stock on any date is the closing price of a share on the preceding day, as reported by the principal exchange on which the CSX common stock is traded.
The ESPP limits the number of shares of CSX common stock that an employee may purchase in a calendar year under the ESPP. The limit is based on the fair market value of a share of CSX common stock on the grant date for the applicable offering. The maximum number of shares of CSX common stock that an employee may purchase in a calendar year is that number of shares of CSX common stock that has a fair market value (as of the applicable grant date) equal to $25,000.
| | WWW.CSX.COM | | 77 | | ● | RSU conditions are also deemed met and will be paid in cash as well as any unpaid dividend equivalents. |
Table of Contents Item 4: Vote to Approve the 2018 CSX Employee2019 Stock Purchaseand Incentive Award Plan | |
Change in Control
In the event of a change in control (as defined in the CSX Stock and Incentive Award Plan), the Committee may direct that an expiration date will be deemed to have occurred immediately before the change in control (in which case shares of CSX common stock will be purchased). Alternatively, the Committee may direct that the current offering will be terminated without an expiration date or purchase (in which case the accumulated contributions will be distributed to the employees).
Duration, Amendment and Termination
The ESPP will terminate automatically and no purchase rights may be granted under the ESPP after June 30, 2028. The final grant date under the ESPP will be on January 2, 2028.
However, the Board may amend, suspend or terminate the ESPP, any purchase rights or any offering at any time, except that no change may be made to the ESPP without the approval of our shareholders if shareholder approval of the change is necessary to comply with any tax or regulatory requirement.
Certain Federal Income Tax Consequences
Under Section 423 of the Internal Revenue Code, employees will not realize taxable income upon either the grant of a purchase right or the purchase of shares of CSX common stock on the expiration date. Income will be recognized upon the employee’s disposition of the shares of CSX common stock acquired under the ESPP. The federal income tax consequences depend on whether the disposition occurs after the applicable holding period.
The holding period is satisfied if there is no disposition of the shares of CSX common stock before the second anniversary of the applicable grant date or within one year after the applicable expiration date. In that event the employee will recognize compensation taxable as ordinary income in an amount equal to the lesser of: (i) the excess of the fair market value of the shares of CSX common stock on the grant date over the purchase price for the shares of CSX common stock under the ESPP; and (ii) the excess of the fair market value of the shares on the date of disposition over the purchase price for the shares under the ESPP. The employee’s basis in the shares is equal to the sum of the purchase price paid for the shares and any ordinary income recognized by the employee upon the disposition. Any additionalgain or loss recognized by the employee upon the disposition of the shares will be taxable as long-term capital gain or loss. The employer (the Company or a Participating Subsidiary) is not allowed a deduction for the compensation recognized by the employee.
If the applicable holding period is not satisfied, the excess of the fair market value of the shares on the disposition date over the purchase price for the shares under the ESPP will be recognized as compensation taxable as ordinary income at the time of disposition and that amount generally is deductible by the employer (the Company or a Participating Subsidiary). The employee’s basis in the shares is equal to the sum of the purchase price paid for the shares and any ordinary income recognized by the employee upon the disposition. Any other gain or loss recognized by the employee will be taxed as short- or long-term capital gain or loss, depending on the period that the employee held the shares after the expiration date.
The ESPP is not qualified under Section 401(a) of the Internal Revenue Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974.
New Plan Benefits
Benefits under the ESPP depend on employees’ elections to participate, the contributions that they elect to make under the ESPP and the fair market value of CSX common stock on various future dates. Therefore, it is not possible to determine future benefits that will be received under the ESPP. Nor is it possible to determine the benefits that would have been received if the ESPP had been in effect in 2017.
| 78 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
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Other MattersDuration, Amendment and Termination The 2019 Stock Plan will automatically terminate on May 3, 2029, if not earlier terminated under the terms of the 2019 Stock Plan. The Board may amend, suspend, discontinue or terminate the 2019 Stock Plan at any time except that no change may be made to the 2019 Stock Plan: (i) without shareholder approval if such approval is required by applicable law or the rules of the stock market or exchange on which the Shares are principally quoted or traded, or (ii) without the consent of the affected participant if such action would materially adversely impact a pending Incentive Award or adversely impact any Incentive Award following a change in control. Accordingly, the Board may generally amend the provisions of the 2019 Stock Plan described in this proposal. Minimum Vesting Requirements Each Incentive Award granted pursuant to the 2019 Stock Plan will vest over a period of not less than one year following the date of grant. However, the Compensation Committee may reduce or eliminate this requirement upon the participant’s termination of service. In addition, the Compensation Committee may grant awards that are not subject to these minimum vesting requirements with respect to 5% of the maximum aggregate number of Shares available for issuance under the 2019 Stock Plan (as may be adjusted in accordance with the terms of the 2019 Stock Plan). Prohibition on Repricing Subject to the adjustment provision described above, the Compensation Committee may not directly or indirectly, through cancellation or regrant or any other method, reduce, or have the effect of reducing, the exercise or hurdle price of any award established at the time of grant without approval of the Company’s shareholders. Restrictions on Transfer; Deferral Neither the Board nor management intends to bring before the Annual Meeting any business other than the matters referred to in the Notice of Meeting and this Proxy Statement. If any other matters are properly brought before the Annual Meeting, or any adjournment thereof, the persons appointed in the accompanying proxy will vote the shares represented thereby in accordance with their best judgment.
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Security Ownership of Management and Certain Beneficial Owners
The following table sets forth, as of March 19, 2018, the beneficial ownership of CSX common stock by each director, director nominee and NEO, and the directors and executive officers of the Company as a group. The business address of each of the Company’s directors and executive officers is CSX Corporation, 500 Water Street, Jacksonville, Florida 32202.
| NAME OF BENEFICIAL OWNER(1) | | AMOUNT OF BENEFICIAL
OWNERSHIP(2) | | PERCENT OF
CLASS(3) | | | Donna M. Alvarado | | 120,569 | | * | | | John B. Breaux | | 201,848 | | * | | | Pamela L. Carter | | 43,731 | | * | | | James M. Foote | | 402 | | * | | | Steven T. Halverson | | 125,264 | | * | | | Paul C. Hilal(4)(5) | | 42,765,207 | | 4.81 | % | | Edward J. Kelly, III | | 227,004 | | * | | | John D. McPherson | | 111,993 | | * | | | David M. Moffett | | 12,652 | | * | | | Dennis H. Reilley | | 72,464 | | * | | | Linda H. Riefler | | 11,354 | | * | | | J. Steven Whisler | | 44,627 | | * | | | John J. Zillmer | | 161,231 | | * | | | Frank A. Lonegro | | 73,941 | | * | | | Mark K. Wallace | | 4,709 | | * | | | Sarah K. Brandt | | 34,520 | | * | | | Peter J. Shudtz | | 64,307 | | * | | | All current executive officers and directors as a group (a total of 20) | | 44,151,632 | | 5.03 | % |
(1) | Except as otherwise noted,permitted by the persons listed have sole voting powerCompensation Committee and provided in the Incentive Award, Incentive Awards may not be transferred or exercised by another person except by will or by the laws of descent and distribution. Cancellation or “Clawback” of Awards The Compensation Committee may, to the extent permitted by applicable law and stock exchange rules or by any applicable Company policy, cancel or require reimbursement of any Incentive Awards granted, Shares issued or cash received upon the vesting, exercise or settlement of any awards granted under the 2019 Stock Plan or the sale of Shares underlying such awards. Federal Income Tax Information The following is a general summary of the current federal income tax treatment of Incentive Awards, which are authorized to be granted under the 2019 Stock Plan, based upon the current provisions of the Code and regulations promulgated thereunder. The rules governing the tax treatment of such awards are technical, so the following discussion of tax consequences is necessarily general in nature and does not purport to be complete. In addition, statutory provisions are subject to change, as are their interpretations, and their application may vary in individual circumstances. Finally, this discussion does not address the tax consequences under applicable state and local law. Incentive Stock Options.A participant will not recognize income on the grant or exercise of an incentive stock option. However, the difference between the exercise price and the fair market value of the stock on the date of exercise is an adjustment item for purposes of the alternative minimum tax. If a participant does not exercise an incentive stock option within certain specified periods after termination of employment, the participant will recognize ordinary income on the exercise of an incentive stock option in the same manner as on the exercise of a nonqualified stock option, as described below. The general rule is that gain or loss from the sale or exchange of shares acquired on the exercise of an incentive stock option will be treated as capital gain or loss. If certain holding period requirements are not satisfied, however, the participant generally will recognize ordinary income at the time of the disposition. Gain recognized on the disposition in excess of the ordinary income resulting therefrom will be capital gain, and any loss recognized will be a capital loss. Nonqualified Stock Options, SARs, RSUs, Performance Awards, Stock Awards, and Dividend Equivalents.A participant generally is not required to recognize income on the grant of a nonqualified stock option, SARs, RSUs, a performance award, a stock award, or dividend equivalents. Instead, ordinary income generally is required to be recognized on the date the nonqualified stock option or stock appreciation right is exercised, or in the case of RSUs, performance awards, stock awards, and dividend equivalents, upon the issuance of shares and/or the payment of cash pursuant to the terms of the award. In general, the amount of ordinary income required to be recognized: (i) in the case of a nonqualified stock option, is an amount equal to the excess, if any, of the fair market value of the shares on the exercise date over the exercise price; (ii) in the case of SARs, the amount of cash and/or the fair market value of any shares received upon exercise plus the amount of taxes withheld from such amounts; and (iii) in the case of RSUs, performance awards, stock awards, and dividend equivalents, the amount of cash and/or the fair market value of any shares received in respect thereof, plus the amount of taxes withheld from such amounts. 64 CSX Corporation 2019 Proxy Statement |
Table of Contents Item 4: Vote to Approve the CSX 2019 Stock and Incentive Award Plan Restricted Stock.Unless a participant who receives an award of restricted stock makes an election under Section 83(b) of the Code (“Section 83(b) Election”) as described below, the participant generally is not required to recognize ordinary income on the award of restricted stock. Instead, on the date the shares vest (i.e., become transferable or no longer subject to forfeiture), the participant will be required to recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares on such date over the amount, if any, paid for such shares. If a participant makes a Section 83(b) Election to recognize ordinary income on the date the shares are awarded, the amount of ordinary income required to be recognized is an amount equal to the excess, if any, of the fair market value of the shares on the date of award over the amount, if any, paid for such shares. In such case, the participant will not be required to recognize additional ordinary income when the shares vest. Gain or Loss on Sale or Exchange of Shares.In general, gain or loss from the sale or exchange of shares granted or awarded under the 2019 Stock Plan will be treated as capital gain or loss, provided that the shares are held as capital assets at the time of the sale or exchange. However, if certain holding period requirements are not satisfied at the time of a sale or exchange of shares acquired upon exercise of an incentive stock option (a “disqualifying disposition”), a participant generally will be required to recognize ordinary income upon such disposition. Deductibility by Company.The Company generally is not allowed a deduction in connection with the grant or exercise of an incentive stock option. However, if a participant is required to recognize income as a result of a disqualifying disposition, the Company will be entitled to a deduction equal to the amount of ordinary income so recognized. In general, in the case of nonqualified stock options (including incentive stock options that are treated as nonqualified stock options, as described above), SARs, restricted stock, RSUs, performance awards, stock awards, and dividend equivalents, the Company will be allowed a deduction in an amount equal to the amount of ordinary income recognized by a participant, provided that certain income tax reporting requirements are satisfied. However, the Company may be subject to limits on tax deductibility relating to compensation described herein under certain statutory provisions, including Section 162(m) of the Code. Parachute Payments.Where payments to certain employees that are contingent on a change in control exceed limits specified in the Code, the employee generally is liable for a 20% excise tax on, and the corporation or other entity making the payment generally is not entitled to any deduction for, a specified portion of such payments. The Compensation Committee has in the past, and may in the future, make awards as to all shares reported, including shares heldwhich the vesting thereof is accelerated by a change in trust under certain deferred compensation plans,control of the Company. Such accelerated vesting would be relevant in determining whether the excise tax and also have investment power exceptdeduction disallowance rules would be triggered with respect to certain shares heldCompany employees. Accounting Treatment Under present accounting rules, the grant of Incentive Awards will generally result in trusta charge against CSX’s earnings, based upon the fair market value of the Incentive Awards at the date of the grant, and the charge will generally be taken over the vesting period of the Incentive Award. However, in the case of SARs intended to be settled in cash, the excess, if any, from time to time of the fair market value of the common stock subject to SARs, over the exercise price of the SARs, will result in a charge against CSX’s earnings. The amount of the charge will increase or decrease based on changes in the market value of the common stock and will decrease to the extent SARs are cancelled. CSX has not issued any SARs to date. Registration With the SEC If our shareholders approve the 2019 Stock Plan, we plan to file a registration statement on a Form S-8 (and/or an amendment to our existing registration statement that has been filed with respect to the 2010 Stock Plan) with the SEC, as soon as reasonably practicable after such approval, to register the Shares available for issuance under deferred compensation plans, investmentthe 2019 Stock Plan. New Plan Benefits As described above, the Compensation Committee, in its discretion, will select the participants who receive awards and the size and types of whichthose awards under the 2019 Stock Plan, if the 2019 Stock Plan is governedapproved by our shareholders. Therefore, the awards that will be made to particular individuals or groups of individuals in the future under the 2019 Stock Plan are not currently determinable. Additionally, a new plan benefits table for the 2019 Stock Plan and the benefits or amounts that would have been received by or allocated to participants for the last completed fiscal year under the 2019 Stock Plan if the 2019 Stock Plan was then in effect, as described in the federal proxy rules, are not provided because all awards made under the 2019 Stock Plan will be made at the Compensation Committee’s discretion, subject to the terms of the trust.2019 Stock Plan. Therefore, the benefits and amounts that would have been received or allocated under the 2019 Stock Plan for 2018 are also not determinable at this time.
(2)Table of Contents
| There were no options outstanding for any executive officer or director that were exercisable within 60 days
The following table sets forth information about the Company’s equity compensation plans as of December 31, 2018. | Plan category | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights (in thousands) | Weighted-average
exercise price of
outstanding options,
warrants and rights | Number of securities remaining
available for future issuance
under equity compensation
plans (in thousands)(1) | Equity compensation plans approved by
security holders | 4,573 | $34.89 | 19,360 | Equity compensation plans not approved
by security holders | — | — | — | | TOTAL | 4,573 | $34.89 | 19,360 |
| (1) | The number of shares remaining available for future issuance under plans approved by shareholders includes 19,360,275 shares available for grant in the form of stock options, performance grants, restricted stock, RSUs, stock appreciation rights and stock awards pursuant to the 2010 Stock Plan, as amended. As noted in this Proxy Statement, the Board has adopted, subject to shareholder approval at the Annual Meeting, the 2019 Stock Plan which, if approved, will replace the 2010 Stock Plan and no further shares will be made under the 2010 Stock Plan. |
66 CSX Corporation 2019 Proxy Statement |
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The following table sets forth, as of March 19, 2018.4, 2019, the beneficial ownership of CSX common stock by each director, director nominee and NEO, and the directors and executive officers of the Company as a group. The business address of each of the Company’s directors and executive officers is CSX Corporation, 500 Water Street, Jacksonville, Florida 32202. | Name of Beneficial Owner(1) | Amount of
Beneficial
Ownership | Shares for which
Beneficial Ownership
can be Acquired
within 60 Days(2) | Total
Beneficial
Ownership | Percent of
Class(3) | | Donna M. Alvarado | 124,302 | — | 124,302 | * | | John B. Breaux | 206,823 | — | 206,823 | * | | Pamela L. Carter | 46,157 | — | 46,157 | * | | James M. Foote | 5,739 | — | 5,739 | * | | Steven T. Halverson | 129,401 | — | 129,401 | * | | Paul C. Hilal(4)(5) | 38,057,315 | — | 38,057,315 | 4.68% | | John D. McPherson | 115,901 | — | 115,901 | * | | David M. Moffett | 15,171 | — | 15,171 | * | | Linda H. Riefler | 13,859 | — | 13,859 | * | | J. Steven Whisler | 48,240 | — | 48,240 | * | | John J. Zillmer | 167,388 | — | 167,388 | * | | Frank A. Lonegro | 150,113 | 82,599 | 232,712 | * | | Nathan D. Goldman | 96,037 | 49,254 | 145,291 | * | | Edmond L. Harris | 23,411 | — | 23,411 | * | | Mark K. Wallace | 51,747 | — | 51,747 | * | | All current executive officers and directors as a group (a total of 17) | 39,073,655 | 190,117 | 39,263,772 | 4.83% |
| (1) | Except as otherwise noted, the persons listed have sole voting power as to all shares reported, including shares held in trust under certain deferred compensation plans, and also have investment power except with respect to certain shares held in trust under deferred compensation plans, investment of which is governed by the terms of the trust. | | (2) | Includes shares subject to outstanding stock options exercisable as of or within 60 days of March 4, 2019, and shares of common stock underlying outstanding restricted stock units which may be acquired within 60 days of March 4, 2019. | | (3) | Based on 812,686,737 shares outstanding on March 4, 2019. An asterisk (*) indicates that ownership is less than 1% of class. | | (4) | By virtue of ultimately controlling the managing member of Mantle Ridge GP LLC, the general partner of Mantle Ridge, which is in turn the sole member of both MR S and P Index Annual Reports LLC and MR Argent Advisor LLC, the investment adviser to, and holder of 100% of the nonvoting interests in, the MR Funds (defined below), Mr. Hilal may be deemed to have the shared power to vote or direct the vote of the shares held by the MR Funds, Mantle Ridge LP and MR Argent Advisor LLC. “MR Funds” means MR Argent Offshore AB Ltd., MR Argent Offshore BB Ltd., MR Argent Offshore CB 01 Ltd., MR Argent Offshore CB 02 Ltd., MR Argent Offshore CB 03 Ltd., MR Argent Offshore CB 04 Ltd., MR Argent Offshore CB 05 Ltd. and MR Argent Offshore CB 07 Ltd. | | (5) | 15,008,629 shares of CSX common stock beneficially owned by Mr. Hilal have been pledged as collateral under a secured credit facility entered into by certain of the MR Funds with a third-party lender. Mantle Ridge had pledged these shares prior to Mr. Hilal becoming a director. MR Funds also has additional economic exposure to 570,600 shares of CSX common stock under certain cash settled total return swaps. |
| 80 | | CSX CORPORATION 2018 PROXY STATEMENT | | |
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(3)Owner | Based on 878,521,874 shares outstanding onThe following table sets forth information regarding the beneficial ownership of CSX common stock as of March 19, 2018. An asterisk (*) indicates that ownership is less4, 2019 for each person known to us to be the beneficial owner of more than 1% of class.
| (4) | By virtue of ultimately controlling the managing member of Mantle Ridge GP LLC, the general partner of Mantle Ridge, which is in turn the sole member of both MR S and P Index Annual Reports LLC and MR Argent Advisor LLC, the investment adviser to, and holder of 100%5% of the nonvoting interests in, the MR Funds (defined below), Mr. Hilal may be deemed to have the shared power to vote or direct the vote of the shares held by the MR Funds, Mantle Ridge LP and MR Argent Advisor LLC. “MR Funds” means MR Argent Offshore AB Ltd., MR Argent Offshore BB Ltd., MR Argent Offshore CB 01 Ltd., MR Argent Offshore CB 02 Ltd., MR Argent Offshore CB 03 Ltd., MR Argent Offshore CB 04 Ltd., MR Argent Offshore CB 05 Ltd. and MR Argent Offshore CB 07 Ltd.
| (5) | 15,008,629outstanding shares of CSX common stock.
| Name and Address of Beneficial Owner | Amount of
Beneficial Ownership | Percent of Class | | BlackRock, Inc.(1) | | | | 55 East 52ndStreet | | | | New York, NY 10055 | 49,404,831 | 5.90% | | The Vanguard Group(2) | | | | 100 Vanguard Blvd. | | | | Malvern, PA 19355 | 66,473,008 | 7.87% |
| (1) | As disclosed in its Schedule 13G filed on February 4, 2019. | | (2) | As disclosed in its Schedule 13G filed on February 11, 2019. |
68 CSX Corporation 2019 Proxy Statement |
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Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and any certain persons owning more than 10% of CSX common stock, beneficially ownedto file certain reports of ownership and changes in ownership with the SEC. Based solely on its review of the copies of Forms 3, 4 and 5, the Company believes that all reports required to be filed under Section 16(a) were made on a timely basis with respect to transactions that occurred during fiscal 2018.
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The SEC’s rules permit companies and intermediaries (e.g., brokers, banks and other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more security holders sharing the same address by Mr. Hilaldelivering a single proxy statement addressed to those security holders. This process, which is commonly referred to as “householding,” potentially means extra convenience for security holders and cost savings for companies. As in prior years, a number of brokers with account holders who are CSX shareholders will be “householding” our proxy materials. As indicated in the notice previously provided by these brokers to CSX shareholders, a single copy of the proxy materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been pledgedreceived from an affected shareholder. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. Shareholders who participate in “householding” continue to receive separate proxy cards, voting instructions or notice of internet availability, as collateral underapplicable, which will allow each individual to vote independently. If you are a secured credit facility entered into by certainregistered shareholder currently participating in householding and wish to receive a separate copy of the MR Funds with a third-party lender. Mantle Ridge had pledged these shares priorproxy materials, or if you would like to Mr. Hilal becoming a director. Pursuant to the Settlement Agreement, Mantle Ridge is excluded from this anti-pledging provisionopt out of householding for future deliveries of your annual proxy materials, please contact us at CSX Corporation, Office of the Company’s insider trading policy.Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202, or by telephone at (904) 359-3256. If a separate copy of this Proxy Statement and the 2018 Annual Report is requested for the Annual Meeting, it will be mailed promptly following receipt of the request. |
The following table sets forth information regarding the beneficial ownership of CSX common stock as of March 19, 2018 for each person known to us to be the beneficial owner of more than 5% of the outstanding shares of CSX common stock.
| NAME AND ADDRESS OF BENEFICIAL OWNER | | AMOUNT OF BENEFICIAL
OWNERSHIP | | PERCENT OF
CLASS | | BlackRock, Inc.(1)
55 East 52ndStreet
New York, NY 10055 | | 51,135,754 | | 5.7 | % | Capital Research Global Investors(2)
333 South Hope Street
Los Angeles, CA 90071 | | 90,923,431 | | 10.1 | % | The Vanguard Group(3)
100 Vanguard Blvd.
Malvern, PA 19355 | | 67,757,114 | | 7.58 | % |
(1) | As disclosed in its Schedule 13G filed on January 29, 2018.
| (2) | As disclosed in its Schedule 13G/A filed on February 14, 2018.
| (3) | As disclosed in its Schedule 13G filed on February 8, 2018.
|
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)street name shareholder who received a copy of the proxy materials at a shared address may request a separate copy of the Proxy Statement and the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and any certain persons owning more than 10% of CSX common stock, to file certain reports of ownership and changes in ownership with the SEC. Based solely on its review of the copies of Forms 3, 4 and 5, the Company believes that all reports required to be filed under Section 16(a) were made on a timely basis with respect to transactionsthat occurred during fiscal 2017, with the exception of untimely Forms 4, due to an administrative oversight, filed by Sarah K. Brandt, Cressie D. Brown, Fredrik J. Eliasson, Ellen M. Fitzsimmons, Clarence W. Gooden, Frank A. Lonegro, Cynthia M. Sanborn, Carolyn T. Sizemore and Michael J. Ward on March 7, 2017 and by Paul C. Hilal on March 27, 2017.
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Equity Compensation Plan Information
The following table sets forth information about the Company’s equity compensation plans as of December 31, 2017.
| PLAN CATEGORY | | NUMBER OF SECURITIES TO
BE ISSUED UPON EXERCISE
OF OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
(IN THOUSANDS) | | WEIGHTED-AVERAGE
EXERCISE PRICE
OF OUTSTANDING
OPTIONS, WARRANTS
AND RIGHTS | NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION
PLANS (IN THOUSANDS)(1) | | Equity compensation plans approved by security holders | | 4,163 | | $ 29.52 | 27,617 | | Equity compensation plans not approved by security holders | | — | | — | — | | Total | | 4,163 | | $ 29.52 | 27,617 |
(1) | The number of shares remaining available for future issuance under plans approved by shareholders includes 27,617,370 shares available for grant in the form of stock options, performance grants, restricted stock, RSUs, stock appreciation rights and stock awards pursuant to the 2010 CSX Stock and Incentive Award Plan, as amended.
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“Householding” of Proxy Materials
The SEC’s rules permit companies and intermediaries (e.g., brokers, banks and other nominees) to satisfy the delivery requirements for proxy statements with respect to two or more security holders sharing the same address by delivering a single proxy statement addressed to those security holders. This process, which is commonly referred to as “householding,” potentially means extra convenience for security holders and cost savings for companies.
As in prior years, a number of brokers with account holders who are CSX shareholders will be “householding” our proxy materials. As indicated in the notice previously provided by these brokers to CSX shareholders, a single copy of the proxy materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from an affected shareholder. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. Shareholders who participate in “householding” continue to receive separate proxy cards, voting instructions or notice of internet availability, as applicable, which will allow each individual to vote independently.
If you are a registered shareholder currently participating in householding and wish to receive a separate copy of the proxy materials, or if you would like to opt out of householding for future deliveries of your annual proxy materials, please contact us at CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202, or by telephoneat (904) 359-3256. If a separate copy of this Proxy Statement and the 2017 Annual Report is requested for the Annual Meeting, it will be mailed promptly following receipt of the request.
A street name shareholder who received a copy of the proxy materials at a shared address may request a separate copy of the Proxy Statement and the 2017 Annual Report by contacting us at CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, Florida 32202, or by telephone at (904) 359-3256.
Street name shareholders sharing an address who received multiple copies of the annual proxy materials and wish to receive a single copy of these materials in the future should contact their broker, bank or other nominee to make this request. If you would like to opt out of householding for future deliveries of your annual proxy materials, please contact your broker, bank or other nominee. 70 CSX Corporation 2019 Proxy Statement
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Table of Contents Notice of Electronic Availability of Proxy Materials
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholders Meeting to be held on May 18, 2018. This Proxy Statement and the 2017 Annual Report are available at www.proxyvote.com.
As permitted by rules adopted by the SEC, we are making our proxy materials available to our shareholders electronically via the Internet. We have mailed many of our shareholders a Notice containing instructions on how to access this Proxy Statement and the 2017
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholders Meeting to be held on May 3, 2019. This Proxy Statement and the 2018 Annual Report are available at www.proxyvote.com. As permitted by rules adopted by the SEC, we are making our proxy materials available to our shareholders electronically via the Internet. We have mailed many of our shareholders a Notice containing instructions on how to access this Proxy Statement and the 2018 Annual Report and vote online. If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the Notice instructs you on how to access andreview all of the important information contained in the Proxy Statement and the 2017 Annual Report. The Notice also instructs you on how you may submit your voting instructions over the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. Annual Report on Form 10-K
The 2017 Annual Report (without exhibits) is available onwww.csx.com. The 2017 Annual Report (with exhibits) is also available on the website maintained by the SEC (www.sec.gov). The information on or accessible through our website is not part of this Proxy Statement. You may submit a request for a printed version of the 2017 Annual Report in one of the following manners:
● | Send your request by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the Notice instructs you on how to CSX Corporation, Shareholder Relations, 500 Water Street, Jacksonville, Florida 32202;access and review all of the important information contained in the Proxy Statement and the 2018 Annual Report. The Notice also instructs you on how you may submit your voting instructions over the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.ANNUAL REPORT ON FORM 10-K The 2018 Annual Report (without exhibits) is available onwww.csx.com. The 2018 Annual Report (with exhibits) is also available on the website maintained by the SEC(www.sec.gov). The information on or accessible through our website is not part of this Proxy Statement. You may submit a request for a printed version of the 2018 Annual Report in one of the following manners: | ● | Send your request by mail to CSX Corporation, Shareholder Relations, 500 Water Street, Jacksonville, Florida 32202; or | | ● | Call CSX Shareholder Relations at (904) 359-3256. | ● | Call CSX Shareholder Relations at (904) 359-3256. |
April 5, 2018
By Order of the Board of Directors
 |
March 20, 2019 By Order of the Board of Directors
Nathan D. Goldman
Executive Vice President-Chief Legal Officer
Nathan D. Goldman
Executive Vice President-Chief Legal Officer and Corporate Secretary
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| Neither the Board nor management intends to bring before the Annual Meeting any business other than the matters referred to in the Notice of Meeting and this Proxy Statement. If any other matters are properly brought before the Annual Meeting, or any adjournment thereof, the persons appointed in the accompanying proxy will vote the shares represented thereby in accordance with their best judgment. 72 CSX Corporation 2019 Proxy Statement |
Table of Contents CSX Corporation
2018 Employee Stock Purchase Plan
 CSX 2019 STOCK AND INCENTIVE AWARD PLAN Section 1. | Purpose PurposeThe purpose of the Plan.TheCSX 2019 Stock and Incentive Award Plan (as amended from time to time, the“Plan”) is intended to assistmotivate and reward employees and other individuals to perform at the Companyhighest level and its Participating Subsidiaries in recruiting and retaining individuals by enabling such personscontribute significantly to participate in the future success of CSX Corporation (the“Company”), thereby furthering the Company through the purchase of Common Stock under the Plan. The Plan is also intended to encourage such persons to voluntarily align their interests with thebest interests of the Company and its shareholders. The Plan is intended to satisfy the requirements of
Section 423 of the Code and2. Definitions As used in the Plan, the following terms shall be interpreted and administered consistent with that intent.have the meanings set forth below: | (a) | “Affiliate” means any entity that, directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Company. | | (b) | “Award” means any Option, SAR, Restricted Stock, RSU, Performance Award, Other Cash-Based Award, Dividend Equivalents or Other Stock-Based Award granted under the Plan. | | (c) | “Award Agreement” means any agreement, contract or other instrument or document (including in electronic form) evidencing any Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant. | | (d) | “Beneficial Owner” has the meaning ascribed to such term in Rule 13d-3 under the Exchange Act. | | (e) | “Beneficiary” means a Person entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of the Participant’s death. If no such Person can be named or is named by the Participant, or if no Beneficiary designated by such Participant is eligible to receive payments or other benefits or exercise rights that are available under the Plan at the Participant’s death, such Participant’s Beneficiary shall be such Participant’s estate. | | (f) | “Board” means the Board of Directors of the Company. | | (g) | “Cause” means (unless otherwise specified by the Committee in a binding writing): (i) an act of personal dishonesty by a Participant resulting in substantial personal enrichment of the Participant at the expense of CSX, a Subsidiary or Affiliate; (ii) a violation of a Participant’s management responsibilities which is demonstrably willful and deliberate on the Participant’s part and which is not remedied in a reasonable period of time after receipt of written notice from the Employer; (iii) the conviction of the Participant of, or a plea of guilty or nolo contendre to, a felony involving moral turpitude; (iv) a significant act involving moral turpitude that adversely affects the reputation or business of CSX, a Subsidiary or Affiliate; or (v) a violation of CSX’s code of ethics. | | (h) | “Change in Control” means the occurrence of any of the following: | | (i) | Stock Acquisition. The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (A) the then outstanding shares of common stock of CSX (the “Outstanding Company Common Stock”), or (B) the combined voting power of the then outstanding voting securities of CSX entitled to vote generally in the election of directors (the“Outstanding Company Voting Securities”); provided however, that for purposes of this subsection (i), the following acquisitions shall not constitute a change in control: (A) any acquisition directly from CSX; (B) any acquisition by CSX; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by CSX or any corporation controlled by CSX; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(h); or | | (ii) | Board Composition. Individuals who, as of the date hereof, constitute the Board (the“Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a Director after such date whose election or nomination for election by CSX’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individuals whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or |
Definitions.
“Board”means the Company’s BoardTable of Directors.Contents
“Business Day”Appendix Ameans a day on
| (iii) | Business Combination. An actual change in ownership of Outstanding Company Common Stock, Outstanding Company Voting Securities, and/or assets of CSX or CSX Transportation, Inc. by reason of a reorganization, merger, consolidation, or sale or other disposition of all or substantially all of the assets of CSX or CSX Transportation, Inc. that is not subject, as a matter of law or contract, to approval by the Surface Transportation Board or any successor agency or regulatory body having jurisdiction over such transactions (the“STB”) (a“Business Combination”),in each case, unless, following such Business Combination: | | | (A) | all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns CSX or CSX Transportation, Inc. or all or substantially all of the assets of CSX or CSX Transportation, Inc. either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; | | | (B) | no Person (excluding a corporation resulting from such Business Combination or an employee benefit plan (or related trust) of CSX or the corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination; and | | | (C) | at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board providing for such Business Combination; or | | (iv) | Regulated Business Combination. An actual change in ownership of Outstanding Company Common Stock, Outstanding Company Voting Securities, and/or assets of CSX or CSX Transportation, Inc. by reason of a Business Combination that is subject, as a matter of law or contract, to approval by the STB (a“Regulated Business Combination”) unless such Business Combination complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(h); or | | (v) | Liquidation or Dissolution. Approval by the shareholders of CSX of a complete liquidation or dissolution of CSX or CSX Transportation, Inc. |
Notwithstanding the national exchangeforegoing or trading systemany provision of any Award Agreement to the contrary, for any Award that provides for accelerated distribution on which the Common Stock is traded is available and open for trading. “Code”means the Internal Revenue Code of 1986, as amended from time to time.
“Change-in-Control”means a Change in Control asof amounts that constitute “deferred compensation” (as defined in the CSX Stock and Incentive Award Plan as in effect from time to time and any successor plan.
“Committee”means the Compensation CommitteeSection 409A of the Board orCode), if the event that constitutes such other designee assigned by the Compensation Committee to administer the Plan.
“Common Stock”means the common stock, $1.00 par value, of the Company.
“Company”means CSX Corporation,Change in Control does not also constitute a Virginia corporation.
“Compensation”means the base compensation (which includes regular salary, wages, and salary continuance during a short-term disability paid to an Employee by the Company or Participating Subsidiary, prior to withholding and prior to employee elective contributions to a plan described in Sections 125 or 401(k) of the Code, during the applicable pay period). Compensation also includes any differential wage payments made by the Company or Participating Subsidiary to an Employee during active military dutychange in the uniformed services. Compensation does not include commissions, bonus,award,ownership or incentive payments, including sales incentive compensation, or any other remuneration paid to the Employee, such as relocation expenses, tax gross ups, tuition reimbursement, the imputed value of life insurance, or any income realized as a result of participation in any stock option, stock purchase, or similar planeffective control of the Company, or Participating Subsidiary.
“Continuous Statusin the ownership of a substantial portion of the Company’s assets (in either case, as an Employee”meansdefined in Section 409A of the absence of any interruption or termination of service as an Employee. Continuous Status as an EmployeeCode), such amount shall not be considered interrupteddistributed on such Change in Control but instead shall vest as of such Change in Control and shall be distributed on the scheduled payment date specified in the case of (i) sick leave, (ii) military leave, (iii) any other leave of absence approved byapplicable Award Agreement, except to the Employer, providedextent that earlier distribution would not result in the Participant who holds such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contractAward incurring interest or statute, or unless provided otherwise pursuant to an Employer policy adopted from time to time, or (iv) transfers between locationsadditional tax under Section 409A of the Employer or between Employers.Code.
| (i) | “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Code shall include any successor provision thereto. “Designee”means one or more officers or employees of the Company, or a Participating Subsidiary, to whom the Committee has delegated authority to administer the Plan subject to the terms and limitations imposed by the Committee.
“Employee”means any person, including an officer, who is an employee of an Employer for tax purposes and who has been so employed for at least 30 days prior to the beginning of the Enrollment Period (or such shorter period as the Company, in its sole discretion, may determine).
“Employer”means the Company or Participating Subsidiary that employs an Employee.
“Enrollment Period”means the period in which an eligible Employee may, in accordance with procedures prescribed by the Committee, elect to participate in an Offering. The initial Enrollment Period shall begin on July 20, 2018 and end on August 10, 2018. Thereafter the Enrollment Period shall typically occur during the month of November (for each January 2 Grant Date) and the month of May (for each July 1 Grant Date).
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| 86 | | CSX CORPORATION 2018 PROXY STATEMENT | | | (j) | “Committee” means the Compensation Committee of the Board unless another committee is designated by the Board. If there is no Compensation Committee of the Board and the Board does not designate another committee, references herein to the “Committee” shall refer to the Board. With respect to Awards to be granted to Directors, the term “Committee” means the Governance Committee of the Board. | | (k) | “Consultant” means any individual, including an advisor, who is providing services to the Company or any Affiliate or who has accepted an offer to provide such services or consultancy from the Company or any Affiliate. | | (l) | “Director” means any member of the Board. | | (m) | “Disability” means, with respect to a Participant, “disability” as defined in the Participant’s Service Agreement, if any, or if not so defined, unless otherwise provided in the Participant’s applicable Award Agreement, a disability that would qualify as such under the Company’s long-term disability plan. Notwithstanding the foregoing, with respect to any payment pursuant to an Award that is subject to Section 409A of the Code that is triggered upon a Disability, Disability means that the Participant is disabled as defined under Section 409A(a)(2)(C) of the Code. | | (n) | “Dividend Equivalent” means a right awarded under of Section 11. Other references to “dividend equivalents” and “dividend equivalent rights” are intended to allow for adjustments or payments in cash, Shares, other property or by the adjustment of the actual or target Shares or units comprising an Award, in respect of dividends declared on outstanding Shares. | | (o) | “Effective Date” means May 3, 2019. | | (p) | “Employee” means any individual, including any officer, employed by the Company or any Affiliate or any prospective employee or officer who has accepted an offer of employment from the Company or any Affiliate, with the status of employment determined based upon such factors as are deemed appropriate by the Committee in its discretion, subject to any requirements of the Code or applicable laws. | | (q) | “Employer” means CSX and each Subsidiary or Affiliate that employs one or more Participants. | | (r) | “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules, regulations and guidance thereunder. Any reference to a provision in the Exchange Act shall include any successor provision thereto. |
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Table of Contents | CSX Corporation 2018 Employee Stock PurchaseAppendix A | (s) | “Fair Market Value” or“FMV” means (i) with respect to Shares, the closing price of a Share on the referenced date or the date designated by the Committee in accordance with this Plan (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred), on the principal stock market or exchange on which the Shares are quoted or traded, or if Shares are not so quoted or traded, the fair market value of a Share as determined by the Committee, and (ii) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. |
“Expiration Date”| (t) | “Good Reason” as to any Participant, means (unless otherwise specified by the Committee in a binding writing) (i) a material reduction in the Participant’s compensation or employment related benefits (other than across-the-board reductions that affect management employees generally); (ii) a material diminution of the Participant’s status, title(s), office(s), working conditions, or management responsibilities (other than changes in reporting or management responsibilities required by applicable federal or state law); or (iii) a change in the location of Participant’s place of employment of more than 30 miles without the Participant’s consent. A Participant’s resignation shall not be with Good Reason unless the Participant gives the Employer written notice of the purported existence of Good Reason and the Employer fails to cure or remedy the condition within thirty (30) days after the Participant’s notice.means the last day of an Offering. The initial Expiration Date is December 31, 2018 for the Offering Period with a Grant Date of September 1, 2018. Thereafter the Expiration Date shall be each June 30 (for each Offering Period with a Grant Date of January 2) and each December 31 (for each Offering Period with a Grant Date of July 1). If the Expiration Date falls on a day that is not a Business Day, then the Expiration Date shall be the next preceding day which is a Business Day. The Committee shall have the power to change the duration of an Offering (including the commencement dates thereof) with respect to future offerings if such change is announced at least five business days prior to the scheduled beginning of the first Offering to be affected thereafter.“Fair Market Value”shall mean as of any date, the preceding day’s closing price of a share of Common Stock as reported by the principal exchange on which the Common Stock is traded, or, if no shares of Common Stock were traded on such exchange on such date, on the next preceding date on which the Common Stock was so traded.
“Grant Date”means the first day of an Offering. The initial Grant Date shall be September 1, 2018. Thereafter the Grant Date shall be each January 2 and each July 1. If the Grant Date falls on a day that is not a Business Day, then the Grant Date shall be the next following day which is a Business Day.
“Offering”means the grant of Purchase Rights under the Plan.
“Offering Period”means a period of six (6) months, or such other period (not to exceed twelve (12) months) as determined by the Committee or the Designee with respect to an Offering, during which funds may be accumulated in a participant’s account by means of payroll deductions for the purpose of exercising an option under the Offering.
“Participating Subsidiary”means a Subsidiary that has been designated by the Committee from time to time in its sole discretion as eligible to participate in one or more Offerings under the Plan; provided however that a Subsidiary may be designated as a Participating Subsidiary only if the grant of Purchase Rights to the Employees of such Subsidiary would not cause the Company to incur material adverse accounting charges.
“Plan”means the CSX Corporation 2018 Employee Stock Purchase Plan, as amended from time to time.
“Policy”means the CSX Insider Trading Policy.
“Purchase Rights”means rights to purchase shares of Common Stock under the Plan on the terms or conditions set forth herein and as determined by the Committee as provided hereunder.
“Subsidiary”means an entity, domestic or foreign, of which not less than 50% of the combined voting power is held by the Company, either directly or indirectly, whether or not such entity now exists or is hereafter organized or acquired by the Company or a Subsidiary. In all cases, the determination of whether an entity is a Subsidiary will be made in accordance with Section 424(f) of the Code.
3. | Administration of the Plan.The Committee shall administer the Plan. The Committee may delegate to one or more Designees authority to administer the Plan subject to any terms and limitations imposed by the Committee. The Committee, or the Designee, shall have full power and authority to construe and interpret the Plan and may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best. Decisions of the Committee or the Designee shall be final, conclusive and binding upon all parties, including the Company, its shareholders and its employees.
| 4. | Participation in the Plan.The individuals who shall be eligible to receive grants of Purchase Rights under an Offering shall be all Employees of the Company or of any Participating Subsidiary who are so employed by the Company or Participating Subsidiary during the applicable Enrollment Period and on the Grant Date of such Offering. The preceding sentence to the contrary notwithstanding, no individual shall be eligible to effect a purchase under an Offering if immediately thereafter and after giving effect thereto, the aggregate value or voting power of all shares of stock of the Company and any Subsidiary then owned by such individual, either directly or indirectly, within the meaning of the applicable sections of the Code and including all shares of stock with respect to which such individual holds options, would equal or exceed in the aggregate 5% of the total value or combined voting power of all classes of stock of the Company or any Subsidiary.
| 5. | Stock.
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(a) | The stock subject to an Offering shall be authorized but unissued shares of Common Stock. Subject to adjustment in accordance with the provisions of Section 11(g) hereof, the total number of shares of Common Stock which may be the subject of Offerings under the Plan shall not exceed in the aggregate 4 million shares.
| (b) | In the event that any shares of Common Stock, which are the subject of an Offering, are not purchased, such unpurchased shares of Common Stock shall again be available for subsequent Offerings.
| | (u) | “Incentive Stock Option” means an option representing the right to purchase Shares from the Company (or portion of such option), granted pursuant to the provisions of Section 6, that meets the requirements of Section 422 of the Code and is not designated as a Non-Qualified Stock Option by the Committee. |
6. | Number of Shares That an Employee May Purchase| (v) | “Initial Value” means the amount prescribed by the Committee for purposes of determining the amount payable upon the exercise of a SAR. The Initial Value cannot be less than 100% of the FMV of the underlying Shares as of the grant of the relevant Award. If the Committee does not prescribe an Initial Value for a SAR, the Initial Value shall be 100% of the FMV of the underlying Company Stock as of the grant of the SAR.. |
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(a) | The number of shares of Common Stock that a participating Employee may purchase in an Offering shall be determined by dividing such Employee’s contributions credited to such Employee’s Plan account as of the applicable Expiration Date by the purchase price determined under Section 11(b); provided, however, that such purchase shall be subject to the limitations set forth in Sections 6(b) and 6(c).
| (b) | The maximum number of shares of Common Stock that an eligible Employee may purchase in an Offering is that number of shares of Common Stock that has a Fair Market Value on the Grant Date of the Offering equal to $25,000.
| | (w) | “Non-Employee Director” means any Director who is not an employee of the Company or any Subsidiary. | | (x) | “Non-Qualified Stock Option” means an option representing the right to purchase Shares from the Company (or portion of such option), granted pursuant to Section 6, that does not meet the requirements of Section 422 of the Code or is designated as a Non-Qualified Stock Option by the Committee. | | (y) | “Option” means an Incentive Stock Option or a Non-Qualified Stock Option. | | (z) | “Other Cash-Based Award” means an Award granted pursuant to Section 12, including cash awarded as a bonus or upon the attainment of specified performance criteria or otherwise as permitted under the Plan. | | (aa) | “Other Stock-Based Award” means an Award granted pursuant to Section 12 that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares or factors that may influence the value of Shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into Shares, purchase rights for Shares, dividend rights or dividend equivalent rights or Awards with value and payment contingent upon performance of the Company or business units thereof or any other factors designated by the Committee. | | (bb) | “Participant” means the recipient of an Award granted under the Plan. | | (cc) | “Performance Award” means an Award (or portion thereof) granted pursuant to Section 10. | | (dd) | “Performance Period” means the period established by the Committee with respect to any Performance Award during which the performance goals specified by the Committee with respect to such Award are to be measured. | | (ee) | “Person” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof. | | (ff) | “Restricted Stock” means any Share subject to certain restrictions and forfeiture conditions, granted pursuant to Section 8. | | (gg) | “RSU” means a contractual right to receive the value of one Share (or a percentage of such value) in cash, Shares or a combination thereof, granted pursuant to Section 9 that is denominated in Shares. Awards of RSUs may include the right to receive dividend equivalents. | | (hh) | “SAR” means any right granted pursuant to Section 7 to receive upon exercise by the Participant or settlement, in cash, Shares or a combination thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise or settlement over (ii) the exercise or hurdle price of the right on the date of grant. | | (ii) | “SEC” means the U.S. Securities and Exchange Commission. | | (jj) | “Service Agreement” means any offer letter or employment, severance, consulting or similar agreement between the Company or any of its Subsidiaries and the Participant. | | (kk) | “Share” means a share of common stock, $1.00 par value, of CSX. In the event of a change in the capital structure of CSX affecting the common stock, the shares resulting from such a change in the common stock shall be deemed to be Shares within the meaning of the Plan. | | (ll) | “Subsidiary” means an entity of which the Company, directly or indirectly, holds all or a majority of the value of the outstanding equity interests of such entity or a majority of the voting power with respect to the voting securities of such entity. Whether employment by or service with a Subsidiary is included within the scope of this Plan shall be determined by the Committee. | | (mm) | “Substitute Award” means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company or other business acquired by the Company or with which the Company combines. | | (nn) | “Target Payout Level” means the payout level defined as “target” under the terms of the Performance Award. | | (oo) | “Termination of Service” means, in the case of a Participant who is an Employee, cessation of the employment relationship such that the Participant is no longer an employee of the Company or any Affiliate, or, in the case of a Participant who is a Consultant or Non-Employee Director, the date the performance of services for the Company or any Affiliate has ended; provided, however, that in the case of a Participant who is an Employee, the transfer of employment from the Company to an Affiliate, from an Affiliate to the Company, from one Affiliate to another Affiliate or, unless the Committee determines otherwise, the cessation of employee status but the continuation of the performance of services for the Company or an Affiliate, as applicable, as a Non-Employee Director or Consultant shall not be deemed a cessation of service that would constitute a Termination of Service; provided, further, that a Termination of Service shall be deemed to occur for a |
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| Appendix A | Participant employed by a Subsidiary when a Subsidiary ceases to be a Subsidiary unless such Participant’s employment continues with the Company or another Subsidiary. Notwithstanding the foregoing, with respect to any Award subject to Section 409A of the Code (and not exempt therefrom), a Termination of Service occurs when a Participant experiences a “separation of service” (as such term is defined under Section 409A of the Code). | | (pp) | “Qualifying Combination” means a Business Combination or a Regulated Business Combination. |
Section 3. Eligibility | (a) | Any Employee, Non-Employee Director or Consultant shall be eligible to be selected to receive an Award under the Plan, to the extent that an offer of an Award or a receipt of such Award is permitted by applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. | | (b) | Holders of options and other types of awards granted by a company or other business that is acquired by the Company or with which the Company combines are eligible for grants of Substitute Awards under the Plan to the extent permitted under applicable regulations of any stock exchange on which the Company is listed. |
Section 4. Administration | (a) | Administration of the Plan. The Plan shall be administered by the Committee. All decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, its shareholders, Participants and any Beneficiaries thereof. The Committee may issue rules and regulations for administration of the Plan. | | (b) | Delegation of Authority. To the extent permitted by applicable law, the Committee may delegate to one or more officers of the Company some or all of its authority under the Plan, including the authority to grant Options and SARs or other Awards in the form of Share rights (except that such delegation shall not be applicable to any Award for a Person then covered by Section 16 of the Exchange Act), and the Committee may delegate to one or more committees of the Board (which may consist of solely one Director) some or all of its authority under the Plan, including the authority to grant all types of Awards, in accordance with applicable law. | | (c) | Authority of Committee. Subject to the terms of the Plan and applicable law, the Committee (or its delegate) shall have full discretion and authority to: (i) designate Participants; (ii) determine the type or types of Awards (including Substitute Awards) to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) Awards; (iv) determine the terms and conditions of any Award and prescribe the form of each Award Agreement which need not be identical for each Participant; (v) determine whether, to what extent and under what circumstances Awards may be settled or exercised in cash, Shares, other Awards, other property, net settlement, or any combination thereof, or canceled, forfeited or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) amend terms or conditions of any outstanding Awards; (viii) correct any defect, supply any omission and reconcile any inconsistency in the Plan or any Award, in the manner and to the extent it shall deem desirable to carry the Plan into effect; (ix) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents, trustees, brokers, depositories and advisors and determine such terms of their engagement as it shall deem appropriate for the proper administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan and due compliance with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations (including, for the avoidance of doubt, any modifications to the terms applicable to Awards in the event of a Change in Control or other corporate transaction). Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards or administer the Plan. In any such case, the Board shall have all of the authority and responsibility granted to the Committee herein. |
Section 5. Shares Available for Awards | (a) | Subject to adjustment as provided in Section 5(c)(i) and except for Substitute Awards, the maximum number of Shares available for issuance under the Plan shall not exceed in the aggregate 28 million Shares (the“Share Pool”). | | (b) | If any Award is forfeited, cancelled, expires, terminates or otherwise lapses or is settled in cash, in whole or in part, without the delivery of Shares, then the Shares covered by such forfeited, expired, terminated or lapsed Award shall again be available for grant under the Plan. For the avoidance of doubt, the following will not again become available for issuance under the Plan: (i) any Shares that are withheld by the Company or tendered by a Participant (by either actual delivery or attestation) on or after the Effective Date (A) to pay the Exercise Price of an Option granted under the Plan or (B) to satisfy tax withholding obligations associated with an Award granted under the Plan, (ii) any Shares that were subject to a stock-settled SAR granted under the Plan that were not issued upon the exercise of such SAR on or after the Effective Date, and (iii) any Shares that were purchased by the Company on the open market with the proceeds from the exercise of an Option. | | (c) | In the event that the Committee determines that, as a result of any dividend or other distribution (other than an ordinary dividend or distribution), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, separation, rights offering, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, issuance of Shares pursuant to the anti-dilution provisions of securities of the Company, or |
76 CSX Corporation 2019 Proxy Statement |
Table of Contents Appendix A CSX Corporation 2018 Employee Stock Purchase Plan | other similar corporate transaction or event affecting the Shares, or of changes in applicable laws, regulations or accounting principles, an adjustment is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, subject to compliance with Section 409A of the Code and other applicable law, adjust equitably so as to ensure no undue enrichment or harm (including by payment of cash), any or all of: | | (i) | the number and type of Shares (or other securities) which thereafter may be made the subject of Awards, including the aggregate limits specified in Section 5(a) and Section 5(e); | | (ii) | the number and type of Shares (or other securities) subject to outstanding Awards; and | | (iii) | the grant, purchase, exercise or hurdle price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; | | provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. | | (d) | Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares. | | (e) | Subject to adjustment as provided in Section 5(c)(i), the maximum number of Shares available for issuance with respect to Incentive Stock Options shall be equal to the Share Pool.
| Section 6. Options
| The Committee is authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
| | (a) | The exercise price per Share under an Option shall be determined by the Committee at the time of grant;provided, however, that, except in the case of Substitute Awards, such exercise price shall not be less than the Fair Market Value of a Share determined at the time of such Option. | | (b) | The term of each Option shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such Option. The Committee shall determine the time or times at which an Option becomes vested and exercisable in whole or in part. | | (c) | The Committee shall be entitled to approve or disapprove the method or methods by which, and the form or forms, including cash, Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, having a Fair Market Value on the exercise date equal to the exercise price of the Shares as to which the Option shall be exercised, in which payment of the exercise price with respect thereto may be made or deemed to have been made. | | (d) | No grant of Options may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such Options (except as provided under Section 5(c)). | | (e) | The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. Incentive Stock Options may be granted only to employees of the Company or of a parent or subsidiary corporation (as defined in Section 424 of the Code).
| Section 7. Stock Appreciation Rights
| The Committee is authorized to grant SARs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
| | (a) | SARs may be granted under the Plan to Participants either alone (“freestanding”) or in addition to other Awards granted under the Plan (“tandem”) and may, but need not, relate to a specific Option granted under Section 6. | | (b) | The exercise or hurdle price per Share under a SAR shall be determined by the Committee;provided, however, that, except in the case of Substitute Awards, such exercise or hurdle price shall not be less than the Fair Market Value of a Share on the date of grant of such SAR. | | (c) | The term of each SAR shall be fixed by the Committee but shall not exceed 10 years from the date of grant of such SAR. The Committee shall determine the time or times at which a SAR may be exercised or settled in whole or in part. | | (d) | Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of Shares subject to the SAR multiplied by the excess, if any, of the Fair Market Value of one Share on the exercise date over the exercise or hurdle price of such SAR. The Company shall pay such excess in cash, in Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee. | | (e) | No grant of SARs may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or other distributions to be paid on such SARs (except as provided under Section 5(c)).
| Section 8. Restricted Stock
| The Committee is authorized to grant Awards of Restricted Stock to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
| | (a) | The Award Agreement shall specify the vesting schedule. | | (b) | Awards of Restricted Stock shall be subject to such restrictions as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. | | (c) | Subject to the restrictions set forth in the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder with respect to Awards of Restricted Stock, including the right to vote such Shares of Restricted Stock and the right to receive dividends. |
(c) | Notwithstanding the foregoing provisions of the Plan, no eligible Employee may purchase under Offerings in any single calendar year a number of shares of Common Stock which, together with all other shares in the Company and Subsidiaries which the Employee may be entitled to purchase in such year pursuant to Offerings and under any other employee stock purchase plan, as defined in Section 423 of the Code, has an aggregate Fair Market Value (measured in each case as of the applicable Grant Date) in excess of $25,000. For the avoidance of doubt (i) if during the Offering that begins on January 2 an Employee purchases shares of Common Stock with a Fair Market Value (as of the January 2 Grant Date) that equals $25,000, then the Employee shall not be eligible to participate in the Offering that begins on the following July 1 and (ii) the number of shares of Common Stock an Employee may purchase in the Offering that begins on July 1 is equal to the number of shares of Common Stock with a Fair Market Value (as of the July 1 Grant Date) equal to $25,000reduced bythe Fair Market Value (as of the preceding January 2 Grant Date) of the shares of Common Stock purchased in the preceding Offering.
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Table of Contents ParticipationAppendix A.
| (d) | The Committee may, in its discretion, specify in the applicable Award Agreement that any or all dividends or other distributions paid on Awards of Restricted Stock prior to vesting be paid either in cash or in additional Shares and either on a current or deferred basis and that such dividends or other distributions may be reinvested in additional Shares, which may be subject to the same restrictions as the underlying Awards. | | (e) | Any Award of Restricted Stock may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration. | | (f) | The Committee may provide in an Award Agreement that an Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to an Award of Restricted Stock, the Participant shall be required to file promptly a copy of such election with the Company and the applicable Internal Revenue Service office.
| Section 9. RSUs
| The Committee is authorized to grant Awards of RSUs to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
| | (a) | The Award Agreement shall specify the vesting schedule and the delivery schedule (which may include deferred delivery later than the vesting date). | | (b) | Awards of RSUs shall be subject to such restrictions as the Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. | | (c) | An RSU shall not convey to the Participant the rights and privileges of a stockholder with respect to the Share subject to the RSU, such as the right to vote or the right to receive dividends, unless and until a Share is issued to the Participant to settle the RSU. | | (d) | The Committee may, in its discretion, specify in the applicable Award Agreement that any or all dividend equivalents or other distributions paid on Awards of RSUs prior to vesting or settlement, as applicable, be paid either in cash or in additional Shares and either on a current or deferred basis and that such dividend equivalents or other distributions may be reinvested in additional Shares, which may be subject to the same restrictions as the underlying Awards. | | (e) | Shares delivered upon the vesting and settlement of an RSU Award may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration. | | (f) | The Committee may determine the form or forms (including cash, Shares, other Awards, other property or any combination thereof) in which payment of the amount owing upon settlement of any RSU Award may be made.
| Section 10. Performance Awards
| The Committee is authorized to grant Performance Awards to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
| | (a) | A Performance Award may be denominated as a cash amount, number of Shares or units or a combination thereof and is an Award (or a portion thereof) which may be earned upon achievement or satisfaction of one or more performance conditions specified by the Committee. In addition, the Committee may specify that any other Award (or portion thereof) shall constitute a Performance Award by conditioning the grant to a Participant or the right of a Participant to exercise the Award (or any portion thereof) or have it settled, and the timing thereof, upon achievement or satisfaction of such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the Plan, the performance goals to be achieved during any Performance Period, the length of any Performance Period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. | | (b) | If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which the Company conducts its business, or other events or circumstances render the performance objectives unsuitable, the Committee may modify the performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable such that it does not provide any undue enrichment or harm. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative. The Committee shall have the power to impose such other restrictions on Awards subject to this Section 10(b) as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements of any applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations. | | (c) | Settlement of Performance Awards shall be in cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined in the discretion of the Committee. | | (d) | A Performance Award shall not convey to the Participant the rights and privileges of a stockholder with respect to the Share subject to the Performance Award, such as the right to vote (except as relates to Restricted Stock) or the right to receive dividends, unless and until Shares are issued to the Participant to settle the Performance Award. The Committee, in its sole discretion, may provide that a Performance Award shall convey the right to receive dividend equivalents on the Shares underlying the Performance Award with respect to any dividends declared during the period that the Performance Award is outstanding, in which case, such dividend equivalent rights shall accumulate and shall be |
(a) | An eligible Employee may become a participant in the Plan for an Offering by completing an enrollment form or other required documents prescribed by the Committee or the Designee and submitting them in the form and manner designated by the Committee or the Designee on or before the last day of the applicable Enrollment Period and in accordance with the Policy.
| (b) | Unless otherwise determined by the Company, payroll deductions in respect of an Offering shall commence with the first payroll check date coincident with or subsequent to the Grant Date of such Offering and shall end with the payroll check date that is coincident with or immediately preceding the Expiration Date, unless such deductions are sooner terminated, as provided in Section 10. An Employee’s payroll deductions shall be credited to a Plan account which shall be established for bookkeeping purposes only. Payroll deductions credited to an Employee’s Plan account shall be deposited or held with the general funds of the Company unless applicable law requires that such amounts be segregated from the Company’s general funds or held by an independent third party. Amounts credited to an Employee’s Plan account shall not be credited with interest or other notional earnings.
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8. | Method of Payment of Contributions.
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(a) | A participating Employee shall elect to have payroll deductions made on each payday during the Offering in whole percentages from one percent (1%) to, and not exceeding, ten percent (10%) of such participating Employee’s Compensation during the Offering. An Employee may reduce the rate of his or her payroll deductions one time during the Offering Period. The reduction in payroll deductions shall be effected in accordance with the procedures prescribed by the Committee or the Designee and in accordance with the Policy. Unless otherwise determined by the Committee or the Designee, the direction to reduce the rate of payroll deductions shall become effective after the direction is received by the Committee or the Designee, provided it is received no later than one month before the end of the Offering Period. All payroll deductions made by a participating Employee shall be credited to his or her account under the Plan. If the election is reduced to zero percent (0%), the participating Employee is considered withdrawn from the Plan and money will be refunded pursuant to Section 10(a), as long as reduction is made at least one month prior to the Expiration Date. A participating Employee may not make any additional payments into such account.
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(b) | A participating Employee may discontinue his or her participation in the Plan as provided in Section 10.
| (c) | Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 6 hereof, the Company may cause a participant’s payroll deductions to be decreased in respect of an Offering year to zero percent (0%).
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9. | Exercise of Purchase Rights.Unless a participating Employee withdraws from an Offering or terminates his or her Continuous Status as an Employee as provided in Section 10 prior to the Expiration Date of an Offering, his or her right to purchase shares of Common Stock in the Offering will be exercised and shares will be deposited to participating Employees’ individual Plan designated brokerage accounts as soon as administratively practicable after each Offering Period’s Expiration Date. The number of shares of Common Stock purchased using each Expiration Date as the effective purchase date shall equal that number of shares that is the quotient of the amount credited to the Employee’s account under the Plan on the Expiration Date and the purchase price determined under Section 11(b). Whole and fractional shares shall be purchased, unless the Committee or the Designee determines that the purchase of fractional shares is administratively impracticable; any payroll deductions accumulated in a participant’s account and not applied to the purchase of shares shall be retained in the participant’s account and applied in the next Offering Period, subject to withdrawal by the participant pursuant to Section 10.
| 10. | Voluntary Withdrawals; Termination of Employment.
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(a) | A participating Employee may withdraw all but not less than all of the contributions credited to his or her account under the Plan by delivering a notice of withdrawal in the form and manner prescribed by the Committee or the Designee and in accordance with the Policy, provided such notice is received no later than one month before the Expiration Date. All of the participating Employee’s contributions credited to his or her account will be paid to him or her not later than sixty (60) days after receipt of his or her notice of withdrawal and his or her Purchase Right for the then current Offering will be automatically terminated, and no further contributions by such Employee for the purchase of Common Stock will be permitted or made during such Offering.
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| 88 | | CSX CORPORATION 2018 PROXY STATEMENT | | 78 CSX Corporation 2019 Proxy Statement |
Table of Contents | CSX Corporation 2018 Employee Stock Purchase PlanAppendix A | paid in cash or Shares on the settlement date of the Performance Award, subject to the Participant’s earning of the Shares underlying the Performance Awards with respect to which such dividend equivalents are paid upon achievement or satisfaction of performance conditions specified by the Committee. Shares delivered upon the vesting and settlement of a Performance Award may be evidenced in such manner as the Committee may deem appropriate, including book-entry registration. For the avoidance of doubt, unless otherwise determined by the Committee, no dividend equivalent rights shall be provided with respect to any Shares subject to Performance Awards that are not earned or otherwise do not vest or settle pursuant to their terms. | | (e) | The Committee may, in its discretion, increase or reduce the amount of a settlement otherwise to be made in connection with a Performance Award.
| Section 11. Dividend Equivalents
| The Committee may grant Dividend Equivalents to any Participant. The Committee shall establish the terms and conditions to which Dividend Equivalents are subject. Dividend Equivalents may be granted in connection with other Incentive Awards or separately. Under a Dividend Equivalent, a Participant shall be entitled to receive, currently or in the future, payments equivalent to the amount of dividends paid by CSX to holders of Shares with respect to the number of Dividend Equivalents held by the Participant; provided, however, that if Dividend Equivalents are granted with a Performance Award, any amount payable under the Dividend Equivalents shall be paid only when, and to the extent that, the performance restrictions of the related Performance Award are satisfied (but in no event later than March 15 of the year following the year in which the performance restrictions are satisfied). The Committee may decide to pay a Dividend Equivalent in Shares, cash, or a combination thereof at the time a Dividend Equivalent is granted or payable.
| Section 12. Other Cash-Based Awards and Other Stock-Based Awards
| The Committee is authorized, subject to limitations under applicable law, to grant Other Cash-Based Awards (either independently or as an element of or supplement to any other Award under the Plan) and Other Stock-Based Awards. The Committee shall determine the terms and conditions of such Awards. Shares delivered pursuant to an Award in the nature of a purchase right granted under this Section 12 shall be purchased for such consideration, and paid for at such times, by such methods and in such forms, including cash, Shares, other Awards, other property, net settlement, broker-assisted cashless exercise or any combination thereof, as the Committee shall determine;provided that the purchase price therefor shall not be less than the Fair Market Value of such Shares on the date of grant of such right.
| Section 13. Effect of Termination of Service or a Change in Control on Awards
| The following shall apply in the event of a Change in Control:
| | (a) | Continuation of Awards. Effective as of a Change in Control, each outstanding Award must be continued in accordance with its terms and conditions in effect on the date of the Change in Control, except for adjustments in its terms and conditions as are required to equitably reflect the change in capital structure resulting from the Change in Control. If Company Stock is no longer publicly traded on a recognized exchange, Awards outstanding at the time of the Change in Control must be replaced with a Substitute Award as soon as practicable. | | (b) | Termination of Employment After Change in Control. Each Incentive Award or Substitute Award held by a Participant (A) who resigns within three months after an event constituting Good Reason or (B) whose employment is terminated without Cause by the Company, a Subsidiary or an Affiliate, in either case after a Change in Control and on or before the third anniversary of the Change in Control, is subject to the following: | | (i) | If the Award or Substitute Award is an Option or SAR, the Award shall be cancelled on the date the Participant’s employment terminates in exchange for a single sum cash payment. The payment shall equal the FMV of the Shares or other security subject to the Option or SAR, on the date the Participant’s employment terminates, in excess of the option price or the Initial Value, as applicable, multiplied by the number of Shares or other security subject to the Option or SAR on the date of the termination of employment. | | (ii) | If the Award or Substitute Award is Restricted Stock, all terms and conditions on the Restricted Stock shall be deemed satisfied on the date the Participant’s employment terminates and the Restricted Stock shall be fully vested and immediately transferable. | | (iii) | If the Award or Substitute Award is a Performance Award, the Award shall be considered earned at the Target Payout Level and shall be cancelled on the date the Participant’s employment terminates in exchange for a single sum cash payment. The payment shall equal the FMV of Shares or other security subject to the Award multiplied by the number of Shares or other security subject to the Award at the Target Payout Level. | | (iv) | If the Award or Substitute Award is RSUs, all terms and conditions on the RSUs shall be considered satisfied on the date the Participant’s employment terminates and shall be cancelled on such date in exchange for a single sum cash payment. The payment shall equal the FMV of the Shares or other security subject to the award, multiplied by the number of RSUs subject to the award on the date the Participant’s employment terminates. | | (v) | If the Award or Substitute Award is Dividend Equivalents, all terms and conditions of the Dividend Equivalents shall be considered satisfied on the date the Participant’s employment terminates and shall be cancelled on such date in exchange for a single sum cash payment. The payment shall equal the balance, if any, that has been credited but not yet paid with respect to the Dividend Equivalents. |
Upon terminationTable of a participating Employee’s Continuous Status as an Employee prior to the Expiration Date of an Offering for any reason, whether voluntary or involuntary, including retirement or death, the contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the Employee’s estate, not later than sixty (60) days after the termination of the Employee’s Continuous Status as an Employee, and his or her Purchase Right will be automatically terminated.Contents
| (c) | Appendix A participating Employee’s voluntary withdrawal from an Offering will not have any effect upon his or her eligibility to participate in a succeeding Offering or in any similar plan that may hereafter be adopted by the Company. | (d) | If an Employee participated in an Offering but elects not to participate or is not eligible to participate in the next following Offering, then any contributions credited to his or her Plan account that were not used to purchase shares as of the preceding Offering Period’s Expiration Date will be returned to him or her not later than sixty (60) days after the Grant Date of such next following Offering.
| (c) | Termination of Employment before a Change in Control in Certain Circumstances. Each Award of a Participant (A) who resigns within three months after an event constituting Good Reason or (B) whose employment is terminated without Cause by the Company, a Subsidiary or an Affiliate, in either case upon or after shareholder approval of a Qualifying Combination and prior to the applicable Change in Control is subject to the following upon the consummation of such Change in Control: | | (i) | All Options and SARs shall be cancelled, on the date of the Qualifying Combination, in exchange for a single sum cash payment. The payment shall equal the FMV of the Shares on such date in excess of the option price or the Initial Value, as applicable, multiplied by the number of shares of Company Stock subject to the Option or SAR on the date of the Change in Control. | | (ii) | All terms and conditions of Restricted Stock and RSUs shall be considered satisfied upon the Qualifying Combination, (and the Restricted Stock shall be entirely vested and transferable and the amount payable for the RSUs shall be immediately payable as of such date). | | (iii) | all Performance Grants, Stock Awards and Dividend Equivalents shall be considered earned at Target Payout Level and immediately payable in cash upon the date of the Qualifying Combination.
| | (d) | Additional Participant Rights. If Section 13(a) is not satisfied, then the following shall occur: (i) with respect to Performance Awards, Restricted Stock, RSUs or Dividend Equivalents, the Participant shall be entitled to receive the value of the Award, based upon FMV of the Shares and at the Target Payout Level, where applicable, determined on the date of the Change in Control and paid as soon as practicable thereafter, and (ii) with respect to Options or SARs, the Participant shall be entitled to receive an amount equal to the FMV of the shares covered by the Option or SAR on the date of the Change in Control in excess of the Option price or Initial Value, as applicable, multiplied by the number of shares covered by the Option or SAR and paid as soon as practicable thereafter. | | (e) | Amendments and Termination.On and after a Change in Control, the Committee may not amend or terminate the Plan or the terms of any Award in a manner that adversely impacts such Award without the affected Participant’s consent except as required or provided under Section 13(a) or Section 20.
| Section 14. General Provisions Applicable to Awards
| | (a) | Awards shall be granted for such cash or other consideration, if any, as the Committee determines; provided that in no event shall Awards be issued for less than such minimal consideration as may be required by applicable law. | | (b) | Awards may, in the discretion of the Committee, be granted either alone or in addition to or in tandem with any other Award or any award granted under any other plan of the Company. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company, may be granted either at the same time as or at a different time from the grant of such other Awards or awards. | | (c) | Subject to the terms of the Plan, payments or transfers to be made by the Company upon the grant, exercise or settlement of an Award may be made in the form of cash, Shares, other Awards, other property, net settlement, or any combination thereof, as determined by the Committee in its discretion at the time of grant, and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of dividend equivalents in respect of installment or deferred payments. | | (d) | Except as may be permitted by the Committee or as specifically provided in an Award Agreement: (i) no Award and no right under any Award shall be assignable, alienable, saleable or transferable by a Participant other than by will or pursuant to Section 14(e); and (ii) during a Participant’s lifetime, each Award, and each right under any Award, shall be exercisable only by such Participant or, if permissible under applicable law, by such Participant’s guardian or legal representative. The provisions of this Section 14(d) shall not apply to any Award that has been fully exercised or settled, as the case may be, and shall not preclude forfeiture of an Award in accordance with the terms thereof. | | (e) | A Participant may designate a Beneficiary or change a previous Beneficiary designation only at such times as prescribed by the Committee, in its sole discretion, and only by using forms and following procedures approved or accepted by the Committee for that purpose. | | (f) | All certificates for Shares and/or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the SEC, any stock market or exchange upon which such Shares or other securities are then quoted, traded or listed, and any applicable securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. | | (g) | The Committee may impose restrictions on any Award with respect to non-competition, non-solicitation, confidentiality and other restrictive covenants as it deems necessary or appropriate in its sole discretion.
| Section 15. Amendments and Terminations
| | (a) | Amendment or Termination of the Plan. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan (including Section 13(e)), the Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time;provided,however, that no such amendment, alteration, suspension, discontinuation or termination shall be made without (i) shareholder approval if such approval is required by applicable law or the rules of the stock market or exchange, if any, on which the Shares are principally quoted or traded or (ii) subject to Section 5(c) and Section 12, the consent of the affected Participant, if such action would materially adversely affect the rights of such Participant under any outstanding Award, except (x) to the extent any such amendment, alteration, suspension, discontinuance or termination is made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations or (y) to impose any “clawback” or recoupment provisions on any Awards |
11. | Terms and Conditions of Offerings.
|
(a) | General:
| | The Offerings shall be in such form as the Committee or the Designee shall from time to time approve, and shall contain such terms and conditions as the Committee or the Designee shall prescribe not inconsistent with the Plan.
| (b) | Purchase Price:
| | The purchase price per share of shares covered by Purchase Rights will be 85% of the lower of (i) the Fair Market Value of a share of Common Stock on the Grant Date and (ii) the Fair Market Value of a share of Common Stock on the Expiration Date.
| (c) | Term of Offerings:
| | Each Offering shall commence on the Grant Date and terminate, subject to earlier termination by the Committee or the Designee, on the Expiration Date.
| (d) | Evergreen Elections:
| | A participant’s payroll deduction authorization shall remain in effect for successive Offering Periods unless the authorization is terminated as stated in Section 10, or the Participant submits a new payroll deduction authorization during a subsequent Enrollment Period or reduces the rate of payroll deductions to zero as stated in Section 8.
| (e) | Employee’s Purchase Directions:
| | Each Offering shall provide that the participating Employee shall purchase shares of Common Stock as soon as administratively practicable after the Expiration Date of each Offering as provided in Section 9.
|
(f) | Change-in-Control:
| | Upon a Change-in-Control, the Committee or the Designee may direct that (a) an Expiration Date shall be deemed to have occurred immediately prior to such Change-in-Control and, unless an Employee shall have withdrawn from the Offering as provided in Section 10, all then outstanding Purchase Rights shall be deemed to have been exercised on such Expiration Date as provided in Section 9 or (b) the current Offering Period shall be terminated without the exercise of any Purchase Rights, in which event the amount credited to each Employee’s Plan accounts shall be returned to him or her not later than sixty (60) days after the Change-in-Control.
| (g) | Adjustments:
| | In the event that the Committee or the Designee shall determine that any stock dividend, stock split, reverse stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, offering to purchase Common Stock at a price substantially below Fair Market Value, or other similar event affects the Common Stock such that an adjustment is required in order to preserve or prevent an enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee or the Designee shall, in its sole discretion, and in such manner as the Committee or the Designee may deem equitable, adjust any or all of (1) the number and kind of shares which thereafter may be made the subject of Offerings under the Plan, (2) the number and kind of shares subject to outstanding Offerings and (3) the purchase price with respect to any of the foregoing and/or, if deemed appropriate, make provision for a cash payment to a person who has outstanding Purchase Rights.
| (h) | Assignability:
| | No rights hereunder shall be assignable or transferable.
| (i) | Employee’s Agreement:
| | If, at the time of the purchase of shares of Common Stock covered by Purchase Rights under an Offering, in the opinion of counsel for the Company, it is necessary or desirable, in order to comply with any applicable laws or regulations relating to the sale of securities, that the Employee purchasing such shares shall agree that such Employee will purchase such shares for investment and not with any present intention to resell the same, the Employee will, upon the request of the Company, execute and deliver to the Company an agreement to such effect. The Company may also require that a legend setting forth such investment intention be stamped or otherwise written on the certificates for shares purchased pursuant to the Plan or otherwise evidenced on the records with respect to shares purchased pursuant to the Plan, including records relating to uncertificated shares.
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80 CSX Corporation 2019 Proxy Statement |
Table of Contents CSX Corporation 2018 Employee Stock Purchase PlanAppendix A | (including any amounts or benefits arising from such Awards) in accordance with Section 19. Notwithstanding anything to the contrary in the Plan, the Committee may amend the Plan, or create sub-plans, in such manner as may be necessary to enable the Plan to achieve its stated purposes in any jurisdiction in a tax-efficient manner and in compliance with local rules and regulations. |
(j) | Rights as a Shareholder; No Employment Rights:
| | An Employee who has been granted Purchase Rights hereunder shall have no rights as a shareholder of the Company with respect to shares of Common Stock covered by such Purchase Rights until the date of the issuance of the shares to the Employee. No adjustment will be made for dividends or other rights for which the record date
| | (b) | Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, immediately prior to the consummation of such action, each Award shall be treated as set forth in his Section 13 and shall then terminate, unless otherwise determined by the Committee. | | (c) | Terms of Awards. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate any Award theretofore granted, prospectively or retroactively, without the consent of any relevant Participant or holder or Beneficiary of an Award;provided,however, that, subject to Section 5(c) and Section 13, no such action shall materially adversely affect the rights of any affected Participant or holder or Beneficiary under any Award theretofore granted under the Plan, except (x) to the extent any such action is prior to the date of such issuance. For purposes of the Plan, the Company, in lieu of the issuance of certificates, may utilize a book entry account system for recording ownership of shares of Common Stock, subject to the rules generally applicable to such system. | | Neither the Plan nor an Employee’s participation in the Plan or an Offering shall confer upon the Employee any right to continued employment with any Employer. Neither the Plan nor an Employee’s participation in the Plan or an Offering shall limit the right of an Employer to terminate the employment of the Employee.
| (k) | Interest:
| | No interest shall accrue on payroll deductions made to cause the Plan to comply with applicable law, stock market or exchange rules and regulations or accounting or tax rules and regulations, or (y) to impose any “clawback” or recoupment provisions on any Awards (including any amounts or benefits arising from such Awards) in accordance with Section 19. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of events (including the events described in Section 5(c)) affecting the Company, or the financial statements of the Company, or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under or pursuant to the Plan or any Offering hereunder.
|
12. | Term of Plan.The Plan will terminate automatically and no purchase rights may be granted under the Plan after June 30, 2028. The final Grant Date under the Plan will be on January 2, 2028. | 13. | Amendments.The Plan is wholly discretionary in nature. As such, the Board may, in its sole discretion, from time to time alter, amend, suspend, or discontinue the Plan or alter or amend any and all Purchase Rights or terminate any Offering; provided, however, that no such action of the Board may, without the approval of the shareholders, make any amendment for which shareholder approval is necessary to comply with any tax or regulatory requirement with which the Board has determined it is necessary or advisable to have the Company comply. Subject to the limitations in this Section 13 relating to shareholder approval, the Committee or the Designee may, in its sole discretion, make such amendment or modification to the Plan or any Purchase Rights granted hereunder as is necessary or desirable to comply with, or effectuate administration of, the Plan under the laws, rules or regulations of the U.S. or any foreign jurisdiction, the laws of which may be applicable to the Plan or participants in the Plan. |
14. | Application of Funds.The proceeds received by the Company from the sale of the Common Stock pursuant to an Offering will be used for general corporate purposes. | 15. | Governing Law.The Plan and all Offerings shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia without regard to the choice of law rules thereunder. | 16. | Additional Restrictions of Rule 16b-3.The terms and conditions of Purchase Rights granted hereunder to, and the purchase of shares of Common Stock by, persons subject to Section 16 of the Securities Exchange Act of 1934 shall comply with the applicable provisions of Rule 16b-3 thereunder. The Plan shall be deemed to contain, and such Purchase Rights shall contain, and the shares of Common Stock issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by such Rule 16b-3 to qualify for the maximum exemption from such Section 16 with respect to Plan transactions.| (d) | No Repricing. Notwithstanding the foregoing, except as provided in Section 5(c), no action (including the repurchase of Options or SAR Awards (in each case, that are “out of the money”) for cash and/or other property) shall directly or indirectly, through cancellation and re-grant or any other method, reduce, or have the effect of reducing, the exercise or hurdle price of any Award established at the time of grant thereof without approval of the Company’s shareholders.
| Section 16. Miscellaneous
| | (a) | No Employee, Director, Consultant, Participant, or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of employees, Participants or holders or Beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient. Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan. | | (b) | The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or to continue to provide services to, the Company or any Subsidiary. Further, the Company or any applicable Subsidiary may at any time dismiss a Participant, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or in any other agreement binding on the parties. The receipt of any Award under the Plan is not intended to confer any rights on the receiving Participant except as set forth in the applicable Award Agreement. | | (c) | Nothing contained in the Plan shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. | | (d) | The Committee may authorize the Company to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to the Participant the amount (in cash, Shares, other Awards, other property, net settlement, or any combination thereof) of applicable withholding taxes due in respect of an Award, its exercise or settlement or any payment or transfer under such Award or under the Plan and to take such other action (including providing for elective payment of such amounts in cash or Shares by such Participant) as may be necessary to satisfy all obligations for the payment of such taxes and, unless otherwise determined by the Committee in its discretion, to the extent such withholding would not result in liability classification of such Award (or any portion thereof) under applicable accounting standards. | | (e) | If any provision of the Plan or any Award Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award Agreement, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and any such Award Agreement shall remain in full force and effect. | | (f) | Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company. | | (g) | No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash or other securities shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. | | (h) | Awards may be granted to Participants who are non-United States nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to Participants who are employed or providing services in the United States as may, in the judgment of the Committee, be necessary or desirable to recognize differences in local law, tax policy or custom. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Participants on assignments outside their home country. | |
Table of Contents Appendix A Section 17. Effective Date of the Plan
| The Plan shall be effective as of the Effective Date, subject to prior approval by the Board and the Company’s shareholders.
| Section 18. Term of the Plan
| | No Award shall be granted under the Plan after the earliest to occur of (i) the 10-year anniversary of the Effective Date; (ii) the maximum number of Shares available for issuance under the Plan have been issued; or (iii) the Board terminates the Plan in accordance with Section 15(a). However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date. | | 90 | | CSX CORPORATION 2018 PROXY STATEMENT | | Section 19. Cancellation or “Clawback” of Awards
| The Committee shall have full authority to implement any policies and procedures necessary to comply with Section 10D of the Exchange Act and any rules promulgated thereunder and any other regulatory regimes. Notwithstanding anything to the contrary contained herein, any Awards granted under the Plan (including any amounts or benefits arising from such Awards) shall be subject to any clawback or recoupment arrangements or policies the Company has in place from time to time, and the Committee may, to the extent permitted by applicable law and stock exchange rules or by any applicable Company policy or arrangement, and shall, to the extent required, cancel or require reimbursement of any Awards granted to the Participant or any Shares issued or cash received upon vesting, exercise or settlement of any such Awards or sale of Shares underlying such Awards.
| Section 20. Section 409A of the Code
| With respect to Awards subject to Section 409A of the Code, the Plan is intended to comply with the requirements of Section 409A of the Code, and the provisions of the Plan and any Award Agreement shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition shall be interpreted and deemed amended so as to avoid this conflict. Notwithstanding anything in the Plan to the contrary, if the Board considers a Participant to be a “specified employee” under Section 409A of the Code at the time of such Participant’s “separation from service” (as defined in Section 409A of the Code), and any amount hereunder is “deferred compensation” subject to Section 409A of the Code, any distribution of such amount that otherwise would be made to such Participant with respect to an Award as a result of such “separation from service” shall not be made until the date that is six months after such “separation from service,” except to the extent that earlier distribution would not result in such Participant’s incurring interest or additional tax under Section 409A of the Code. If an Award includes a “series of installment payments” (within the meaning of Section 1.409A-2(b)(2)(iii) of the Treasury Regulations), the Participant’s right to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if an Award includes “dividend equivalents” (within the meaning of Section 1.409A-3(e) of the Treasury Regulations), the Participant’s right to such dividend equivalents shall be treated separately from the right to other amounts under the Award. Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by any Participant on account of non-compliance with Section 409A of the Code.
| Section 21. Successors and Assigns
| The terms of the Plan shall be binding upon and inure to the benefit of the Company and any successor entity, including any successor entity contemplated by Section 13(a).
| Section 22. Data Protection
| By participating in the Plan, the Participant consents to the holding and processing of personal information provided by the Participant to the Company or any Affiliate, trustee or third party service provider, for all purposes relating to the operation of the Plan. These include:
| | (a) | administering and maintaining Participant records; | | (b) | providing information to the Company, any Subsidiary, trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan; | | (c) | providing information to future purchasers or merger partners of the Company or any Affiliate, or the business in which the Participant works; and | | (d) | transferring information about the Participant to any country or territory that may not provide the same protection for the information as the Participant’s home country.
| Section 23. Governing Law
| | The Plan and each Award Agreement shall be governed by the laws of the State of Florida, without application of the conflicts of law principles thereof. |
82 CSX Corporation 2019 Proxy Statement |
Table of Contents  CSX CORPORATION
C/O BROADRIDGE
P.O. BOX 1342
BRENTWOOD, NY 11717 | SCAN TO
VIEW MATERIALS & VOTE |  | |
VOTE BY INTERNET
Before The Meeting- Go towww.proxyvote.com/csxor scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 2, 2019. Follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting- Go towww.virtualshareholdermeeting.com/CSX2019
You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. Learn more about corporate social responsibility at CSX.VOTE BY PHONE - 1-800-690-6903
csx.com/responsibility
|
Table of Contents
 CSX CORPORATION
C/O BROADRIDGE
P.O. BOX 1342
BRENTWOOD, NY 11717
| 
| SCAN TO
VIEW MATERIALS & VOTE |  |
VOTE BY INTERNET - www.proxyvote.com/csx or scan the QR Barcode above
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 17, 2018. Follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 17, 2018.Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 2, 2019. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | | E58781-P19892 | | KEEP THIS PORTION FOR YOUR RECORDS | | | DETACH AND RETURN THIS PORTION ONLY | | E38926-P05176
| KEEP THIS PORTION FOR YOUR RECORDS
| | | DETACH AND RETURN THIS PORTION ONLY
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
CSX CORPORATION | | | The Board of Directors recommends you vote FOR Proposals 1, 2, 3 and 4. | | | | | | The Board of Directors recommends you vote FOR
Proposals 1, 2, 3 and 4.
| | | | | | | | | 1. Election of Directors | | | | 1. | Election of Directors | | | | | | | | | | | | | | | | Nominees: | | For | | Against | | Abstain | | | | | | | | |
| | Nominees: | | For
| | Against
| | Abstain
| | | | | | | | | | | | | 1a. | Donna M. Alvarado | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1b. | Pamela L. Carter | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1c. | James M. Foote | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1d. | Steven T. Halverson | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1e. | Paul C. Hilal | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1f. | John D. McPherson | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1g. | David M. Moffett | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1h. | Linda H. Riefler | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1i. | J. Steven Whisler | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 1j. | John J. Zillmer | | ☐ | | ☐ | | ☐ | | | | | | | | | | | For address changes and/or comments, please check this box and write them on the back where indicated. | | ☐ |
| Note: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. |
| | | | | | | | | | | | | | | | | | | | | For | | Against | | Abstain | | | | | | | | | | 2. | The ratification of the appointment of Ernst & Young LLP as the Independent Registered Public Accounting Firm for 2019; | | ☐ | | ☐ | | ☐ | | | | | | | | | | 3. | Advisory (non-binding) resolution to approve compensation for the Company's named executive officers; and | | ☐ | | ☐ | | ☐ | | | | | | | | | | 4. | The Approval of the 2019 CSX Stock and Incentive Award Plan. | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1b. | John B. Breaux | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1c. | Pamela L. Carter | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1d. | James M. Foote | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1e. | Steven T. Halverson | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1f. | Paul C. Hilal | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1g. | Edward J. Kelly, III | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1h. | John D. McPherson | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1i. | David M. Moffett | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1j. | Dennis H. Reilley | | ☐ | | ☐ | | ☐ | | | | 1k. | Linda H. Riefler | | | | | | |
 | In appreciation for submitting your vote for the CSX Annual Meeting and to further our commitment to environmental stewardship, a tree will be planted on your behalf in a protected park or wildlife refuge.
| For address changes and/or comments, please check this box and write them on the back where indicated. | | ☐ | | | | | | | | | | | | | | | | | | Note: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. | | | | | | |
Thank You! | | | | | | | | | | | | | For
| | Against
| | Abstain
| | | | | | | | | | | | | 1l. | J. Steven Whisler | | ☐ | | ☐ | | ☐ | | | | | | | | | | | | | 1m. | John J. Zillmer | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 2. | | The ratification of the appointment of Ernst & Young LLP as the Independent Registered Public Accounting Firm for 2018; | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 3. | | Advisory (non-binding) resolution to approve compensation for the Company's named executive officers; | | ☐ | | ☐ | | ☐ | | | | | | | | | | | 4. | | The approval of the 2018 CSX Employee Stock Purchase Plan. | | ☐ | | ☐ | | ☐ |
 | | In appreciation for submitting your vote for the CSX Annual Meeting and to further our commitment to environmental stewardship, a tree will be planted on your behalf in a protected park or wildlife refuge.
| | | | Thank You!
|
| | | | | | | Please indicate if you plan to attend this meeting. | | ☐ | | ☐ | | | | | | | | | | | | Yes | | No | | |
| | | | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | | Signature (Joint Owners) | Date |
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com/csx.
CSX CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting of Shareholders
to be held on May 3, 2019 The undersigned hereby appoints NATHAN D. GOLDMAN and MARK D. AUSTIN, and each of them, as proxies, each with full power of substitution, to act and vote the shares which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be hosted online at www.virtualshareholdermeeting.com/CSX2019 on May 3, 2019, at 10:00 a.m. (EDT), and at all adjournments or postponements thereof, and authorizes them to represent and to vote all stock of the undersigned on the proposals listed on the reverse side of this card as directed and, in their discretion, upon such other matters as may properly come before the meeting, all as more fully described in the Proxy Statement. The proxy will be voted as directed. If no direction is made, the proxy will be voted: "FOR" Proposals 1, 2, 3 and 4. Your Internet or telephone vote authorizes the named proxies to vote the shares in the same manner as if you marked, signed and returned your proxy card. If you vote your proxy via the Internet or by telephone, please DO NOT mail back this proxy card. Proxies submitted by telephone or the Internet must be received by 11:59 p.m. Eastern Time on Thursday, May 2, 2019. | Address Changes/Comments: | | | | | | | | | | | (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) | | | Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
Table of Contents
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com/csx.
CSX CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting of Shareholders
to be held on May 18, 2018Continued and to be signed on reverse side
The undersigned hereby appoints NATHAN D. GOLDMAN and MARK D. AUSTIN, and each of them, as proxies, each with full power of substitution, to act and vote the shares which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held on May 18, 2018, at 10:00 a.m. (EDT), at the Prime F. Osborn III Convention Center, 1000 Water Street, Jacksonville, FL 32204, and at all adjournments or postponements thereof, and authorizes them to represent and to vote all stock of the undersigned on the proposals listed on the reverse side of this card as directed and, in their discretion, upon such other matters as may properly come before the meeting, all as more fully described in the Proxy Statement.
The proxy will be voted as directed. If no direction is made, the proxy will be voted: "FOR" Proposals 1, 2, 3 and 4. Your Internet or telephone vote authorizes the named proxies to vote the shares in the same manner as if you marked, signed and returned your proxy card. If you vote your proxy via the Internet or by telephone, please DO NOT mail back this proxy card. Proxies submitted by telephone or the Internet must be received by 11:59 P.M. Eastern Time on Thursday, May 17, 2018.
Address Changes/Comments: | | | |
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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