UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
| ☑ | Filed by the Registrant | ☐ | Filed by a Party other than the Registrant |
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| Preliminary Proxy Statement | ||
| ☐ | Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| Definitive Proxy Statement | ||
| ☐ | Definitive Additional Materials | |
| ☐ | Soliciting Material Under Rule 14a-12 | |
CSX Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
| PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): | |||
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| ☐ | Fee computed on table below per Exchange Act Rules 14a-6(i) | ||
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| ☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. | ||
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[PRELIMINARY PROXY - SUBJECT TO COMPLETION]
 | March 20, 2019 Dear Shareholder: On behalf of the Board of Directors of CSX Corporation, I cordially invite you to attend the Company’s 2019 Annual Meeting of Shareholders (“Annual Meeting”) on Friday, May 3, 2019. The meeting will begin at 10:00 a.m. (EDT) and will be hosted online at www.virtualshareholdermeeting.com/CSX2019. We are excited to introduce a virtual meeting format for this year’s Annual Meeting that we believe will facilitate expanded shareholder access and participation. To participate in the meeting, you will need the 16-digit control number included on your proxy card or on your Notice of Availability of Proxy Materials. I also encourage you to review the 2018 CSX Annual Report to Shareholders, which includes CSX’s audited financial statements and additional information about CSX’s business. We have elected to provide electronic access to our proxy materials under the Securities and Exchange Commission’s “notice and access” rules, because we believe this offers shareholders the most effective and efficient method for reviewing important information about CSX. Electronic distribution also reduces the environmental impact of our Annual Meeting and supports our sustainability commitment. For additional details about accessing information or the conduct of the Annual Meeting, please see the Questions and Answers section of this Proxy Statement or visit the Annual Meeting of Shareholders section of our Investor Relations website. Even if you do not plan to participate in this year’s Annual Meeting, your vote is important. You can make your voice heard by submitting your proxy via the Internet, by phone or by completing, signing, dating and returning the enclosed proxy card in the envelope provided. I urge you to do so promptly to ensure your shares are represented and voted. If you should later decide to participate in the Annual Meeting, you will be able to vote online, even if you have previously submitted your proxy. Please review the instructions for each of your voting options described in this Proxy Statement as well as in the Notice of Internet Availability you received in the mail or via email. The CSX Board of Directors and leadership team look forward to your participation in the Annual Meeting. Sincerely,  James M. Foote |
___________, 2017
Dear Shareholder:
We cordially invite you to attend the 2017 Annual Meeting of Shareholders of CSX Corporation (“CSX”). The Annual Meeting will be held at 10:00 a.m. (EDT) on Monday, June 5, 2017, at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia 23220.
Details regarding admission to the Annual Meeting and the business to be conducted are described in the Notice of Internet Availability of Proxy Materials (Notice) you received in the mail and in this Proxy Statement. CSX also has made available with this Proxy Statement a copy of our 2016 Annual Report to Shareholders. We encourage you to read our Annual Report, which includes CSX’s audited financial statements and additional information about CSX’s business.
CSX has elected to provide electronic access to our proxy materials under the Securities and Exchange Commission’s “notice and access” rules. CSX believes that providing Internet access to our proxy materials increases the ability of our shareholders to review important information about the Company, while reducing the environmental impact of our Annual Meeting. If you want more information regarding electronic access or the Annual Meeting, please see the Questions and Answers section of this Proxy Statement or visit the Annual Shareholders Meeting section of our Investor Relations website.
Every shareholder vote is important. Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented and voted at the Annual Meeting. Therefore, we urge you to promptly vote and submit your proxy via the Internet, by phone or by signing, dating and returning the enclosed white proxy card in the enclosed envelope. If you decide to attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy. Please review the instructions on each of your voting options described in this Proxy Statement as well as in the Notice you received in the mail or via email.
We would like to express our appreciation for your continued support of CSX and look forward to seeing you at the Annual Meeting.
CSX Corporation
WWW.CSX.COM 1 |
To Our Shareholders:
The Annual Meeting of Shareholders (the “Annual Meeting”) of CSX Corporation (“CSX”(together with its subsidiaries, “CSX” or the “Company”) will be held at 10:00 a.m. (EDT) on Monday, June 5, 2017Friday, May 3, 2019. If you plan to participate in the Annual Meeting, please see the instructions on page 9 of the Proxy Statement. Shareholders will be able to listen, vote electronically and submit questions during the Annual Meeting online or via telephone. There will be no physical location for shareholders to attend. Shareholders may only participate online at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia, for the purposewww.virtualshareholdermeeting.com/CSX2019.
Items of considering and acting upon the following matters:Business:
| To elect the | ||
| Directors | ||
| To ratify the appointment of Ernst & Young LLP as the Independent Registered Public Accounting Firm for | ||
| 2019 | ||
| To vote on an advisory (non-binding) resolution to approve | ||
| To | ||
| Incentive Award Plan | ||
| To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement | ||
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 by telephone or via the Internet;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. WhiteThis proxy cards areis being solicited on behalf of the Company’s Board of DirectorsDirectors.
Only shareholders of record at the close of business on April 17, 2017,March 4, 2019, which is the record date for the Annual Meeting, are entitled to vote. The Notice of Internet Availability of Proxy Materials (the “Notice”), the Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 30, 201631, 2018 (the “Annual“2018 Annual Report”) are being mailed or made available to those shareholders on or about [●], 2017.March 20, 2019.
By Order of the Board of Directors,
Ellen M. FitzsimmonsNathan D. Goldman
Executive Vice President-Law and Public AffairsPresident-Chief Legal OfficerGeneral Counsel and Corporate Secretary
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 3, 2019
The Company’s Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the
fiscal year ended December 31, 2018, are available, free of charge, at www.proxyvote.com.
2 CSX Corporation 2019 Proxy Statement |
WWW.CSX.COM 3 |
This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. For more complete information regarding the Company’s 2016 performance, please review the Company’s 2016 Annual Report.
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Attend our Annual Meeting of Shareholders
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| Date and Friday, May 3, 2019 | ||||
| Place Meeting live via the internet – please visit www.virtualshareholdermeeting.com/CSX2019. To participate in the Annual Meeting, you will need the 16-digit control number included on your proxy card or on your Notice of Availability of Proxy Materials. | You can vote if you were a shareholder of record at the close of business on March 4, 2019, which is the record date for the Annual Meeting. |
EligibilityHow to Cast Your Vote by Proxy
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| By internet using a computer Until 11:59 p.m. EDT on | By internet using a smartphone or tablet Until 11:59 p.m. EDT on | By telephone Until 11:59 p.m. EDT on | By mail Received on or before May 2, 2019 Sign and date your proxy card or voting instruction form and send by mail |
You can vote if you were a shareholder of record at the close of business on April 17, 2017, which is the record date for the Annual Meeting.
Voting Matters and Board Recommendation
The Board of Directors unanimously recommends a vote:
| FOR | the election of the | |
| 2 | ||
| FOR | the ratification of the appointment of Ernst & Young LLP as CSX’s Independent Registered Public Accounting Firm for | |
| 2019; | 3 | |
| FOR | the approval, on an advisory (non-binding) basis, of the compensation of the Company’s named executive officers as disclosed in these materials; and | |
| 4 | ||
| FOR | the approval |
The Board is not making a recommendation with respect to Item 5, which is an advisory (non-binding) vote concerning the reimbursement arrangements sought in connection with the retention of E. Hunter Harrison as CEO at CSX.
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  | VoteFOReach director nominee | | VoteFOR | | VoteFOR | | VoteFOR |
Visit our Annual Meeting Website ●Review and download easy to read, interactive versions of our Proxy Statement and 2018 Annual Report ●Sign up for future electronic delivery to reduce our impact on the environment |
4 CSX Corporation 2019 Proxy Statement |
Proxy Summary
Board Nominees
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| Name | Director Since | Independent | A | C | E | F | G | P | Other Public Company Boards | |
 | Donna M. Alvarado | 2006 |  | M | M |  | M | CoreCivic, Inc. Park National Corporation | ||
 | Pamela L. Carter | 2010 | | M | C | M | Broadridge Financial Solutions, Inc. Enbridge Inc. Hewlett-Packard Enterprise Company | |||
 | James M. Foote | 2017 | C | |||||||
 | Steven T. Halverson | 2006 | | M | C | |||||
 | Paul C. Hilal |
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| 2017 | M | |||||||||||||
 | John | 2008 | | M | ||||||||||
 | David M. Moffett | 2015 | | C | M | M | Genworth Financial, Inc. | |||||||
 | Linda H. Riefler | 2017 | | M | M | M | MSCI, Inc. | |||||||
 | J. Steven Whisler | 2011 | | M | M | Brunswick Corporation International Paper Co. | ||||||||
 | (Chairman of the Board) | 2017 | | M | ||||||||||
| M | C | M | Ecolab, Inc. Veritiv Corporation Performance Food Group Company | |||||||||||
| C | Chair | A | Audit | |||||||||||
| E | Executive | G | ||||||||||||
| Member | ||||||||||||||
| C | Compensation | |||||||||||||
| F | Finance | |||||||||||||
| P | Public Affairs | |||||||||||||
WWW.CSX.COM 5 |
Proxy Summary
Corporate Governance Highlights
 | Directors elected annually | | Bylaws providing proxy access and rights to call special meetings | |
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Independent Chairman of the Board | | Majority voting standard for the election of directors and director resignation policy | ||
| All directors | | Executive sessions of non-management directors at all regular meetings | |
| Audit Committee, Compensation Committee and Governance Committee comprised solely of independent directors | | Policy against hedging or pledging of CSX shares by officers and directors | |
| Stock ownership guidelines for officers and directors | |||
CSX’s performanceBUSINESS HIGHLIGHTS FOR 2018
CSX accelerated its transformational change in 2016 illustrated2018. Aided by the underlying strength of the Company’sprecision scheduled railroad business as well as its ability to deliver value for customers and shareholders, while preparing for long-term growth. Despite substantial gains in the Company’s intermodal and merchandise business, significant declines in coal volumes impaired top-line growth for the year. Nevertheless,model, CSX delivered a Company-record operating ratio of 69.4%60.3% in 2016.2018. In addition, CSX returned approximately $1.75$5.4 billion to shareholders in the form of dividends and share repurchases. For more detail on CSX’s performance in 2016,2018, please see the 20162018 Annual Report.
STOCK PERFORMANCE GRAPH
The cumulative five-year shareholder returns |  | |
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6 CSX Corporation 2019 Proxy Statement |
Proxy Summary TARGET COMPENSATION MIX FOR THE NAMED EXECUTIVE OFFICERS Information regarding the compensation mix for the Chief Executive Officer (“CEO”) and each of the other executive officers named in the Summary Compensation Table (“Named Executive Officers” or “NEOs”) is set forth in the tables below. The tables indicate that 89% of the CEO’s target compensation and an average of 82% of the other Named Executive Officers’ target compensation is at risk and subject to the achievement of one or more performance goals. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 NEO TARGET COMPENSATION MIX | |||
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EXECUTIVE COMPENSATION HIGHLIGHTS
The table below highlights the 20162018 compensation for the Named Executive Officers as disclosed in theSummary Compensation Table.
| Name and 2016 Title | Salary | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |
| Michael J. Ward(1) | ||||||||
| Chairman and CEO | $1,200,000 | $6,317,982 | $2,316,907 | $2,059,200 | $1,563,377 | $122,638 | $13,580,104 | |
| Clarence W. Gooden(1) | ||||||||
| President | $700,000 | $1,754,999 | $643,584 | $1,001,000 | $438,531 | $56,509 | $4,594,623 | |
| Frank A. Lonegro | ||||||||
| Executive Vice President and CFO | $500,000 | $1,520,986 | $386,150 | $643,500 | $484,797 | $31,825 | $3,567,258 | |
| Fredrik J. Eliasson(1) | ||||||||
| Executive Vice President and Chief Sales and | ||||||||
| Marketing Officer | $600,000 | $1,872,005 | $514,867 | $772,200 | $901,672 | $35,567 | $4,696,311 | |
| Cynthia M. Sanborn | ||||||||
| Executive Vice President and COO – CSX Transportation | $550,000 | $1,872,005 | $514,867 | $807,850 | $1,113,588 | $35,976 | $4,894,286 |
| Name and Title | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||
| James M. Foote President and Chief Executive Officer | $ | 1,220,833 | — | $ | 5,310,204 | $ | 3,524,190 | $ | 3,052,081 | $ | 441,428 | $ | 221,863 | $ | 13,770,599 | |
| Frank A. Lonegro Executive Vice President and Chief Financial Officer | $ | 500,000 | — | $ | 1,180,057 | $ | 783,158 | $ | 900,000 | $ | 439,030 | $ | 20,741 | $ | 3,822,986 | |
| Edmond L. Harris Executive Vice President Operations CSX Transportation, Inc. | $ | 589,130 | $ | 250,000 | $ | 2,824,310 | $ | 1,455,954 | $ | 1,060,435 | $ | 181,385 | $ | 154,621 | $ | 6,515,835 |
| Mark K. Wallace Executive Vice President – Sales and Marketing | $ | 550,000 | — | $ | 3,367,141 | $ | 783,158 | $ | 990,000 | $ | 139,665 | $ | 118,199 | $ | 5,948,163 | |
| Nathan D. Goldman Executive Vice President – Chief Legal Officer & Corporate Secretary | $ | 500,000 | — | $ | 1,180,057 | $ | 783,158 | $ | 900,000 | $ | 182,544 | $ | 36,523 | $ | 3,582,282 | |
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8 CSX Corporation |
Proxy Statement for 2019 Annual Meeting of Shareholders
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 | The Board of Directors of CSX (the “Board”) is soliciting your vote on matters being submitted for shareholder approval at the Annual Meeting. The Company will pay the costs of preparing proxy materials and soliciting proxies, including the reimbursement, upon request, of trustees, brokerage firms, banks and other nominee record holders for the reasonable expenses they incur to forward proxy materials to beneficial owners. In addition to using mail, proxies may be solicited in person, by telephone or by electronic communication by officers and employees of the Company acting without special compensation. | |
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| Only shareholders of record at the close of business on | |
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| You will have one vote for every share of CSX common stock you owned at the close of business on the Record Date. | |
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| The Company’s bylaws provide that a majority of the outstanding shares of stock entitled to vote constitutes a quorum at any meeting of shareholders. If a share is represented for any purpose at the Annual Meeting, it is deemed to be present for the transaction of all business. Abstentions and shares held of record by a broker, bank or other nominee that are voted on any matter are included in determining the number of shares present. Shares held by a broker, bank or other nominee that are not voted on any matter at the Annual Meeting (“broker non-vote”) will not be included in determining whether a quorum is present. Your vote is important and we urge you to vote by proxy even if you plan to |
WWW.CSX.COM 9 |
Proxy Statement for 2019 Annual Meeting of Shareholders
 | ||
 | Election of Directors.In an uncontested election, a director is elected by a majority of votes cast for his or her election by the shares entitled to vote at a meeting at which a quorum is present. In accordance with the Company’s Corporate Governance Guidelines, in an uncontested election, any incumbent director nominated for re-election as a director who is not re-elected in accordance with the Company’s bylaws Other Proposals. Abstentions are not considered votes cast on any proposal and will have no effect on the outcome of the |
10 CSX Corporation 2019 Proxy Statement |
Proxy Statement for 2019 Annual Meeting of Shareholders
| 1. | FORthe election of the 10 director nominees named in this Proxy Statement; | |||
| 2. | FOR | |||
| 3. | FORthe approval, on an advisory (non-binding) basis, of the compensation of the Named Executive Officers as disclosed in these materials; and | |||
| 4. |
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WWW.CSX.COM 11 |
Overview
Ten directors are to be elected to hold office until the 2020 Annual Meeting and their successors are elected and qualified. Each of the nominees was elected to the Board at the Company’s 2018 Annual Meeting of Shareholders. Nominees for Board membership are expected to be prominent individuals who demonstrate leadership and possess outstanding integrity, values and judgment. Directors and nominees must be willing to devote the substantial time required to carry out the duties and responsibilities of directors. In addition, each Board member is expected to represent the broad interests of the Company and its shareholders as a group, and not any particular constituency.
Diversity CSX strives to cultivate an environment that embraces teamwork and capitalizes on the value of diversity. Although the Board does not have a formal written diversity policy, the Governance Committee has a long-standing commitment to diversity and is guided by the Company’s diversity philosophy when considering director nominees. The Committee recognizes the importance of maintaining a Board with a broad scope of backgrounds and expertise that will expand the views and experiences available to the Board in its deliberations. Many factors are taken into account when evaluating director nominees, including their ability to assess and evaluate the Company’s strategies in the face of changing economic and regulatory environments that may impact customer and shareholder expectations. In addition, the Committee feels that candidates representing varied age, gender and cultural and ethnic backgrounds add to the overall diversity and viewpoints of the Board. The Governance Committee and the full Board believe that the director nominees listed below embody the breadth of backgrounds and experience necessary for a balanced and effective Board. |
12 CSX Corporation 2019 Proxy Statement |
Item 1: Election of Directors
In determining the qualifications of a director nominee, the Board and the Governance Committee consider the following to be key skills and areas of experience:
| Business Operations | Business operations experience gives directors a practical understanding of developing, implementing and assessing the Company’s operating plan and business strategy. |
| Corporate Governance | Corporate governance experience supports Board and management accountability, transparency and protection of shareholder interests. |
| Finance/Capital Allocation | Financial and capital allocation experience is important in evaluating the Company’s capital structure. |
| Financial Expertise/Literacy | Financial expertise and literacy is important because it assists directors with their oversight of financial reporting and internal controls. |
| Government/Public Policy | Government and public policy experience is important in understanding the regulatory environment in which the Company operates. |
| Risk Management | Risk management experience is critical to the Board’s risk oversight role. |
| Marketing/Sales | Marketing and sales experience is important to understanding the Company’s business strategies in developing new markets. |
| Talent Management | Talent management experience is valuable in helping the Company attract, motivate and retain high performing employees, including succession planning efforts. |
| Transportation Industry | Transportation industry experience is important to understanding the dynamics within the freight transportation sector. |
The chart below highlights some of the Board’s skills and experience as a group. The biography of each director also includes certain of their specific areas of expertise that resulted in the Board’s determination that each nominee is uniquely qualified to serve on the Board.
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WWW.CSX.COM 13 |
Item 1: Election of Directors
Board Nominees
The Governance Committee has recommended to the Board, and the Board has approved, the persons named below as director nominees. The Board believes that each of the director nominees adds to the overall diversity of the Board. The director nominees bring a wide range of experience and expertise in management, railroad operations and financial markets. As of the date of this Proxy Statement, the Board has no reason to believe that any of the nominees named will be unable or unwilling to serve. There are no family relationships among any of these nominees or among any of the nominees and any executive officer of the Company. Although certain directors (Messrs. Hilal and Zillmer and Ms. Riefler) were nominated to the Board in 2017 in accordance with an agreement (the “MR Agreement”) between the Company and MR Argent Advisor LLC and its affiliated funds (“Mantle Ridge”), the MR Agreement terminated following the 2018 Annual Meeting. Therefore, these director nominees are not being nominated pursuant to the MR Agreement this year.
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The Board unanimously recommends a vote FOR the election of the following Director nominees. |
Information regarding each director nominee follows. Each nominee has consented to being named in this Proxy Statement and to serve if elected.
 | Donna M. AlvaradoIndependent Director Nominee | ||
Age70 Director since2006 | CSX Committees Audit / Compensation / Public Affairs | Other Public Directorships ●CoreCivic, Inc. ●Park National Corporation | |
Biographical Information Donna M. Alvarado is the founder and current President of Aguila International, a business-consulting firm. Previously, Ms. Alvarado served as President and Chief Executive Officer of Quest International, a global educational publishing company, from 1989 to 1993. She has served on corporate boards in the manufacturing, banking, transportation and services industries. She has also led state and national workforce policy boards. Ms. Alvarado previously served as Chairwoman of the Ohio Board of Regents. Following executive and legislative staff appointments at the U.S. Department of Defense and in the U.S. Congress, Ms. Alvarado was appointed by President Ronald Reagan to lead the federal agency ACTION, the nation’s premier agency for civic engagement and volunteerism, a position which she held from 1985 to 1989. | Skills and Qualifications As a result of her experience in the public and private sector, Ms. Alvarado brings to the Board significant workforce planning expertise, which is complemented by her experience with the Ohio Board of Regents. | ||
14 CSX Corporation 2019 Proxy Statement |
Item 1: Election of Directors
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Thirteen directors are to be elected to hold office until the 2018 Annual Meeting and their successors are elected and qualified. Unless otherwise specified, the proxy holders will cast votes FOR the election of the nominees named below. Each of the nominees, other than Messrs. Harrison, Hilal, Reilley, Zillmer and Ms. Riefler, was elected at the Company’s 2016 Annual Meeting of Shareholders. Mr. Harrison, the Company’s CEO, was appointed to the Board effective March 6, 2017, the date he was appointed as CEO. Ms. Riefler and Messrs. Harrison, Hilal, Reilley and Zillmer were recommended by Company shareholder MR Argent Advisor LLC (“Mantle Ridge” and, together with its affiliated funds, the “Mantle Ridge Group”), which as of March 6, 2017 beneficially owned approximately 4.8% of the outstanding shares of CSX common stock and had additional economic exposure to 570,600 shares of CSX common stock under certain cash settled total return swaps. Mr. Hilal is the managing member of Mantle Ridge GP LLC, which is the general partner of Mantle Ridge LP, which is the sole member of Mantle Ridge.
Messrs. Hilal, Reilley and Zillmer and Ms. Riefler were each appointed to the Board effective March 6, 2017. The appointments of Ms. Riefler and Messrs. Harrison, Hilal, Reilley and Zillmer resulted from discussions between the Company and the Mantle Ridge Group regarding the Company’s strategic direction and Board composition. Following such discussions, on March 6, 2017, the Company entered into an agreement with the Mantle Ridge Group which is described under “Mantle Ridge and E. Hunter Harrison Agreements”and is referred to in this Proxy Statement as the “MR Agreement.”
As of the date of this Proxy Statement, the Board has no reason to believe that any of the nominees named will be unable or unwilling to serve. There are no family relationships among any of these nominees or among any of these nominees and any executive officer of the Company. With the exception of the MR Agreement, there is no agreement or understanding between any nominee and any other person pursuant to which the nominee was selected.
Nominees for Board membership are expected to be prominent individuals who demonstrate leadership and possess outstanding integrity, values and judgment. Directors and nominees must be willing to devote the substantial time required to carry out the duties and responsibilities of directors. In addition, each Board member is expected to represent the broad interests of the Company and its shareholders as a group, and not any particular constituency.
The Governance Committee has recommended to the Board, and the Board has approved, the persons named below as director nominees. The Board believes that each of the director nominees adds to the overall diversity of the Board. The director nominees bring a wide range of experience and expertise in management, railroad operations and financial markets. In addition, several of the director nominees are able to provide valuable perspective into the political and regulatory environments, as well as certain key markets.
Information regarding each director nominee follows. Each nominee has consented to being named in this Proxy Statement and to serve if elected.
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Age Director | CSX Executive / Finance (Chair) / Governance | Other Public Directorships ● ●Enbridge Inc. ●Hewlett-Packard Enterprise Company | |
Biographical
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| Pamela L. Carter | ||
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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 | Skills and 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 ● |
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, | 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. | |
Item 1: Election of Directors
 | Steven T. HalversonIndependent Director Nominee | |||
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Age Director | CSX Audit / Compensation (Chair) | Other Public Directorships ● | |
Biographical Steven T. Halversonis 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 | Skills and 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. | |
 | Paul C. HilalDirector Nominee / Vice Chairman of the Board | ||
Age52 Director since2017 | CSX Committees Executive / Finance | Other Public ●None |
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Biographical
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| Paul C. Hilal | ||
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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. | Skills and Mr. Hilal draws on his experience as a value investor, as a capital allocator, and as an engaged director driving shareholder |
16 CSX Corporation 2019 Proxy Statement |
Item 1: Election of Directors
 | John D. McPhersonIndependent Director Nominee | ||
Age72 Director since2008 | CSX Committees Finance / Public Affairs | Other Public ●None |
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Biographical
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| John D. McPherson | ||
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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. | Skills and As a result of his extensive career in the rail industry, Mr. McPherson serves as an expert in railroad operations. |
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| David M. MoffettIndependent Director Nominee | ||||
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Age Director | CSX | Other Public Directorships ●PayPal Holdings, Inc. ●Genworth Financial, Inc. | |
Biographical David M. Moffettserved 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 Mr. Moffett 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. | Skills and With his many years of experience as a chief executive officer or chief financial officer of public financial services companies, | |
Item 1: Election of Directors
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  | Linda H. RieflerIndependent Director Nominee | |||
Age Director | CSX Audit / Compensation / Public Affairs | Other Public Directorships ● | ||
Biographical
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| Linda H. Riefler | ||
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| Skills and Ms. Riefler draws on her experience at Morgan Stanley to provide the Board perspective on |
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| J. Steven WhislerIndependent Director Nominee | ||||
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Age Director | CSX Audit / Finance | Other Public Directorships ● ●International Paper Co. | |
Biographical J. Steven Whisleris 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 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. | Skills and 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. | |
Item 1: Election of Directors
 | John J. ZillmerIndependent Director Nominee / Chairman of the Board | |||
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Age Director | CSX Compensation / Executive / Governance (Chair) / Public Affairs | Other Public Directorships ● ●Veritiv Corporation ●Performance Food Group Company | |
Biographical John J. Zillmeris the former | Skills and 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 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.
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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 toreduces the termssize of the MR Agreement), reduces the number of directors. Furthermore, if Ms. Riefler or Messrs. Harrison, 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.Board.
Table of ContentsDIRECTOR 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 March 2017,February 2019, after considering Nasdaq listing standards, the Board, upon recommendation from the Governance Committee, determined that the following directorsdirector nominees 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. The Board also determined that David M. Ratcliffe and Donald J. Shepard, neither of whom is standing for re-election at the Annual Meeting, are independent under the Nasdaq listing standards.
PRINCIPLES OF CORPORATE GOVERNANCE
The Board is committed to corporate governance principles and practices that facilitate the fulfillment of its fiduciary duties to shareholdersthe Company and to the Company.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 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, |
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WWW.CSX.COM 19 |
Item 1: Election of 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 are available on the Company’s website athttp://investors.csx.com under 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 2016.2018.
SHAREHOLDER OUTREACH AND ENGAGEMENT
We believe that on-going shareholder engagement is a key component of effective corporate governance that allows the Company 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 our 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 the Board participate in these meetings from time to time.
In addition to this shareholder outreach, CSX also engages with shareholders and other interested parties through its participation in industry 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 best interests of our broad and diverse shareholder base.
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-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-managementnon-employee directors may forward correspondence to CSX Corporation, the Chairman of the Board, CSX Board of Directors, 500 Water Street, C160, Jacksonville, Florida 32202.
Table of ContentsBOARD OF DIRECTORS’ ROLE IN RISK OVERSIGHT
Pursuant to its charter, the Audit Committee of the Board has primary responsibility for overseeing the Company’s business risk management (“BRM”) processes.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 BRM process at CSXCompany’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 lawlaws and regulation)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)downturn, cyber and other security risks).
The objective of the BRM processprogram 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.
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Risks are prioritized based on their inherent and residualpotential 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 processprogram 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.
Item 1: Election of Directors
BOARD OF DIRECTORS’ ROLE IN SUCCESSION PLANNING
The Board is responsible for succession planning for the Board, as well as senior management.management, including the CEO. In addition to routine succession planning efforts by the Board and the Governance Committee throughout the year, the full Board engages in a comprehensive management succession planning exercise at itson an annual strategy conferencebasis 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 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.
In connection with the Board’s succession planning, on February 21, 2017 the Company announced the retirements of Michael Ward, as CEO of the Company and Clarence Gooden, as President of the Company. Mr. Ward was succeeded as CEO by Mr. Harrison, effective March 6, 2017, and Mr. Gooden was succeeded as President by Fredrik Eliasson, effective February 15, 2017.
Table of ContentsTRANSACTIONS WITH RELATED PERSONS AND OTHER MATTERS
The Board believes that the thirteen director nominees standing for election at this year's 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.
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.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).
CSX considers aA “Related Person” to be: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 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 |
| ● | applicable responses to the Questionnaires 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.
There were no The Audit Committee did not identify any Related Person Transactions in 2016. On March 6, 2017, the Company entered into the MR Agreement with Mantle Ridge Group regarding, among other things, the membership and compositionduring 2018 that are required to be reported pursuant to Item 404(a) of the Board and the appointmentRegulation S-K.
WWW.CSX.COM 21 |
Table of Mr. Harrison as CEOContents
Item 1: Election of the Company. Mr. Hilal is the managing member of Mantle Ridge GP LLC, which is the general partner of Mantle Ridge LP, which is the sole member of Mantle Ridge. The MR Agreement is described in detail under “Mantle Ridge and E. Hunter Harrison Agreements” below. 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 was contemplated 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.Directors
Mr. Harrison was a director of Dynegy from March 9 to December 16, 2011 (Chairman from July 11 to December 16, 2011), as well as Interim President and Chief Executive Officer from April 9 to July 11, 2011. On July 6, 2012, Dynegy filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code as a preliminary step necessary to facilitate the restructuring of one or more of Dynegy’s subsidiaries. Dynegy exited bankruptcy on October 1, 2012.COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is, or in 2018 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.
Table of ContentsBOARD LEADERSHIP AND COMMITTEE STRUCTURE
On March 6, 2017, CSX separated the roles of Chairman and CEO. 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. As the Chairman will be an independent director, the Presiding Director role has been eliminated as of March 6, 2017. Mr. Kelly, who previously served as Presiding Director, currently serves as the Chairman of the Board. The duties of the Chairman include: (i) calling special meetings of the Board,Board; (ii) presiding at all meetings of the Board and shareholders,shareholders; (iii) in consultation with the Vice Chairman of the Board, determining the agenda, schedule and meeting materials for meetings of the Board,Board; (iv) guiding Board discussions and facilitating discussions between the Board and the Company’s management,management; (v) interacting with the Company’s analysts, investors, employees and other key constituenciesconstituencies; 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.
On March 6, 2017, CSX also created the role ofThe Chairman is assisted by a Vice Chairman of the Board to consult with, advise and assist the Chairman of the Board in the performance of the duties of the Chairman. Mr. Hilal currently serves as the Vice Chairman of the Board. The duties of the Vice Chairman include: (i) providing input on the agenda, schedules and meeting materials for meetings of the Board,Board; (ii) assisting in guiding Board discussions and facilitating communication between the Board and the Company’s management,management; (iii) interacting with the Company’s analysts, investors, employees and other key constituencies,constituencies; (iv) performing the duties of Chairman in the absence or at the request of the ChairmanChairman; 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 CSX 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 | ||||||
| John B. Breaux |
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| Pamela L. Carter |
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| James M. Foote | C | |||||
| Steven T. Halverson | ||||||
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| Paul C. Hilal | ||||||
| John D. McPherson | ||||||
| David M. Moffett |
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| Linda H. Riefler | ||||||
| M | ||||||
| J. Steven Whisler | ||||||
| John J. Zillmer |
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22 CSX Corporation 2019 Proxy Statement |
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Item 1: Election of Directors
Executive Committee0 | |
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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 |  Committee Chair James M. Foote Committee Members |
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Audit Committee | |
| 8Meetings in | |
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 The Audit Committee recommends the appointment of the Independent The Audit Committee has The Board has determined that all members of the Audit Committee are financially literate and Messrs. Moffett |  Committee Chair David M. Moffett Committee Members |
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WWW.CSX.COM 23 |
Item 1: Election of Directors
Compensation Committee | |
| 8Meetings in | |
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) 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 No member of the Compensation Committee was an officer or employee of CSX during |  Committee Chair Steven T. Halverson Committee Members |
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Finance Committee | ||
| 6Meetings in | ||
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 |  Committee Chair Pamela L. Carter Committee Members |
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24 CSX Corporation 2019 Proxy Statement |
Item 1: Election of Directors
Governance Committee7 | ||
| Meetings in | ||
The Governance Committee 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 John J. Zillmer Committee |
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Public 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 Chair John B. Breaux Committee Members |
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Item 1: Election of Directors
ANNUAL EVALUATION OF BOARD PERFORMANCE
The Board believes annual performance reviews are essential for ensuring overall effectiveness, including fulfilment of its oversight responsibilities, strategic planning and communications. For 2018, the Board evaluation process was initiated through detailed questionnaires. Individual director performance is then discussed with committee chairs or the Chairman of the Board, as 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 2016,2018, there were eight7 meetings of the Board. Each of the directors then serving attended at least 85%75% of the meetings of the Board and the committees on which he or she served. The non-managementnon-employee directors met alone in executive session at each regular Board meeting. These executive sessions were chaired by the Presiding Director.Chairman of the Board. In accordance with the CSX Corporate Governance Guidelines, the independent directors (when different than non-management 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 directors then in officebut one director attended the 20162018 Annual Meeting.
The Board periodically, but at least once every three years, reviews and sets the compensation for non-managementthe 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, peer benchmarking data and the level of compensation necessary to attract and retain qualified, independent directors.
For 2016, the Board approved an annual retainerElements of $90,000, which was payable inDirector Compensation
The following charts show director cash unless the director chose to receive his or her fee in the form of CSX common stock. The Board also approved: (i) an additional $30,000 retainerand equity compensation for the Presiding Director, (ii) an additional $10,000 for the chair of each Board committee other than the Audit and Compensation Committees; (iii) an additional $20,000 for the Chair of the Audit Committee; (iv) an additional $5,000 for each member of the Audit Committee; and (v) an additional $15,000 for the Chair of the Compensation Committee. At the February 2016 Board meeting, each non-employee director also received an annual grant of common stock in the amount of $150,000 with the number of shares based on the average closing price of CSX stock in the months of November 2015, December 2015 and January 2016.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. |
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 or a portion of his or her director’s fees in Table of ContentsIncremental 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) 2016,2018, 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.
The following table summarizes the compensation of each of the non-employee directors in 2016.
| Name | Fees Earned or Paid in Cash(1) | Stock Awards(2) | Option Awards(3) | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation(4) | Total(5) |
| Donna M. Alvarado | $95,000 | $140,412 | — | — | — | $1,321 | $236,733 |
| John B. Breaux | $100,000 | $140,412 | — | — | — | $18,821 | $259,233 |
| Pamela L. Carter | $90,000 | $140,412 | — | — | — | $26,321 | $256,733 |
| Steven T. Halverson | $110,000 | $140,412 | — | — | — | $51,321 | $301,733 |
| Edward J. Kelly, III | $130,000 | $140,412 | — | — | — | $51,321 | $321,733 |
| John D. McPherson | $90,000 | $140,412 | — | — | — | $41,321 | $271,733 |
| David M. Moffett | $95,000 | $140,412 | — | — | — | $51,321 | $286,733 |
| Timothy T. O’Toole(6) | $90,000 | $140,412 | — | — | — | $6,321 | $236,733 |
| David M. Ratcliffe(6) | $100,000 | $140,412 | — | — | — | $51,321 | $291,733 |
| Donald J. Shepard(6) | $110,000 | $140,412 | — | — | — | $51,321 | $301,733 |
| J. Steven Whisler | $95,000 | $140,412 | — | — | — | $21,321 | $256,733 |
Charitable Gift PlanItem 1: Election of Directors
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. In 2016, only four directors were eligible to participate in the Charitable Plan.
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 2016, 172018, six philanthropic organizations in areas served by the Company collectively received $357,500$230,000 under the Directors’ Matching Gift Program.
In addition, CSX makes availableNon-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.
2018 DIRECTORS’ COMPENSATION TABLE
The following table summarizes the compensation of each of the non-employee directors personal excess liability insurance at no expense to the directors. During 2016, the excess liability insurance premium, which is reflected in the “All Other Compensation” column of the Directors’ Compensation Table, was approximately $1,300 for each participating non-employee director.2018.
| Name | Fees Earned or Paid in Cash(1) ($) | 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 non-employee directors with the interests of shareholders. These guidelines require that all non-employee directors own shares of CSX common stock. 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 years from the time of the increase 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.”
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The Audit Committee has selected and appointed Ernst & Young LLP (“EY”) as the Company’s Independent Registered Public Accounting Firm to audit and report on CSX’s financial statements for the fiscal year ending December 31, 2019. EY or its predecessors have continuously served as the Company’s Independent Registered Public Accounting Firm since 1981. The Audit Committee and the Board 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 shareholders.
Action by shareholders is not required by law in the appointment of the Independent Registered Public Accounting Firm. If shareholders do not ratify this appointment, however, the appointment will be reconsidered by the Audit Committee and the Board.
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| The Board unanimously recommends that the shareholders vote FOR this proposal. |
28 CSX Corporation 2019 Proxy Statement |
Item 2: Ratification of Independent Registered Public Accounting Firm |
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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. 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 the fiscal year ending December 29, 2017. 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 independent accountants. 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.
Table of ContentsFEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EY served as the Independent AuditorsRegistered Public Accounting Firm for the Company in 2016.2018. The Audit Committee was responsible for the audit fee negotiations associated with the retention of EY. Fees paid to EY were as follows:
| 2016 | 2015 | |
| 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. | $2,740,000 | $2,808,000 |
| Audit Related Fees: | ||
| Includes audits of employee benefit plans and subsidiary audits. | $277,000 | $336,000 |
| Tax Fees: | ||
| Includes fees for tax compliance and tax advice and planning. | — | — |
| 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. | $77,000 | $34,000 |
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 20152017 and 2016,2018, all services performed by EY were pre-approved.
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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 2016,2018, 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 2016,2018, together with appointment dates and meeting attendance, is set forth below:
| Members | Committee | Attendance at Meetings During 2018 |
| 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 |
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.registered public accounting firm. The Audit Committee discussed with the Company’s internal auditors and independent auditorregistered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and the independent auditor,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 auditor,registered public accounting firm, and determines whether to re-engage the current independent auditor.registered public accounting firm. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors,independent registered public accounting firm, the auditor’s 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 auditorregistered public accounting firm for 2017.2019. Although the Audit Committee has the sole authority to appoint the independent auditors,registered public accounting firm, the Audit Committee willintends to continue to recommend that the Board ask shareholders to ratify the appointment of the independent auditorsregistered public accounting firm at the Annual Meeting.
EY, the Company’s independent registered public accounting firm for 2016,2018, 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 30, 2016.31, 2018.
30 CSX Corporation 2019 Proxy Statement |
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 |
| (iii) | received from EY, the written disclosures |
| (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 Company’s2018 Annual Report on Form 10-K for the fiscal year ended December 30, 2016.Report.
Members of the Audit Committee
Donald J. Shepard, ChairmanDavid M. Moffett, Chair
Donna M. Alvarado
Steven T. HalversonDavid M. MoffettLinda H. Riefler
J. Steven Whisler
Jacksonville, Florida
February 7, 20176, 2019
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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 | CSX also invests in its infrastructure and CSX also continues to make progress toward achieving its stated 2020 environmental goals. |
 | 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 |
This Compensation Discussion and Analysis (“CD&A”) describes and analyzes 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 performance.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 30, 2016.31, 2018, who are listed below.
| Name | Title | ||
 | James M. Foote | ||
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| Frank A. Lonegro | Executive Vice President and Chief Financial Officer (“CFO”) | ||
 | Edmond L. Harris | Executive Vice President | |
 | Mark K. Wallace | Executive Vice President | |
 | Nathan D. Goldman | Executive Vice President, Chief Legal Officer |
2018 Business Highlights
In 2016,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 experienced continued declines in coal volumes driven primarily by low natural gas pricesto 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 coal volumes declining 21% year-over-year. Additionally, freight volume declined overall as global economic markets respondedcustomers and investors to: (i) provide further details on the new operating model, including the Company’s commitment to continued strengthproviding an industry-leading service product; (ii) communicate changes taking place; and (iii) build confidence in the U.S. dollar. Below are notable business highlightsmodel’s potential for 2016.long-term success.
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CSX remains committedcontinues to deliveringdeliver value to shareholders through a balanced approach to deploying cash that includes investments in the business dividend growth and share repurchases.distributions to shareholders. In 2016,2018, CSX returned approximately $1.75$5.4 billion to its shareholders in the form of dividends and share repurchases. In 2016,2018, the Company also invested $2.7approximately $1.75 billion to further enhance safety, service, capacity and flexibility of its transportation 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 |
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Compensation Discussion and Analysis
Aligning Compensation Program with Leading Governance PracticesThe 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 Compensation Committeefundamental 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 Board (for purposesscheduled 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 CD&A,system, which enhances efficiencies and reduces maintenance costs.
Organizational efficiency is a hallmark of scheduled railroading. For example, over the “Committee”) establishes compensation programspast year, the network’s previous nine dispatching offices have been consolidated into one dispatching center in Jacksonville, Florida. While scheduled railroading recognizes that incorporate leading governance principles. Highlighted belowsome functions are certain executive compensation practices designed to drive performance and foster strong corporate governance.
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Aligning Executive Compensation with Company Performance
The Committee’s performance-based compensation philosophy is designed to attract, retain and motivate executives to deliver superior performance. The Committee structures the Company’s executive compensation program to reward short- and long-term performance that creates value for shareholders. The compensation program is designed to provide an appropriate allocation between fixed and variable compensation while mitigating unnecessary or inappropriate risk. Each NEO’s total compensation is heavily weighted towards performance-based awards with long-term incentive compensation comprising the majorityhandled more effectively in a centralized location, another primary tenant of the target compensation.
Long-Term Incentive Compensation.model is that decision-making is more efficient when it takes place as close as possible to where the work is performed. A significant portionmajor 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 our senior management’s compensation is provided under performance-based long-term incentives (“LTI”). The 2014-2016, 2015-2017customer service functions, including shipment tracking, problem resolution and 2016-2018 long-term incentive plan (“LTIP”) cycles use Operating Ratiotransactional systems, into the sales and Return on Assets (“ROA”) on an equally weighted basismarketing organization to measure the Company’s performance. Operating Ratioeliminate redundancies and ROAcreate a more positive customer experience. These changes have demonstrated a high correlation to shareholder value over time. For the 2014-2016 cycle, CSX achieved a cumulative Operating Ratio of 69.7%improved customer service and average ROA of 7.56%, which resulted in a payoutmore 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 34%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 target. Additionally, since 2009, a portionhalf of the LTI has been provided inrailroad’s locomotive shops.
As a result of the formscheduled 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 restricted stock units (“RSUs”) and, in 2016, CSX added non-qualified stock optionsscheduled railroading to its long-term incentive portfolioadd value to align with the incentive compensation practices of our peers as well as further support alignment with shareholders.their businesses.
Short-Term Incentive Compensation.The Company utilizes Operating Income as the financial performance measure to determine annual incentive compensation. The annual incentive compensation program also incorporates various strategic measures. Based on 2016 Operating Income of $3.389 billion and the Company’s performance against strategic goals, the short-term incentive payout for 2016 was 143% of target.
CEO’s Total Compensation in 2016.The Summary Compensation Tablecontains elements of compensation that were earned for the year, such as base salary and annual incentive compensation, as well as target long-term incentive compensation granted in 2016. It does not reflect the CEO’s total actual or “realized” pay (“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 share price.
34 CSX Corporation 2019 Proxy Statement |
For 2015Compensation Discussion and 2016,Analysis
The CSX leadership team devoted significant attention and resources to improving the primary difference betweenCompany’s safety performance in 2018. A new chief safety officer was added to the CEO's Realized Payleadership team, and compensation asa comprehensive safety assessment was performed by an external safety consultant. The Company adopted a program of safety enhancements that included a renewed focus on operating rules compliance and a revised discipline policy that places greater emphasis on education and training.
With a continued focus on operating and safety performance, CSX delivered 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 goal. At the same time, revenue increased 7% for the year 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.
Aligned for Success
The Company’s incentive pay programs were adjusted in theSummary Compensation Tablefor each year is2018 to more closely align with the amountprinciples of the long-term incentive compensation. In 2015, the CEO earned a payout of 64%scheduled railroading for the performance units portionpurpose of his LTI, and for 2016, the payout was 34% of target. In addition, an RSU award that was granted to Mr. Ward in 2013 for retention purposes vested in May 2016 with a value of $1,655,641. For both 2015 and 2016, theSummary Compensation Tableincludes the fair market value of the target LTIP grants made each year, portions of which may or may not pay out, depending on Company performance. The chart below shows the CEO’s Realized Pay for fiscal years 2015 and 2016.
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Realized Pay for 2016 includes the following:
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The CEO’s Realized Pay for 2016 was $9.21 million compared to $7.76 million in 2015. The change was driven primarily by the vesting of the special 2013 retention RSU grant and a higher short-term incentive payment in 2016, both of which were only slightly offset by the lower long-term incentive payout.
What is CSX’s executive compensation philosophy?
The Committee believes that a strong, dedicated and engaged executive leadership team is essential to driving improved performance and delivering shareholder value. Accordingly,value for shareholders. In addition, the Committee haschanges were designed the executive compensation program to motivate and rewardengage employees through emphasis on factors over which they exercise more direct control thereby creating a stronger pay for performance environment.
Led by a strong management focus and clearly defined operating model, CSX employees advanced the executive leadership teamCompany’s scheduled railroading vision throughout 2018, demonstrating to customers and align their compensation withshareholders the short- and long-term performanceeffectiveness of the Company. In designing the Company’s compensation program, the Committee considers shareholder input through the annual say-on-pay vote, and believes that the positive 2016 vote (95.8%model for achieving industry-leading levels of votes cast voted for our say-on-pay proposal) validates the Company’s compensation philosophy.performance.
Table of ContentsEXECUTIVE COMPENSATION PRACTICES
The compensation program at CSX is premised on the following two key principles:
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These key principles help ensure that the Company’s executives are properly compensated and focused on specific performance factors that measure progress against the Company’s strategic business goals. The compensation principles discussed in the CD&A are applied in all but extraordinary circumstances.
What are the specificprimary objectives of the Company’s executive compensation program?programs?
The primary objectives of the executive compensation program is structured to achieve the following objectives:programs are to:
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Drive business and financial performance.Inspire leaders to achieve or exceed | |
| ● | Focus on long-term success.Mitigate |
| ● | Align ownership interests with shareholders.Require that a significant portion of |
| ● | 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.
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Compensation 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.
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| 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 incent and reward performance through compensation plans that appropriately balance risksmotivate and incentivesengage employees and support shareholder value creation while taking into account independent market data and changing marketmarket-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 economic environment. In assessing performance of the NEOs in connection withto determine incentive compensation payouts, the Committee conducts a detailed review of strategicbusiness goals that considers enterprise-wide risk assessments.
and associated results. In establishing individual executive compensation opportunities and approving payouts,accordance with its charter, the Committee considers analysesmay 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 recommendations from its independent compensation consultant, competitive practicesapprove grants of stock options, stock appreciation rights, restricted stock, performance shares and other stock-related incentives to employees of the CEO’s recommendations (for senior executivesCompany other than himself). 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 does not rely solely on guidelines, formulas or short-term changesannually 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 part of the comparator group. For purposes of evaluating targeted compensation amounts for the NEOs, the Committee reviews market data at the 25th, 50th and 75th percentiles of the comparator group. The Committee considers the following factors, among others, in business performance. Key factors affecting the Committee’s determinations include: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 |
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 help guide total compensation decisions 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. 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 Company believes the use of the Comparator Group allows for a nuanced analysis of various total compensation components.
36 CSX Corporation 2019 Proxy Statement |
Compensation Discussion and Analysis |
2018 COMPARATOR GROUP
Assets as of Fiscal Year-end 2018 | Market Capitalization as of December 31, 2018 (in millions) | |
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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, including the authority to approve or ratify payments and other retention terms to any consultant.
duties. 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 Chairperson of the Committee chair, and performs no other work for the Company. The Consultant 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 makes a determination asdecides whether to the renewal ofrenew 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 2016,2018, 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 non-employee directors of the Company.
In 2016,2018, the Consultant’s duties and responsibilities included:
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What isHow does the role of the CEO in compensation decisions?
The CEO reviews compensation benchmark data for members of his senior executive team, which in 2016 included President; Executive Vice President and CFO; Executive Vice President and COO; Executive Vice President and Chief Sales and Marketing Officer; Executive Vice President, General Counsel and Corporate Secretary; Senior Vice President and Chief Administrative Officer; and Senior Vice President and Chief Information Officer of CSX Technology, Inc. (together with the CEO, the “Executive Team”). Using this data, the CEO considers information on executive performance and scope of responsibility and makes individual compensation recommendations to theCompensation Committee for each Executive Team member (other than himself). These recommendations include: (i) possible salary adjustments; (ii) payout recommendations for annual incentive compensation for Executive Team members based on individual performance during the previous year; and (iii) short and long-term incentive awards.
The CEO also provides input on targets for performance-based compensation plans but does not participate in the formal determination of such targets. The CEO does not make recommendations with respect to his own compensation, nor is he present when the Committee discusses his individual compensation.
What is the Company’s process for evaluatingevaluate risk in connection with itsexecutive compensation programs?
The Committee believes appropriately structured compensation plansprograms 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 theits Consultant routinelyregularly review the Company’s enterprise risks and compensation plan design to consider whether the plans motivate the appropriate levels of riskbehaviors and mitigate unnecessary or excessive risk-taking.
WWW.CSX.COM 37 |
On an annual basis, management preparesTable of Contents
Compensation Discussion and Analysis
Each year, the Committee reviews a risk assessment prepared by management and the Consultant that focuses primarily on the structure, key features and risk mitigating factors included in the Company’s cash and stock incentiveexecutive compensation programs. This risk assessment: (i) describes the process for establishing the Company’s compensation programs; (ii) reviews the risks and mitigating factors present in the Company’s compensation programs; (iii) analyzes
| ● | 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 the Company’s enterprise risks identified through the Company’s business risk mitigation process; and (iv) when appropriate, provides recommendations for potential enhancements to further mitigate compensation risks.
The risk assessmentparticipation, 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.
How does In 2018, this assessment led to a conclusion by management, with the help of the Consultant, that the executive compensation programprograms of the Company were appropriately designed to mitigate excessive risk-taking?
Thecompensation risk. As a result, the Committee believes that any risks arising from its executive compensation policies and practices are not likely to have a material adverse effect on the Company.
In addition, the following elementsfeatures of the Company’s executive compensation programprograms serve to mitigate risk:excessive risk-taking:
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The Company’s executive compensation program is designed to reward consistent performance by heavily weighting the NEO’s 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 judgment or execution by executives.
How does CSX benchmark its competitive pay practices?
The Committee regularly evaluates competitive compensation data including information from peer railroad companies and general industry companies. Data sources include third-party surveys of primarily North American companies and proxy disclosures of other major U.S. railroads.
The Company benchmarks target 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. For purposes of reviewing targeted compensation amounts for the NEOs, the Committee reviews market data at the 25th, 50th and 75th percentiles of comparator group compensation. When making compensation decisions, the Committee considers this market data, the scope of the individual’s responsibilities and performance, as well as other factors previously discussed in this CD&A.
For 2016, the Company used a customized comparison group comprised of 15 primarily U.S.-based companies (the “Comparator Group”) to help determine compensation levels and mix. 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 over the larger general industry group allows for a more refined analysis of various compensation components. For 2016, the Comparator Group was comprised of the following companies:
2016 Comparator Group
What are the elements of the Company’s 2018 executive compensation program?programs?
The various components of the Company’s compensation programprograms include base salary and short-short and long-term incentive compensation (“Total Direct Compensation”).compensation. The Company also provides retirement and other employee benefits, non-qualified deferred compensation plans and limited perquisites (“Indirect Compensation”).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 and after consultation with the Consultant.herein. The objective is to provide total paycompensation 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 specific decisions and judgments on whether each award or payment provides an appropriate incentive and reward for individual performance that is consistent with the Company’s executive compensation objectives. The Committee also periodically reviews the competitiveness of Indirect Compensation.
Were there any special grants or adjustments to NEO compensation in 2016?
In connection with the Board’s succession planning efforts, Messrs. Eliasson and Lonegro and Ms. Sanborn each received a restricted stock grant in the amount of $500,000, which vests five years from the date of grant. For purposes of retention and in recognition of his experience, leadership and commitment, the Committee increased Mr. Ward’s LTI opportunity from $7 million to $9 million.
| 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 | ||||
38 CSX Corporation 2019 Proxy Statement |
Compensation Discussion and Analysis
What is the 2018 target compensation mix 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 strategicoperating results. In addition, the Committee strives to strike an appropriate balance between short-short and long-term compensation. The mix between fixed and variable compensation and short-short-term and long-term compensation is designed to align the NEOs’ financial incentives with shareholder interests. In 2016,2018, approximately 52%89% of the CEO’s targeted Total Direct Compensation and an average of 49%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 financial performance levels, the executive would not receive a payout under the applicable short-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 Payrealized compensation may vary in a given year depending on the payouts under the incentive compensation programs and the Company’s stock price performance.
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How is base salary determined?
The Committee determines a base salary for each NEOexecutive based on its assessment of the individual’s experience, scope of responsibilities, individual performance and contribution to CSX. For purposes of recruiting and retention, base salaries are determined following a review oflong-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 Direct Compensationtotal compensation if actual Company and individual performance under the short and long-term incentive plans discussed below exceeds or fallsfall short of or exceed pre-established performance targets.
How is short-term incentive compensation determined?
Short-term incentive compensation isThe Company’s 2018 Management Incentive Compensation Plan (the “2018 MICP”) was designed to reward executives and other members of managementeligible employees for driving Company performance withinover a 12-monthone-year period. The Senior Executive Incentive Plan (“SEIP”) isAs discussed earlier in the Company’s vehicle for providing annual incentive opportunities for the NEOs covered under Section 162(m). The Company’s objective is for payments made pursuant to the SEIP to be covered under Section 162(m) of the Internal Revenue Code (the “Code”), although there can be no assurance that such payments will be deductible under Section 162(m) of the Code. Under this shareholder-approved plan, the maximum amount payable is equal to the lesser of: (i) 0.3% of Operating Income for the CEO and 0.2% of Operating Income for each other NEO covered under Section 162(m); or (ii) $3 million. The Committee may adjust this amount downward in its sole discretion.
In 2016,CD&A, the Committee exercised its downward discretion with respectannually reviews the goals and measures used to the NEOs covered under Section 162(m) by utilizing the same methodologydrive business results and performance achievement used under the Company’s Management Incentive Compensation Plan (“MICP”). The MICP is the Company’s annual incentive plancreate value for eligible management employees. The MICP is 100% performance-based and requires attainment of both financial and strategic objectives. No payout is made under the MICP unless a pre-set Operating Income level is achieved, regardless of achievement of strategic goals. Applying the methodology utilized under the MICP, eachshareholders. Each NEO has an incentive opportunity expressed as a percentpercentage of base salary earned during the year (“Target Incentive Opportunity”). In 2016,2018, the Target Incentive Opportunity levelslevel for Messrs. WardMr. Foote was 125% of his base salary and Gooden were 120% and 100%, respectively. Thethe Target Incentive Opportunity levelslevel for Messrs. EliassonLonegro, Harris, Wallace and Lonegro,Goldman was 90% of base salary.
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Compensation Discussion and Ms. SanbornAnalysis
What were each 90%. The actual payouts are adjusted to reflect Company and individual performance.the performance measures for the 2018 MICP?
TheTo determine the payout, the Committee comparesassesses the Company’s performance toagainst the preapproved performance goals for the year. In 2018, the financial goals for the 2018 MICP continued to focus on operating efficiency. The specific performance goals are divided between: (i)were operating income and operating ratio. Operating income is used to gauge the financial measurement—Operating Income—which is based upongeneral health and profitability of the core business, while operating ratio indicates the efficiency of the Company’s business planoperations.
The operating income and operating ratio performance goals can each result in a payment between 0% and 160%100% of the NEO’s Target Incentive Opportunity;Opportunity, and (ii) the strategic measurements that can result in a payment between 0% and 40%each is weighted 50% of the NEO’s Target Incentive Opportunity.potential total payout. Therefore, the actual payout can range between 0% and 200% of the NEO’s Target Incentive Opportunity.
The MICP Operating Income target for 2016 was set at $3.264 billion based 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 business plan. Achievement of this Operating Income target would have produced a payout of 80% under the financial component. Depending on the level of achievement on the strategic component, which has a maximum payout of 40%, the total payout at the target performance range could have ranged from 80% to 120% of the Target Incentive Opportunity.
2016 MICP Achievement (Payout) Percentages
Table of Contentsand individual NEO performance.
The 2016 MICP included strategic goals in the following categories: (i) safety; (ii) service excellence; (iii) reliability; (iv) value pricing; (v) productivity; (vi) risk management; (vii) technology optimization; and (viii) network transformation. These categories were selected to ensure that senior executives balance financial goals with key operating and business initiatives that impact employees, customers, communities and shareholders. There is no formal or informal weighting assigned to the individual goals or categories, and the Committee considers strategic results based on a subjective evaluation.
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| $3.850 billion | $4.035 billion | $4.190 billion |
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What was the payout under the 20162018 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 a 2016above-target operating income of $4.869 billion and an above-target operating ratio of 60.3%. Operating Income of $3.389 billion. This Operating Incomeincome and operating ratio performance resulted in a 108%200% payout for the financial component of the 2016 MICP. Based on performance against the strategic goals, the Committee approved a payout of 35% on the strategic component. Thus, the payout levels for the financial and strategic components, when combined, resulted in a total overall payout of 143% of target incentive opportunities. In accordance with the Company’s performance management program, actual MICP award payouts were adjusted upward or downward from the 143% based on individual performance.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. |
What was the 2016 short-term incentive compensation 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 reportedwere capped at the maximum Company payout of 200% for 2018. The Committee approved a 200% annual incentive payout for all of the NEOs and such payouts were reflected in the “Non-Equity Incentive Plan Compensation” column of theSummary Compensation Table. As in prior years, the payouts for the NEOs were calculated pursuant to the methodology applied to the MICP and, therefore, were substantially less than the maximum available to each individual under the SEIP. Consistent with MICP practices, awards for the NEOs may vary based on individual performance. In light of extraordinary efforts that helped generate $427 million of productivity in 2016, the Committee approved a payout of 163% for Ms. Sanborn. For each of the other NEOs, the Committee approved an annual incentive compensation payout at 143% of target.
40 CSX Corporation 2019 Proxy Statement |
Compensation Discussion and Analysis
How doeshas the 2016 payout compare2018 MICP contributed to prior year payouts?
The chart below illustrates the Company’s historical Operating Income and the percentage payout under the MICP since 2012.
| Year | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Operating Income (Target) (amounts in billions) | $3.650 | $3.300 | $3.550 | $3.850 | $3.264 | |
| Operating Income (Actual)(1)(amounts in billions) | $3.457 | $3.473 | $3.613 | $3.584 | (2) | $3.389 |
| Overall Payout (as a percentage of target incentive opportunity) | 60% | 130% | 116% | 60% | 143% | |
Has the short-term incentive plan been effective in drivingimproved Company performance?
The Committee believes that the short-term incentive opportunities provided to the NEOs help drivemeasures are directly aligned with the Company’s annual performance. This improvement hasfinancial 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 initiatives focusing on asset utilization, productivity and yield management.the adoption of the scheduled railroading operating model. The Committee believes that sustained improvements in Operating Incomeoperating efficiencies will continue to play a critical role in the continued creation of shareholder value.
Long-term incentive compensation is intended to incent employee behavior that supports strategic initiatives to drive shareholder value overDoes the 2018 MICP have a multi-year period. This is accomplished by providing incentives based on performance measures that: (i) have had a historically high correlation to shareholder returns; (ii) are within management’s direct control; and (iii) encourage long-term commitment and perspective. LTI are grantedclawback provision?
Payouts made under the shareholder-approved 2010 CSX Stock and Incentive Award Plan (the “Stock Plan”). Each year, a market competitive long-term incentive grant value (in dollars) is identified for each position level and converted into the appropriate number of grants based on the average closing value of CSX common stock for the full three-month period prior to the grant.
What forms of long-term incentive compensation are granted to NEOs?
The Stock Plan allows multiple and varying types of awards and provides flexibility in compensation design. Types of awards can include restricted stock, RSUs, performance units, stock options and stock appreciation rights. The Committee determines the mix of equity vehicles on an annual basis. The mix has historically included performance units and RSUs. Stock options were added in 2016 to encourage absolute stock price appreciation.
Performance units are granted at the beginning of the period known as the performance cycle 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 period based on attainment of pre-established performance goals. Dividend equivalents are not paid on performance units for the outstanding LTIP cycles. Performance units are2018 MICP may be subject to forfeiture if employment terminates beforerecovery or clawback, and an employee who has received a payout will be required to promptly return the end of the performance cycle formonies (or any reason other than death, disability or retirement. If employment terminates due to death, disability or retirement, participants receive a pro-rata portion of the award based onmonies requested by the numberCompany) in each of months completedthe following circumstances: (i) if it is determined that the employee engaged in the LTIP cycle.
RSUs represent a promisemisconduct, including but not limited to, issue shares of common stock if a participant remains employeddishonesty, fraud (including reporting inaccurate financial information), theft, or other serious misconduct as determined by the Company, for a defined period of time referred to asor (ii) if the restriction period. RSUs granted in 2016 vest three years after the date of grant. Participants receive cash dividend equivalents on the unvested shares during the restriction period. Unlike performance units, RSUs are not subject to any performance requirements. RSUs are subject to forfeiture if employment terminates before the end of the restriction period for any reason other than death, disability or retirement. If employment terminates due to death or disability, the award fully vests and the shares are distributed to the participant or the participant’s estate. Upon retirement, the participant receives a pro-rata award based on the number of months completed in the restriction period.
Stock options require stock price growth in order to deliver any value; therefore, they reinforce leadership 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 a certain period of time. Grants were made in February 2016 and vest three years from that date. Participants have ten years from the date of grant in which to exercise their options. The exercise price of the 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 are subject to forfeiture if employment terminates before the end of the vesting period for any reason other than death, disability or retirement. If employment terminates due to death, disability or retirement, participants receive a pro-rata portion of the award based on the number of months completed in the vesting period. The prorated options vest according to the normal vesting schedule and the participant has seven years following vesting in which to exercise the vested options.
New LTIP cycles are approved each year when the Committee grants performance units to participants. These grants are made following annual Board review of the Company’s business plan for the applicable upcoming three-year period, upon which the performance targets are set. 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. The three-year performance cycles run concurrently, so the Company may have up to three active cycles during a given year. The 2014-2016 cycle closed on December 30, 2016. The 2015-2017, 2016-2018 and 2017-2019 cycles remain in progress.
Actual payouts for each LTIP cycle, if any, do not occur until January of the year following the last year in the three-year cycle. These payouts can vary significantly from the target grants in terms of both the number of shares paid out and the market value of CSX common stock at the time of payout. The payout is made in shares with the value of the payout derivedotherwise required to be recovered by multiplying the number of performance units earned by the share price of CSX common stock at the time of payout. Based on actual performance, as discussed below, the payouts for the NEOs at the end of the performance cycle can range from 0% to 200% of the target grants. The NEOs’ awards can be reduced by as much as 30% based upon the Committee’s assessment of total shareholder return relative to three different indices during the cycle.
What were the performance measures for the 2014-2016 LTIP cycle?
Operating Ratio and ROA served as the performance measures for the 2014-2016 LTIP cycle. The Committee chose Operating Ratio due to its historically high correlation to CSX’s stock price, alignment with shareholder value and the ability of employees to understand the impact of their actions in relation to Company performance. The Committee chose ROA because it serves as an indicator of how efficiently Company assets are being utilized.
Operating Ratio is defined as operating expense divided by operating revenue adjusted by excluding non-recurring items that are disclosed in the Company’s financial statements. ROA is calculated using 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. Operating Ratio and ROA each comprised 50% of the total payout opportunity for participants, and each was measured independently of the other.law or court order (i.e. garnishment).
The threshold, target and maximum payouts for each measure are 10%, 50% and 100%, respectively, generating a target payout of 100% and a maximum possible payout of 200% for the 2014-2016 LTIP cycle. The 2014-2016 LTIP cycle measured cumulative Operating Ratio and average ROA over an 11-quarter period from April 2014 to December 2016. The first quarter of 2014 was not included in the performance period due to timing of approval of the LTIP cycle.
In addition to Operating Ratio and ROA, the Committee maintains downward discretion on the payouts for the NEOs based on relative total shareholder return (“Relative TSR”). If CSX’s 2014-2016 Relative TSR is in the bottom quartile of any of the comparison groups for the 11-quarter period, the Committee may exercise up to 30% downward discretion on the payout to Executive Team members.
What were the financial goals for the 2014-2016 LTIP cycle?
The LTIP targets for the 2014-2016 LTIP cycle were set to provide an incentive to continue growing shareholder value. Under the 2014-2016 LTIP cycle: (i) a cumulative Operating Ratio of 72.0% was needed to achieve a threshold payout; (ii) a cumulative Operating Ratio of 70.0% was needed to achieve a target payout; and (iii) a cumulative Operating Ratio of 69.0% was needed to achieve a maximum payout. These performance levels were subject to adjustment based on the price per gallon of highway diesel fuel, as discussed below. For ROA, the threshold, target and maximum payout goals were set at 7.61%, 8.29% and 8.67%, respectively.
How are the performance levels adjusted for the price of fuel?
At the time of adoption of the 2014-2016 LTIP cycle, 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 $3.53 - $4.03 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 Operating Ratio. Based on the price per gallon of highway diesel fuel during the 2014-2016 cycle, the adjusted threshold, target and maximum payout targets were 70.9%, 68.9% and 67.9%, respectively.
What was the actual payout for the 2014-2016 LTIP cycle?
Based on the cumulative Operating Ratio of 69.7% and an average ROA of 7.56% for the cycle, the payout for the 2014-2016 LTIP cycle was 34%. The Committee evaluated Relative TSR performance against the S&P 500, S&P 500 Transportation Industry and peer railroads, and the Company's Relative TSR was not in the bottom quartile of any of the comparison groups for the cycle. Accordingly, no downward discretion was applied.
What types of long-term incentive compensation were granted to the NEOs in 2016?
In 2016, the Company added nonqualified stock options to its existing mix of LTI vehicles, which include RSUs and performance units. Stock options were added in an effort to better align our long-term incentive practices with shareholder value and those of general industry and rail peers, the majority of which utilize stock options as part of their long-term incentive compensation.
The LTI mix was achieved by determining a market competitive LTI grant value and allocating 50% of such value to performance units, 25% to time-based RSUs and 25% to stock options. This approach partially offsets market volatility and other external factors by sustaining a level of value while simultaneously preserving an incentive to meet performance goals. Additionally, this mix provides a stable and balanced LTI portfolio and maintains a strong link to shareholder value. In determining the number of units to be granted under each LTI vehicle, the target award value is divided by the average of CSX’s stock price during the three full months prior to the grant date, rather than the stock price on the date of grant. Using the three-month average reduces the impact of daily fluctuations in stock price.
How many performance units, RSUs and stock options were granted to the NEOs in 2016?
After establishing the market-competitive, annual long-term incentive award value (in dollars) for each NEO, the dollar value was then converted into a number of performance units, RSUs and stock options based on the average closing price of CSX stock for November 2015, December 2015 and January 2016, which was $25.78.
The table below indicates the number of performance units, RSUs and stock options granted to each NEO on February 10, 2016.
| NEO | 2016 Long-Term Incentive Value | 2016-2018 Performance Units (50% of Value) | 2016 RSUs (25% of Value) | 2016 Stock Options (25% of Value) | Total Performance Units, RSUs and Options |
| Michael J. Ward | $9,000,000 | 174,554 | 87,277 | 495,595 | 757,426 |
| Clarence W. Gooden | $2,500,000 | 48,487 | 24,244 | 137,665 | 210,396 |
| Frank A. Lonegro | $1,500,000 | 29,092 | 14,546 | 82,599 | 126,237 |
| Fredrik J. Eliasson | $2,000,000 | 38,790 | 19,395 | 110,132 | 168,317 |
| Cynthia M. Sanborn | $2,000,000 | 38,790 | 19,395 | 110,132 | 168,317 |
Does the Company have non-compete agreements and clawback provisions?
Yes. The Company utilizes non-compete agreements and clawback provisions in connection with its compensation plans, which are described further below.
Non-Compete Agreements:
Vice Presidents and above (“Senior Management”) 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 employee from working for a competitor. The non-compete conditions extend for a period of 18 months following separation from employment.
Clawbacks:
Short-term Incentive Plan.The short-term incentive plan2018 MICP contains provisions requiring NEOs to repay to 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 COMPENSATION
Long-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 Plan.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, 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.
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Compensation Discussion and Analysis
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 common 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.
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 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 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.
Stock Options. 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.
What were the performance measures for the 2016-2018 LTIP?
The 2016-2018 LTIP used operating ratio and return 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 CSX and the 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 | | ||
| Operating Revenues | |||||
| Return on Assets (ROA) | = | Tax-Adjusted Operating Income | | ||
| 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 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 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.
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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 |
 |
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 since they were not employed with CSX in 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.
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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.
Does the clawback provisionCompany have separate employment agreements for the NEOs?
In connection with the leadership changes in 2017 and 2018, 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 requires that amounts in excess of the otherwise proper award be repaid to the Company. Each LTIP also contains provisions for Senior Management 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) separationcycle. The non-compete agreements preclude an executive from the Company and 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.
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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 similar capacityresult 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; |
| ● | 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 participant has functioned duringcurrent “target” amount; and (iv) requires a contract term not to exceed three years. The policy also provides that the past five years atpayment of severance benefits, without shareholder approval, is limited to 2.99 times base salary plus bonus for NEOs.
All NEOs are subject to the Company; or (ii) engaging in conduct that putsterms of the Company at a competitive disadvantage.change-of-control agreements described above and as further detailed under the section entitled “Post-Termination and Change-of-Control Payments.”
What types of Retirement, and Health and WelfareGroup Benefits are provided to the NEOs?
Retirement Compensation:Programs:
CSX’s retirement programs consist of two components: a defined benefit pensioncontribution 401(k) plan and a 401(k)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”) |
|
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 hired before January 1, 2003, benefits accrue based on a “final average pay” formula; and (ii) for employees hired on or after January 1, 2003, benefits accrue based on a “cash balance” formula. All NEOs were hired before January 1, 2003, and as such, are eligible for benefits under the final average pay 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 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
AllThe NEOs, along with all other CSX non-union employees, may contribute to the CSXtra Plan, which is a traditional qualifieddefined 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.salary, for a Company match up to 3.5%. Participants may invest contributions in various funds, including the CSX stock fund.investment funds.
Executive Deferred Compensation Plan:
CSX maintains an elective nonqualified executive deferred compensation plan (“EDCP”) for the benefit of its eligible executives and certain other employees. The purpose of the EDCP is to provide executives with the opportunity to:
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The types of compensation eligible for deferral include base salary, short-term (annual) incentive compensation and LTIP awards.
Compensation Discussion and Analysis
Pension Plan
The Pension Plan is qualified under the Internal Revenue Code (the “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 all employees, including the NEOs, whose base salary and short-term incentive exceeds the current year IRS compensation limit. The Special Retirement Plan 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.
Health and WelfareGroup Benefits:
CSX provides the same health and welfaregroup benefits to the NEOs as those available to eligible managementall non-union employees. The Company also provides basic life insurance and accidental death and dismemberment (“AD&D”) insurance coverage to all management employees, each of which is equal to two times their respective annual salaries. Both life and AD&D benefits were capped at $1,000,000 effective January 1, 2006, but employees who already had coverage in excess of $1,000,000 retained the prior cap of $3,000,000.salaries, up to $1 million. The Company also provides to the 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 health and welfaremedical plan for management employees hired beforeor promoted from a union position prior to January 1, 2003. Only Mr. Lonegro is eligible for benefits under the post-retirement medical plan. The Company stopped providing post-retirement health and welfaremedical benefits for all management employees, including executive officers,executive-level employees, hired or promoted from a union position on or after January 1, 2003, as a cost-saving measure.
Does the Company provide perquisites to its NEOs?
The perquisites provided to NEOs in 2016 included: (i) financial planning services up to $12,000; (ii) excess liability insurance; and (iii) an annual physical examination. These perquisites were valued at approximately $15,000 for each NEO.
Since Mr. Ward became CEO in 2003, he has been required to travel by Company aircraft at all times for security purposes and to ensure efficient use of his time. In 2016, the aggregate incremental cost to the Company of Mr. Ward’s Company-mandated personal aircraft usage was $63,650. The aggregate incremental cost to the Company for personal aircraft usage for each of the other NEOs did not exceed $7,500 in 2016.
Is there any special severance plan provided to the NEOs?
During 2016, senior management was covered under the Company’s policy generally available to all salaried employees whose positions are eliminated, pursuant to the terms of CSX’s severance plan, which pays benefits based upon years of service. The benefits ranged from one month of base pay (if one to three years of service has been attained) to one year of base pay (if at least 34 years of service has been attained).
In early 2017, in an effort to retain key members of senior management and ensure their critical focus on the Company’s strategic goals in light of changes in leadership, the Company adopted a one-year severance protection program for senior management (the “Section 16 Officer Severance Plan”). The Section 16 Officer Severance Plan provides eligible employees with severance payments and benefits in the event that such employee’s employment with the Company or one of its subsidiaries is terminated on or before February 22, 2018, 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 an eligible employee are as follows;
Does the Company provide Change-of-Control Agreements to its NEOs?date.
Yes. At the end of 2016, each of the NEOs had a Change-of-Control Agreement that was designed to ensure management objectivity in the face of a potential transaction and further promote recruitment and retention of top executives. Since payment is “double-trigger” (i.e., payments are conditioned upon a change-of-control as well as separation from employment), executives are financially protected and thereby properly positioned to negotiate in the best interests of shareholders.
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. 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.
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 managers hold a meaningful ownership position in CSX common stock relative to their base salary. To achieve this linkage, CSX has established the following formal stock ownership guidelines.
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. As of December 30, 2016, all NEOs held amounts of CSX common stock in excess of these ownership guideline requirements.
In addition, as part of its stock ownership guidelines, the Company has adopted a one-year holding period for Senior Vice Presidents and above for the after-tax portion of restricted stock and RSUs following vesting. Accordingly, NEOs must wait one year after the completion of the restriction period before entering into any transaction involving such stock.
What are the accounting, tax and dilution considerations of CSX’s compensation programs?
As discussed above, a significant portion of each NEO’s Total Direct 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. However, performance-based compensation paid under a plan that has been approved by shareholders is excluded from the $1 million limit if, among other requirements, the compensation is payable only if pre-established, objective performance goals are achieved and the Committee that establishes and certifies attainment of the goals consists only of outside directors.
While the tax effect of any compensation arrangement is a factor to be considered, the effect is evaluated by the Committee in light of CSX’s overall compensation philosophy and objectives. CSX’s compensation program for NEOs has both objective and discretionary elements. Generally, the Committee wishes to maximize CSX’s federal income tax deductions for compensation expense. Therefore, the Company has endeavored to structure the short-term and long-term performance-based incentive elements of executive compensation to meet the requirements for deductibility under Section 162(m) while retaining the ability to apply permissible negative discretion in determining the ultimate award payouts. Nonetheless, the Committee does not believe that compensation decisions should be unduly constrained by how much compensation is deductible for federal tax purposes. Accordingly, the Committee is not limited to paying compensation under plans that are qualified under Section 162(m) and the Committee’s ability to retain flexibility in this regard may, in certain circumstances, outweigh the advantages of qualifying all compensation as deductible under Section 162(m).
The Committee seeks to balance the tax, earnings and dilutive impact of executive compensation plans with the need to attract, retain and motivate highly-qualified executives.
TheSummary Compensation Tablepresents the amount and type of compensation for the NEOs in 2016.
| Name | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation(2) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) ($) | All Other Compensation(4) ($) | Total ($) |
| Michael J. Ward(5) | 2016 | $1,200,000 | — | $6,317,982 | $2,316,907 | $2,059,200 | $1,563,377 | $122,638 | $13,580,104 |
| Chairman and CEO | 2015 | $1,200,000 | — | $7,064,833 | — | $864,000 | — | $80,728 | $9,209,561 |
| 2014 | $1,200,000 | — | $6,962,613 | — | $1,843,200 | — | $62,276 | $10,068,089 | |
| Clarence W. Gooden(5) | 2016 | $700,000 | — | $1,754,999 | $643,584 | $1,001,000 | $438,531 | $56,509 | $4,594,623 |
| President | 2015 | $665,720 | — | $2,406,455 | — | $373,432 | — | $49,362 | $3,494,969 |
| 2014 | $650,000 | — | $1,989,315 | — | $678,600 | $205,109 | $52,495 | $3,575,519 | |
| Frank A. Lonegro | 2016 | $500,000 | — | $1,520,986 | $386,150 | $643,500 | $484,797 | $31,825 | $3,567,258 |
| Executive Vice President and CFO | 2015 | $365,518 | — | $706,112 | — | $173,072 | $27,056 | $18,064 | $1,289,822 |
| 2014 | — | — | — | — | — | — | — | — | |
| Fredrik J. Eliasson(5) | 2016 | $600,000 | — | $1,872,005 | $514,867 | $772,200 | $901,672 | $35,567 | $4,696,311 |
| Executive Vice President and Chief Sales and | 2015 | $565,720 | — | $2,018,535 | — | $305,489 | $199,435 | $27,174 | $3,116,353 |
| Marketing Officer | 2014 | $550,000 | — | $1,989,315 | — | $603,900 | $874,385 | $23,394 | $4,040,994 |
| Cynthia M. Sanborn | 2016 | $550,000 | — | $1,872,005 | $514,867 | $807,850 | $1,113,588 | $35,976 | $4,894,286 |
| Executive Vice President and COO | 2015 | $497,456 | — | $2,741,527 | — | $266,938 | $91,485 | $32,600 | $3,630,006 |
| 2014 | — | — | — | — | — | — | — | — |
TheGrants of Plan-Based Awards Tableis a supporting table to theSummary Compensation Table. In 2016, the NEOs received the plan-based awards as shown in the table below.
| Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Awards (# units)(2) | All Other Stock Awards(3) (units) | All Other | Exercise Price of Option Awards ($) | Grant Date Fair Value of Stock and Option Awards(5) | ||||||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (units) | Target (units) | Maximum (units) | ||||||||||
| Michael J. Ward | February 10, 2016 | 17,455 | 174,554 | 349,108 | $4,211,988 | ||||||||||
| February 10, 2016 | 87,277 | $2,105,994 | |||||||||||||
| February 10, 2016 | 495,595 | $24.13 | $2,316,907 | ||||||||||||
| $432,000 | $1,440,000 | $3,000,000 | |||||||||||||
| Frank A. Lonegro | February 10, 2016 | 2,909 | 29,092 | 58,184 | $701,990 | ||||||||||
| February 10, 2016 | 14,546 | $350,995 | |||||||||||||
| February 10, 2016 | 19,395 | $468,001 | |||||||||||||
| February 10, 2016 | 82,599 | $24.13 | $386,150 | ||||||||||||
| $135,000 | $450,000 | $3,000,000 | |||||||||||||
| Clarence W. Gooden | February 10, 2016 | 4,849 | 48,487 | 96,974 | $1,169,991 | ||||||||||
| February 10, 2016 | 24,244 | $585,008 | |||||||||||||
| February 10, 2016 | 137,665 | $24.13 | $643,584 | ||||||||||||
| $210,000 | $700,000 | $3,000,000 | |||||||||||||
| Fredrik J. Eliasson | February 10, 2016 | 3,879 | 38,790 | 77,580 | $936,003 | ||||||||||
| February 10, 2016 | 19,395 | $468,001 | |||||||||||||
| February 10, 2016 | 19,395 | $468,001 | |||||||||||||
| February 10, 2016 | 110,132 | $24.13 | $514,867 | ||||||||||||
| $162,000 | $540,000 | $3,000,000 | |||||||||||||
| Cynthia M. Sanborn | February 10, 2016 | 3,879 | 38,790 | 77,580 | $936,003 | ||||||||||
| February 10, 2016 | 19,395 | $468,001 | |||||||||||||
| February 10, 2016 | 19,395 | $468,001 | |||||||||||||
| February 10, 2016 | 110,132 | $24.13 | $514,867 | ||||||||||||
| $148,500 | $495,000 | $3,000,000 | |||||||||||||
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The table below presents information pertaining to all outstanding equity awards held by the NEOs as of December 30, 2016. Stock awards are comprised of outstanding restricted stock, RSUs and performance units.
| Options | Stock Awards | |||||||
| Name | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercizable Options (#) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(1) (#) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | 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) ($) |
| Michael J. Ward | 495,595 | $24.13 | 02/10/26 | 198,742 | $7,140,800 | 496,538 | $17,840,610 | |
| Clarence W. Gooden | 137,665 | $24.13 | 02/10/26 | 56,091 | $2,015,350 | 139,097 | $4,997,755 | |
| Frank A. Lonegro | 82,599 | $24.13 | 02/10/26 | 37,126 | $1,333,937 | 62,396 | $2,241,888 | |
| Fredrik J. Eliasson | 110,132 | $24.13 | 02/10/26 | 91,986 | $3,305,057 | 119,703 | $4,300,929 | |
| Cynthia M. Sanborn | 110,332 | $24.13 | 02/10/26 | 51,992 | $1,868,073 | 109,172 | $3,922,550 | |
| Grant Date | May 6, 2014 | February 11, 2015 | February 10, 2016 | |
| Vest Date | May 5, 2017 | February 10, 2018 | February 10, 2019 | Total Unvested RSUs |
| Michael J. Ward | 62,322 | 49,143 | 87,277 | 198,742 |
| Clarence W. Gooden | 17,806 | 14,041 | 24,244 | 56,091 |
| Frank A. Lonegro | 1,781 | 1,404 | 14,546 | 17,731 |
| Fredrik J. Eliasson | 17,806 | 14,041 | 19,395 | 51,242 |
| Cynthia M. Sanborn | 2,671 | 10,531 | 19,395 | 32,597 |
The table below presents the value of options, restricted stock and RSUs that vested in 2016.
| Name | Option Awards | Stock Awards | ||
| Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Shares Acquired on Vesting(1) (#) | Value Realized on Vesting(2) ($) | |
| Michael J. Ward | — | — | 202,338 | $5,954,757 |
| Clarence W. Gooden | — | — | 86,466 | $2,502,283 |
| Frank A. Lonegro | — | — | 9,485 | $326,920 |
| Fredrik J. Eliasson | — | — | 39,511 | $1,228,305 |
| Cynthia M. Sanborn | — | — | 34,088 | $978,314 |
As reflected by the Pension Benefits Table, and as described below, CSX maintains defined benefit plans (qualified and nonqualified) under which the NEOs are eligible for benefits including: the Pension Plan and the Special Retirement Plan.
| Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) |
| Michael J. Ward(1) | Qualified CSX Pension Plan | 39.583 | $1,932,034 | — |
| Nonqualified Special Retirement Plan | 44.000 | $21,214,178 | — | |
| Clarence W. Gooden | Qualified CSX Pension Plan | 45.083 | $2,214,561 | — |
| Nonqualified Special Retirement Plan | 45.083 | $7,671,529 | — | |
| Frank A. Lonegro | Qualified CSX Pension Plan | 16.583 | $562,896 | — |
| Nonqualified Special Retirement Plan | 16.583 | $953,959 | — | |
| Fredrik J. Eliasson | Qualified CSX Pension Plan | 21.583 | $732,179 | — |
| Nonqualified Special Retirement Plan | 21.583 | $2,399,089 | — | |
| Cynthia M. Sanborn | Qualified CSX Pension Plan | 28.000 | $1,096,514 | — |
| Nonqualified Special Retirement Plan | 28.000 | $2,626,889 | — |
Qualified CSX Pension Plan
Final Average Pay Formula
For employees hired before January 1, 2003, the final average pay formula provides for a benefit, in the form of a life annuity starting at age 65. The pay taken into account under the final average pay formula includes base salary and annual 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 the employee’s years of 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. All of CSX’s NEOs 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 2016 is $210,000 (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 $265,000 for 2016 and is also subject to adjustment for future cost of living changes.
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Special Retirement Plan of CSX and Affiliated Corporations
The Special Retirement Plan is a nonqualified plan that generally covers CSX executives, 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 be denied 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 is necessary to do so in order to provide competitive retirement benefits. Mr. Ward was 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 service for 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. Mr. 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 utilized for 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.
Under the current terms of the Special Retirement Plan, unless an employee has elected otherwise, within 45 days after a change-of-control, the employee is entitled to a lump sum payment equal to the actuarial present value of his or her accrued benefit under the Special Retirement Plan. 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 CSX’s 2016 Annual Report on Form 10-K.
The Nonqualified Deferred Compensation TablePlan:presents
CSX offers a summary of 2016 contributions made under thevoluntary, nonqualified Executive Deferred Compensation Plan (“EDCP”), CSX’s current executive nonqualified deferral program, as well as 2016 earnings, distributions for the benefit of its executives and year-end balances. Two typesother eligible employees. The purpose of deferrals are represented below: cash deferrals and stock deferrals. Cash deferrals include deferred portions of an NEO’s base salary and short-term incentive payments. Stock deferrals include deferred portions of compensation payable in the form of CSX common stock.EDCP is to provide participants with the opportunity to:
| Name | Executive Contributions Last Fiscal Year(1) ($) | Registrant Contributions Last Fiscal Year(2) ($) | Aggregate Earnings Last Fiscal Year(3) ($) | Aggregate Distributions Last Fiscal Year(4) ($) | Aggregate Balance Last Fiscal Year ($) |
| Michael J. Ward | $56,100 | $32,725 | $4,336,436 | $286,058 | $15,314,996 |
| Clarence W. Gooden | $26,100 | $15,225 | $49,288 | - | $561,952 |
| Frank A. Lonegro | $25,000 | $8,225 | $74,449 | - | $462,930 |
| Fredrik J. Eliasson | $20,100 | $11,725 | $1,739 | $28,020 | $59,400 |
| Cynthia M. Sanborn | $17,100 | $9,975 | $465,131 | - | $1,659,260 |
| ● | 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 |
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 compensation 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 compensation limits prescribed by the 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.
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 numberperiod of years not in excess ofup to 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 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.
46 CSX Corporation 2019 Proxy Statement |
Compensation Discussion and Analysis |
Do NEOs participate in a severance plan?
Yes. Employee Stock Purchase Plan
In early 2017, in an effort to retain key members of senior management and ensure their critical focus on2018, shareholders approved the Company’s strategic goals in light of changes in leadership, the Company adopted a one-year severance protection program for senior management (the “Section 16 Officer Severance Plan”CSX Employee Stock Purchase Plan (“ESPP”). The Section 16 Officer Severance Plan, which provides eligible employees the right to purchase shares of CSX common stock in accordance with severance payments and benefitsthe terms of the ESPP. All employees who have been employed by the Company at least 30 days prior to the beginning of the enrollment period are eligible to participate in the eventESPP.
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 well-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 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.
Does the Company have an anti-hedging / anti-pledging policy?
Yes. CSX’s insider trading policy prohibits officers and directors from entering into transactions to hedge their ownership positions in CSX securities. In addition, the policy prohibits officers and directors 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.
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Compensation Discussion and Analysis
2018 SUMMARY COMPENSATION TABLE
TheSummary Compensation Tablepresents the amount and type of compensation for the 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. |
| (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 $3,619, depending upon the type of aircraft used, per flight hour for 2018, plus taxes. The aggregate incremental cost to the Company for use of the Company aircraft for personal travel is calculated by multiplying the hourly variable cost rate (including fuel, oil, airport and hangar fees, crew expenses, maintenance, catering and taxes) for the aircraft by the hours the executive used the aircraft. For these purposes, hours occupied by any “deadhead” aircraft legs are included in the total hours the aircraft was used by the executive. |
48 CSX Corporation 2019 Proxy Statement |
Compensation Discussion and Analysis
2018 GRANTS OF PLAN-BASED AWARDS TABLE
In 2018, the NEOs received the plan-based awards as shown in the table below.
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Awards (# units)(2) | All Other Stock Awards (units)(3) | All Other Option Awards (#)(4) | Exercise Price of Option Awards ($) | 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 $53.82. |
| (5) | Grant Date Fair Value of Stock and Option Awards – The values in this column reflect the grant date fair value of performance units (based on the probable outcome of the performance conditions, which is the target number); RSUs, restricted stock and stock options granted in 2018, calculated in accordance with FASB ASC Topic 718. |
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Compensation Discussion and Analysis
2018 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The table below presents information pertaining to all outstanding equity awards held by the NEOs as of December 31, 2018. Stock awards are comprised of outstanding performance units, stock options, RSUs and restricted stock.
| Options | Stock Awards | ||||||||||
| Name | Number of Securities Underlying Exercisable Options (#) | Number of Securities Underlying Unexercisable Options (#) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(1) (#) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | 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 |
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. |
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.
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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, employee’s employmentis 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 one of its subsidiariesengages in acts detrimental to the Company; or (ii) forfeiture if an executive is terminated on or before February 22, 2018, involuntarily byfor engaging in acts detrimental to the Company other than “for cause” or voluntarily byCompany.
The valuation method and actuarial factors used to determine the eligible employee for “good reason.”
The severance payments that could be received by an eligible employee are as follows;
(5)a lump sum cash payment equal to two times the employee’s then base salary;
(6)a lump sum cash paymentpresent value of one timesaccumulated benefits shown in the employee’s target bonus Pension Benefits Tablefor the yearSpecial Retirement Plan are described in the 2018 Annual Report.
52 CSX Corporation 2019 Proxy Statement |
(7)Compensation Discussion and Analysis
credit for2018 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 additional three yearsNEO’s base salary and short-term incentive payments. CSX stock deferrals include deferred portions of age and two yearscompensation payable in the form of service for purposes of calculating the employee’s pension benefit; andCSX 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. |
(8)pro-rata vesting of the employee’s unvested equity awards with any performance-based awards remaining subject to satisfaction of pre-established performance goals.POTENTIAL PAYOUTS UNDER CHANGE-OF-CONTROL AGREEMENTS
The potentialfollowing table presents the severance benefits under this one-year plan will be quantified in CSX’s 2018 annual proxy statement forto which each of the NEOs who are included in that proxy statement.
During 2016,would be entitled as of December 31, 2018, under his or her Change-of-Control Agreement upon the Company covered its NEOs under the same severance plan available to all employees and did not generally provide for any specialhypothetical termination of employment paymentsfollowing a change-of-control: (i) by CSX other than for “cause” or benefits that favored“disability”; (ii) by the NEOs.
DoNEO 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 NEOs participate in Change-of-Control Agreements?
Yes. Eachpro-rata bonus payment would be based on target bonus instead of the NEOs participates in a Change-of-Control Agreement providing “double-trigger” benefits (i.e., payments are conditioned upon a change-of-control as well as separation from employment) with a three-year term ending in 2020 unless renewed. Pursuant to their previously announced retirementshighest 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. |
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Compensation Discussion and their ability to remain eligible for vesting in certain previously granted awards through May 2018, Messrs. Ward and Gooden agreed to cancel their respective Change-of-Control Agreements on February 22, 2017.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 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.
WhatIf 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:
| ● | |
| ● | |
| ● |
WhatIf 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.
54 CSX Corporation 2019 Proxy Statement |
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:
| ● | 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). |
Medical and Other WelfareGroup Benefits—The equivalent of continued medical and life insurance and other welfare benefit planhealth 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).
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. |
The following table presents the severance benefits to which each of the NEOs would be entitled as of December 30, 2016 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 |
| Michael J. Ward(6) | $7,893,600 | $1,440,000 | $31,275,395 | $26,688 | $20,000 | $40,655,683 |
| Clarence W. Gooden(6) | $4,186,000 | $700,000 | $9,264,603 | $46,362 | $20,000 | $14,216,965 |
| Frank A. Lonegro | $2,840,500 | $450,000 | $4,281,952 | $66,306 | $20,000 | $7,658,758 |
| Fredrik J. Eliasson | $3,408,600 | $540,000 | $9,431,164 | $66,306 | $20,000 | $13,466,070 |
| Cynthia M. Sanborn | $3,124,550 | $495,000 | $6,776,080 | $26,058 | $20,000 | $10,441,688 |
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.
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 termination of employment, an NEO may not disclose confidential information without prior 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 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. |
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Are there other severance protections in place for NEOs?Table of Contents
Yes, the Section 16 Officer Severance Plan. The potential benefits under this one-year plan will be quantified in CSX’s 2018 annual proxy statement for the NEOs who are included in that proxy statement. In 2016, the NEOs were covered under the Company’s severance plan for all employees. The NEOs are not entitled to receive benefits under the Section 16 Officer Severance Plan or the general severance plan if they receive benefits under their change-of-control agreements.Compensation Discussion and 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. As discussed in the narrative accompanying the Pension Benefits Table, theThe 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. |
56 CSX Corporation 2019 Proxy Statement |
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
Steven T. Halverson (Chair)
Donna M. Alvarado
Linda H. Riefler
John J. Zillmer
March 12, 2019
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As required by Section 953(b) of
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In accordance with 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, 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 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, as well as to determine the annual total compensation of Mr. Foote, the following analysis occurred:
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. |
58 CSX Corporation 2019 Proxy Statement |
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'sCompany’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””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-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. This resolution does not relate to the matters addressed in Item 5.
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 20182020 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.
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The Board unanimously recommends that the shareholders vote FOR this proposal. |
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In its efforts to attract, 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 the Compensation Committee’s independent compensation consultant. The aggregate 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, the 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 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:
| ● | 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 |  | |
| 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 |
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The Board unanimously recommends that the shareholders voteFOR this proposal. | ||
In accordance with Section 951 of the Dodd-Frank Act, CSX is providing shareholders with the opportunity to cast an advisory vote on whether a non-binding stockholder resolution to approve the compensation of the Company’s NEOs should occur every one, two or three years.The Board recommends that shareholders vote to hold an advisory vote on executive compensation every year, or an annual vote.
After careful consideration, Board believes that holding a vote every year is the most appropriate option because (i) it enables our shareholders to provide the Company with input regarding the compensation of the NEOs on a timely basis; and (ii) it is consistent with the Company’s practice of engaging with its shareholders, and obtaining their input, on corporate governance matters and executive compensation philosophy, policies and practices.
The advisory vote regarding the frequency of the shareholder vote as described in this Item 4 requires the favorable vote of the majority of the votes cast at the Annual Meeting. If none of the frequency options receive a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by shareholders. Abstentions will not be counted as votes cast. If no voting specification is made on a properly returned or voted white proxy card, proxies named on the white proxy card will vote for EVERY YEAR for the frequency of the shareholder vote on executive compensation described in this Item 4. While this advisory vote is required by law, it will neither be binding on the Company nor the Board. The Board will consider the outcome of the vote in making a determination concerning the frequency of future advisory (non-binding) votes on executive compensation.
THE BOARD OF DIRECTORS RECOMMENDS THAN AN ADVISORY VOTE ON THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS BE INCLUDED IN THE COMPANY’S PROXY STATEMENT EVERY YEAR.
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On March 6, 2017, the Company announced that it had appointed Mr. Harrison, a proven railroad executive with a well-regarded track record of producing market-leading operating and financial results, as Chief Executive Officer, effective immediately.
At that time, the Company also announced that the CSX Board would seek shareholder input with respect to Mr. Harrison’s request that CSX reimburse the costs incurred in order to induce his then employer, Canadian Pacific, to relax his non-compete sufficiently to permit him to work at CSX. The Company has been informed that Canadian Pacific was unwilling to relax Mr. Harrison’s non-compete unless Mr. Harrison forfeited approximately $90 million in vested and about-to-vest compensation and benefits.
As described below, prior to any discussions with the Company, to facilitate Mr. Harrison’s separation from Canadian Pacific on terms that would permit him to work at the Company, Mantle Ridge agreed to protect Mr. Harrison on a contingent basis with respect to $84 million of the cost of such forfeiture. If the Company does not reimburse these forfeiture costs and Mr. Harrison does not resign, the Company understands that Mr. Harrison would be required to repay the $55 million amount he has already received under the Mantle Ridge contingent protection arrangement and give up his right to any further amounts under that arrangement. Mr. Harrison joined CSX on the assumption that CSX would reimburse these forfeiture costs and has indicated that if the Company does not do so then he will resign from CSX after the 2017 Annual Meeting in order to maintain the contingent protection he currently has from Mantle Ridge.
While the Board approved the hiring of Mr. Harrison under the terms described elsewhere under “Mantle Ridge and E. Hunter Harrison Agreements,” the Board believed that, given the magnitude of the potential payments, it was appropriate to obtain shareholder guidance concerning whether the Company should provide the Reimbursement described in this resolution. As a result, the Board is presenting the question of Reimbursement for shareholder approval, without recommending for or against this resolution.
Accordingly, the following resolution will be submitted for a shareholder vote at the Annual Meeting:
“Resolved, that the Company should pay $55 million to Mantle Ridge and $29 million to E. Hunter Harrison with regard to compensation and benefits E. Hunter Harrison earned at Canadian Pacific Railway Limited but forfeited in order to allow him to become CEO of the Company, and also assume a tax indemnity that enables Mr. Harrison to remain in the same after-tax position as if he had not forfeited such compensation and benefits and had not been reimbursed for them (collectively, the “Reimbursement”).”
Until January 31, 2017, Mr. Harrison was Chief Executive Officer of Canadian Pacific. CSX understands that the terms of his employment included a two-year non-compete obligation that precluded him from accepting a position with the Company. His Supplemental Executive Retirement benefit (the “SERP Benefit”) also included a non-compete obligation. CSX has been informed as follows:
In determining whetherItem 4: Vote to voteApprove the CSX 2019 Stock and Incentive Award Plan
If approved, the 28 million Shares reserved for this resolution,issuance under the Board believes2019 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, should considerno additional equity awards will be granted under the following pros2010 Stock Plan after the date of the Annual Meeting and cons:
Pros:all such future awards will be granted under the 2019 Stock Plan.
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| (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 | — | ||
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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 |
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 |
Cons:
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| 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 |
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 believeshas reserved a total of 28 million shares of common stock for issuance under the shareholders should take into account2019 Stock Plan. If an Incentive Award is forfeited, cancelled, expires, terminates or is otherwise settled in cash without the potential benefitsissuance 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 Mr. Harrison’s continued services as CEO ofan award, (ii) subject to a stock-settled SAR granted under the Company, as well as the potentially negative effects to the Company2019 Stock Plan that were Mr. Harrison to resign as CEO of the Company within thirty days following the 2017 Annual Meeting.
The resolution is advisory, and the Board intends to act promptly innot issued upon the exercise of its fiduciary duties with respect to whether to commit to the Reimbursement after the shareholders have voted.
If a shareholder submits a proxy but does not indicate a vote on this resolution, such shareholder’s shares will be treated as having abstained for purposes of this resolution.
Prior to any discussions with the Company regarding the Company’s strategic direction and Board composition, on January 18, 2017, E. Hunter Harrison entered into a consulting agreement with Mantle Ridge (the “MR Consulting Agreement”), a copy of which has been provided by Mantle Ridge to the Company. 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, 2018SAR, and (iii) a tax equalization payment related to his forfeiture of certain equity awards granted by his former employer (as further described below) (collectively, the “Payments”). The MR Consulting Agreement also entitled Mr. Harrison to business expense reimbursements and indemnification rights regarding his consulting services and, provided a repayment event does not occur, indemnification rights regarding certain taxes. Mr. Harrison ceased to be a consultant to Mantle Ridge upon his appointment as CEO of the Company.
The tax equalization payment is the additional amount that would put Mr. Harrison in the same after-tax position as he would have been if he had not forfeited vested in-the-money stock options or other vested equity pursuant to his separation agreement with Canadian Pacific or received the $55 million portion of the cash payment (including any related tax benefit), but instead had exercised in-the-money stock options with a spread value at the time of exercise and retained other vested equity of Canadian Pacific in an aggregate amount equal to $55 million and immediately sold the underlying shares for $55 million. Under the tax indemnity, Mantle Ridge agreed to indemnify and hold Mr. Harrison harmless for any taxes, penalties or interest (including payment of legal and accounting fees as incurred) under U.S. or Canadian federal, state, provincial or local law imposed on Mr. Harrison related to (i) the forfeiture or waiver of equity or payment by Mr. Harrison to Canadian Pacific pursuant to Mr. Harrison’s separation agreement with Canadian Pacific, (ii) Mr. Harrison’s forfeiture of his supplemental executive retirement payment and other post-employment benefits from Canadian Pacific or (iii) any repayment amounts to Mantle Ridge due to the acceptance of employment that constitutes a repayment event under the MR Consulting Agreement (collectively the “Indemnified Taxes”). Indemnified Taxes do not include any taxes that are duplicative of the tax equalization payment or ordinary self-employment or income taxes on, among other things, the $84 million cash payment except to the extent that such taxes exceed the amounts Mr. Harrison would have been paid if the events described in (i), (ii) or (iii) of the immediately preceding sentence had not occurred, and Indemnified Taxes are reduced by any tax benefit to Mr. Harrison related to the events described in (i), (ii) and (iii) of the immediately preceding sentence.
The MR Consulting Agreement obligated Mr. Harrison to repay in full, or forfeit if not yet paid, his Payments if (i) he resigns (other than due to death or disability or is required to do so by his former employer due to a breach of certain restrictive covenants by Mantle Ridge), (ii) he accepts an employment position as requested by Mantle Ridge (in which case the repayment would be required within 10 days of receiving an equivalent amount from his employer), (iii) he materially violates the non-competition covenants to which he is subject under the MR Consulting Agreement or (iv) he rejects an offer of employment to serve as the CEO of a Class 1 Railroad if such offer meets certain specified minimum duration, compensation, severance, benefits and other requirements, including the grant of an equity award with respect to shares equal to 1% of the outstanding common stock of the new employer at the time of grant with certain vesting terms.
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 approves and effectuates the Reimbursement no later than the 15th day following the Annual Meeting (a “Qualified Arrangement”), then Mr. Harrison will have no obligation to repay the Payments. If the Board does not effectuate a Qualified Arrangement and Mr. Harrison resigns from his employment with the Company and returns to his role as a consultant with Mantle Ridge within 30 days following the Annual Meeting, the consulting period will restart (pursuant to all provisions of the MR Consulting Agreement) and the repayment obligation and forfeitures will not become effective. If Mr. Harrison does not resign under such circumstances, he will be obligated to repay and forfeit the Payments and he will continue to be subject to restrictive covenants under the MR Consulting Agreement. The Reimbursement is described in “Item 5: Advisory Vote Concerning the Reimbursement Arrangements Sought in Connection with Retention of E. Hunter Harrison as CEO at CSX.”
On March 6, 2017, the Company entered into a letter agreement with the Mantle Ridge Group (the “MR Agreement”). Pursuant to the MR Agreement, among other things, (i) the Board agreed to the director appointments described in “Item 1: Election of Directors” and the subsequent nomination of the directors so appointed at each of the Company’s 2017 Annual Meeting and 2018 Annual Meeting, (ii) Mr. Ward resigned from the Board immediately, and three directors agreed not to stand for reelection at the Annual Meeting, (iii) the Board agreed to the committee leadership and composition described in “Item 1: Election of Directors” and to maintain such committee leadership and composition until at least the conclusion of the 2018 Annual Meeting, (iv) the roles of Chairman of the Board and CEO were separated and Mr. Kelly and Mr. Hilal were appointed as non-executive Chairman and Vice Chairman of the Board, respectively, each to serve until the conclusion of the 2018 Meeting and (v) the Company’s bylaws were amended to provide that (A) a director that has reached the retirement age of 75 years may continue to serve on the Board so long as he or she has not served more than five consecutive terms and (B) an amendment of the bylaws by the Board will require a vote of two-thirds of the directors then in office.
Under the MR Agreement, if prior to the 2017 Annual Meeting, the Mantle Ridge Group’s beneficial ownership of shares of the Company’s common stock is less than 2.0% of the outstanding CSX common stock (other than as a result of an issuance of sharesrepurchased by the Company or a similar transaction that increaseson the number of outstanding shares of CSX common stock) (the “Minimum Ownership Requirement”), the Mantle Ridge Group is required to provide prompt notice to the Company and to cause Mr. Hilal to tender his resignation from the Board, any committee thereof and any other position at the Company.
Pursuant to the MR Agreement, if Ms. Riefler or Messrs. Harrison, Hilal, Reilley or Zillmer is unable to serve as a memberopen market with option proceeds in respect of the Board, the Mantle Ridge Group, as long as it meets the Minimum Ownership Requirement, will have the right to have another individual appointed to the Board who is reasonably acceptable to the Governance Committeeexercise of the Board and who meets the director independence and other standards of the Nasdaq and the SEC, subject to certain other conditions set forth in the MR Agreement. The Company has also agreed that until the conclusion of the 2018 Annual Meeting, the size of the Boarda stock option will not again be more than 13 directors.available for issuance under the 2019 Stock Plan.
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In addition, underItem 4: Vote to Approve the MR Agreement, the Company agreed to include in the Proxy Statement “Item 5: Advisory Vote Concerning the Reimbursement Arrangements Sought in Connection with Retention of E. Hunter Harrison as CEO at CSX.” The Company also agreed that within 15 days following the Annual Meeting it will make a determination with respect to the Reimbursement (as defined in “Item 5: Advisory Vote Concerning the Reimbursement Arrangements Sought in Connection with Retention of E. Hunter Harrison as CEO at CSX”)CSX 2019 Stock and if the Company determines to effect the Reimbursement, within five days of such determination, it will (i) pay $55 million to Mantle Ridge (to reimburse Mantle Ridge for the payment it made to Mr. Harrison under the MR Consulting Agreement) and (ii) agree in writing with Mr. Harrison to pay Mr. Harrison $29 million on or before March 15, 2018 and assume the tax indemnity (including the tax equalization payment) described above. In addition, the extent to which these payments will be deductible by the Company for U.S. federal income tax purposes is unclear. Please see “Item 5: Advisory Vote Concerning the Reimbursement Arrangements Sought in Connection with Retention of E. Hunter Harrison as CEO at CSX” for further information regarding this resolution.Incentive Award Plan
The MR Agreement terminates upon conclusion of the 2018 Annual Meeting, subject to certain specified obligations that will terminate at a later date.
As noted, on March 6, 2017, Mr. Harrison was appointed as our CEO and a director of the Company. In connection with Mr. Harrison’s appointment, the Company entered into a four-year employment agreement with him, providing an annual base salary of $2,200,000 and an annual target bonus opportunity of $2,800,000, with a guaranteed 2017 bonus no less than the target bonus opportunity, as well as certain perquisites and benefits. The negotiation of Mr. Harrison’s compensation terms occurred in extraordinary circumstances, which warranted making compensation decisions in light of such circumstances instead of in accordance with the Company’s usual compensation decision making practices described above under “Compensation Discussion and Analysis.”
Mr. Harrison has been granted an option to purchase 9,000,000 shares of Common Stock with an exercise price of $49.79 (the closing trading price of our shares on March 6, 2017) and a ten-year term. This option will vest in equal annual installments over his four-year employment term. Half of the option will vest based on continued service and half will vest based on achievement of performance targets. If Mr. Harrison’s employment is terminated by the Company without cause or by Mr. Harrison for “good reason,” the option will be eligible to vest in full, subject to achievement of the applicable performance targets in the case of the performance-vesting portion of the option award. In other termination scenarios the option will be subject to partial vesting. In the event of a termination for cause, the option will be forfeited in full.
Mr. Harrison’s employment agreement also provides him with severance protection under certain circumstances. If Mr. Harrison’s employment is terminated by the Company without cause or by Mr. Harrison for “good reason” or if he resigns within 30 days of the Annual Meeting due to the Company’s failure to effect the Reimbursement, he will be entitled to severance equal to his base salary and target annual bonus, a pro rata bonus for the year of termination and specified medical benefit continuation rights. If the termination occurs in connection with, or within two years following, a future change in control of the Company, the severance will be 2.99 times Mr. Harrison’s base salary and target annual bonus. If,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 purpose of the 2019 Stock Plan is to 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.
Eligibility
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 business activities, Mr. Harrison2010 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 subjectthe Compensation Committee’s decision, in its sole discretion, that an Incentive Award to any claims by Canadian Pacific under Mr. Harrison’s non-competition agreement with Canadian Pacific,an eligible participant will further the Company will indemnify Mr. Harrison.
The MR Agreement is more fully described in,2019 Stock Plan’s purposes of motivating and is attached as an exhibitrewarding participants to perform at the highest level and contribute to the Company’s Current Report on Form 8-K filed on March 7, 2017 withsuccess. In exercising its discretion, the SEC. Compensation Committee will consider the recommendations of management and the purposes of the 2019 Stock Plan.
Administration
The Company’s employment agreement with Mr. Harrison2019 Stock Plan is described inadministered 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 Form 8-K as well.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; |
| ● | 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. |
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.
62 CSX Corporation 2019 Proxy Statement |
Item 4: Vote to Approve the CSX 2019 Stock and 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 | |
| ● | restricted stock conditions will be deemed met and |
| ● | all performance awards are deemed earned and paid out at target value; and |
| ● | RSU conditions are also deemed met and will be paid in cash as well as any unpaid dividend equivalents. |
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Item 4: Vote to Approve the CSX 2019 Stock and Incentive Award Plan
Duration, 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
Except as otherwise permitted by the Compensation 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 |
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 which the vesting thereof is accelerated by a change in control of the Company. Such accelerated vesting would be relevant in determining whether the excise tax and deduction disallowance rules would be triggered with respect to certain Company employees.
Accounting Treatment
Under present accounting rules, the grant of Incentive Awards will generally result in a 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 the 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 those awards under the 2019 Stock Plan, if the 2019 Stock Plan is approved 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 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.
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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 |
The following table sets forth, as of March 28, 2017,4, 2019, the beneficial ownership of the Company’sCSX 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) | 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 | 116,440 | * | 124,302 | — | 124,302 | * |
| John B. Breaux | 194,117 | * | 206,823 | — | 206,823 | * |
| Pamela L. Carter | 40,990 | * | 46,157 | — | 46,157 | * |
| James M. Foote | 5,739 | — | 5,739 | * | ||
| Steven T. Halverson | 120,693 | * | 129,401 | — | 129,401 | * |
| E. Hunter Harrison | - | * | ||||
| Paul C. Hilal(4)(5) | 41,405,466 | 4.49% | 38,057,315 | — | 38,057,315 | 4.68% |
| Edward J. Kelly, III | 216,435 | * | ||||
| John D. McPherson | 106,232 | * | 115,901 | — | 115,901 | * |
| David M. Moffett | 9,850 | * | 15,171 | — | 15,171 | * |
| David M. Ratcliffe | 249,054 | |||||
| Dennis H. Reilley | 69,690 | * | ||||
| Linda H. Riefler | 8,580 | 13,859 | — | 13,859 | * | |
| Donald J. Shepard | 280,626 | |||||
| J. Steven Whisler | 39,924 | * | 48,240 | — | 48,240 | * |
| John J. Zillmer | 158,490 | 167,388 | — | 167,388 | * | |
| Michael J. Ward(6) | 589,913 | |||||
| Clarence W. Gooden(7) | 433,707 | |||||
| Frank A. Lonegro(8) | 71,254 | * | ||||
| Fredrik J. Eliasson(9) | 88,238 | * | ||||
| Cynthia M. Sanborn(10) | 120,491 | * | ||||
| All current executive officers and directors as a group (a total of 24) | 44,234,490 | 4.79% | ||||
| 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 |
| (3) | Based on |
| (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 |
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Security Ownership of Management and Certain Beneficial Owner
The following table sets forth information regarding the beneficial ownership of CSX common stock as of April 17, 2017March 4, 2019 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 | Amount of Beneficial Ownership | Percent of Class |
| BlackRock, Inc.(1) | ||||
| 55 East 52ndStreet | ||||
| New York, NY 10055 | 52,497,949 | 5.6% | 49,404,831 | 5.90% |
| Capital Research Global Investors(2) | ||||
| 333 South Hope Street | ||||
| Los Angeles, CA 90071 | 55,777,489 | 5.9% | ||
| The Vanguard Group(3) | ||||
| The Vanguard Group(2) | ||||
| 100 Vanguard Blvd. | ||||
| Malvern, PA 19355 | 67,303,507 | 7.18% | 66,473,008 | 7.87% |
| (1) | |
| As disclosed in its Schedule 13G filed on February | |
| (2) | As disclosed in its Schedule 13G filed on February 11, 2019. |
68 CSX Corporation 2019 Proxy Statement |
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 the Company’sCSX 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 transactions that occurred during fiscal 2016, with the exception of untimely Forms 4, due to an administrative oversight, filed by Mr. Gooden on October 11, 2016 (relating to one transaction) and December 16, 2016 (relating to one transaction).2018.
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The following table sets forth information about the Company’s equity compensation plans as of December 30, 2016.
| 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(1) (in thousands) |
| Equity compensation plans approved by security holders | 4,582 | 24.57 | 27,949 |
| Equity compensation plans not approved by security holders | --- | --- | |
| TOTAL | 4,582 | 24.57 | 27,949 |
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 telephone at (904) 359-3256. If a separate copy of this Proxy Statement and the 20162018 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 20162018 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 |
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholders Meeting to be held on June 5, 2017.May 3, 2019. This Proxy Statement and the 20162018 Annual Report on Form 10-K 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 ourthe 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 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
Our 2016The 2018 Annual Report (without exhibits) is available onwww.csx.com. Our 2016 The 2018 Annual Report (with exhibits) is also available on the website maintained by the SEC (www.sec.gov(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 20162018 Annual Report in one of the following manners:
| ● | Send your request by mail to CSX Corporation, |
| ● | Call CSX |
March 24, 201720, 2019
By Order of the Board of Directors
Ellen M. FitzsimmonsNathan D. Goldman
Executive Vice President-Law and Public AffairsPresident-Chief Legal OfficerGeneral Counsel and Corporate Secretary
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92Neither 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 |
CSX 2019 STOCK AND INCENTIVE AWARD PLAN
Section 1. Purpose
The purpose of the CSX 2019 Stock and Incentive Award Plan (as amended from time to time, the“Plan”) is to motivate and reward employees and other individuals to perform at the highest level and contribute significantly to the success of CSX Corporation (the“Company”), thereby furthering the best interests of the Company and its shareholders.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set forth below:
 | “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 | |
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Appendix A
| (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 foregoing or any provision of any Award Agreement to the contrary, for any Award that provides for accelerated distribution on a Change in Control of amounts that constitute “deferred compensation” (as defined in Section 409A of the Code), if the event that constitutes such Change in Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Company’s assets (in either case, as defined in Section 409A of the Code), such amount shall not be distributed 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 applicable Award Agreement, except to the extent that earlier distribution would not result in the Participant who holds such Award incurring interest or additional tax under Section 409A of the 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. |
| (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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| (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. |
| (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. |
| (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. |
| (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. |
| (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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| 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 |
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| 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 | ||
| ||
 | 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. | |
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| (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 |
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| 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. | |
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| (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 | |
80 CSX Corporation 2019 Proxy Statement |
Appendix 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. | |
| (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 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 the Plan. |
| (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. |
WWW.CSX.COM 81 |
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. | |
| 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 |
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 June 4, 2017.May 2, 2019. Follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting- Go toELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
www.virtualshareholdermeeting.com/CSX2019If you would like to reduce
You may attend the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronicallymeeting 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, indicatevote during the meeting. Have the information that you agree to receive or access proxy materials electronicallyis printed in future years.the box marked by the arrow available and follow the instructions.
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 June 4, 2017.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: | ||
| 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. | ||||||||||
| 1. | Election of Directors | |||||||||||
| 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. | ||||||||||
| Stock and Incentive Award 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! |
| Signature [PLEASE SIGN WITHIN BOX] | Date |
| Signature (Joint Owners) | Date |
Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
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.
| E58782-P19892 |
CSX CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting of Shareholders
to be held on June 5, 2017May 3, 2019
The undersigned hereby appoints ELLEN M. FITZSIMMONSNATHAN 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 heldhosted online at www.virtualshareholdermeeting.com/CSX2019 on June 5, 2017,May 3, 2019, at 10:00 a.m. (EDT), at The Jefferson Hotel, 101 W. Franklin Street, Richmond, Virginia 23220, 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: (a) "FOR" proposalsProposals 1, 2, 3 and 3; (b) "one year" for proposal 4; and (c) as an abstention on proposal 5.4. 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.p.m. Eastern Time on Sunday, June 4, 2017.Thursday, May 2, 2019.
| 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