Posts Tagged ‘CSX management’

Harrison’s Compensation at CSX Outlined

March 9, 2017

Hunter Harrison and CSX agreed to a base salary of $2.2 million, the railroad said this week in a regulatory filing.

The compensation package also includes an annual target bonus opportunity of up to $2.8 million, with that amount as a guaranteed bonus this year.

Harrison will receive options on 9 million shares of CSX stock, which is valued at $448 million at its current price of $49.79 per share.

Half of those options will hinge on his continued employment and the other half are tied to his meeting a series of performance targets.

The agreement to hire Harrison as its CEO also came with a number of changes in the CSX board of directors.

Clarence Gooden is no longer vice chairman and board member Timothy O’Toole has resigned immediately.

CSX’ has amended its corporate bylaws to separate the roles of CEO and chairman of the board as well as to change the mandatory retirement age of 75. Harrison is 72.

Although it remains to be seen how Harrison’s management philosophy will play out at CSX, analysts expect that he will further thin the number of managers and employees at the company, close yards and shops, and sell off some rail routes.

These measures will be aimed at improving operations, reducing expenses and boosting profitability.

Some have noted that CSX is far different than were Canadian National and Canadian Pacific when he took over as CEO at those railroads.

The Canadian roads were linear systems whereas CSX has a more complex route network.

That will challenge Harrison to impose his precision scheduled railroading philosophy, which he developed as CEO of the Illinois Central Railroad in the 1990s.

One decision Harrison will need to make will be whether to continue the CSX of Tomorrow strategy, which emphasized intermodal and merchandise traffic while focusing on its major routes operating in a triangle operating from Chicago to New Jersey to Florida and then back to Chicago.

CSX, Harrison Reach Agreement on CEO Post

March 6, 2017

CSX said Monday afternoon it has reached an agreement to hire E. Hunter Harrison as its CEO effective immediately.

Current CEO Michael Ward, who had announced on Feb. 21 that he would retire on May 31, will become a consultant to CSX.

The railroad also said it has reached a pact with hedge fund Mantle Ridge to reorganize the CSX board of directors.

In a news release, CSX said it would appoint five new directors agreed upon by Mantle Ridge and current CSX management.

They are Paul Hilal, who founded Mantle Ridge, Harrison, Dennis Reilley, Linda Riefler and John Zillmer.

Three incumbent directors will complete their terms at or before the conclusion of the CSX 2017 annual meeting. The CSX board will then have 13 members.

Edward J. Kelly, III, the current presiding director, will become chairman of the board and Hilal will become vice chairman.

Harrison will receive an award of incentive options to purchase nine million shares of CSX stock at its current trading price, eight million of which will be granted as an inducement award under the Nasdaq listing rules, CSX said in its news release.

The options will vest over four years with half of the options vesting based on service and half vesting based on the achievement of designated performance goals over the four-year period.

However, the CSX board will still seek shareholder direction with regard to an $84 million payment to cover compensation and benefits that Harrison forfeited by retiring early from Canadian Pacific.

CSX said that Harrison, 72, has said that his acceptance of the CEO position is subject to CSX ultimately providing this replacement protection initially offered by Mantle Ridge upon his departure from CP.

If he does not receive the reimbursement and tax indemnity that he is seeking, Harrison will resign after the 2017 CSX annual meeting.

CSX said it will ask CSX shareholders to conduct an advisory vote during the annual meeting.

A previously announced special stockholders meeting will not be conducted.

The news that CSX, Harrison and Mantle Ridge has reached an agreement was reported in various news outlets, including the Wall Street Journal, before it was formally announced by CSX.

CSX, Harrison Reported Close to a Deal

March 4, 2017

News reports on Friday indicated the CSX and E. Hunter Harrison are closed to reaching a deal for the former Canadian Pacific head to become CEO of CSX.

CSX logo 1Bloomberg News reported that an announcement could be made as early as next week although the talks between CSX and hedge fund Mantle Ridge over the composition of the CSX board of directors could still collapse.

The reports indicated the two sides were close to reaching an agreement whereby Harrison would begin work immediately for CSX and receive a four-year contract.

CSX shareholders would vote on whether to reimburse Mantle Ridge the $84 million that it paid Harrison to walk away early from CP.

Back in January, several news reports indicated that Harrison agreed to forego tens of millions of dollars to get CP to grant him a limited waiver of a non-compete clause.

CSX and Mantle Ridge have refused to comment on the report.

CSX Layoffs Affect 20% of Employees

March 1, 2017

The plans by CSX to lop off up to 1,000 management employees is expected to affect more than 20 percent of its workforce and save at least $175 million annually.

CSX logo 1In a regulatory filing this week, the railroad said it will take a pre-tax charge of at least $160 million related to employee termination benefits, including severance, pension, and stock compensation costs.

Those losing their jobs are expected to receive severance pay equal to two times their base salary.

They also will receive a target bonus and a prorated bonus payment and be credited with three additional years of age and two additional years of service under the company pension plan.

The layoffs are expected to be completed by the middle of this month.

CSX CEO Michael Ward, who will be retiring at the end of May, has described the layoffs as “essential to CSX’s ability to remain competitive in a challenging and changing market.”

The management restructuring is part of an on-going cost cutting campaign over the past year that has seen CSX reduce expenses by $430 million. The railroad also has said that it expects to reap another $150 million this year through efficiency and productivity gains.

Much of the cost cutting has been triggered by the loss of coal revenue, which has been $2 billion over the past five years and $470 million last year alone.

At the same time that it is cutting its management ranks, CSX is implementing a program of long-term incentives for managers who remain that is tied to performance units, restricted stock units, and stock options that will account for 50 percent, 25 percent, and 25 percent of the payouts, respectively.

New CSX President Fredrik Eliasson will see his base salary increase to $700,000. His short-term incentive opportunity has increased to 100 percent of annual base salary and the value of his target long-term equity incentive award rose to $2.5 million.

CSX Extends Board Nominee Deadline Again

February 24, 2017

CSX has again extended the deadline for nominations of candidates to its board of directors.

CSX logo 1The railroad has been in talks with hedge fund Mantle Ridge about installing E. Hunter Harrison as its CEO as well as the composition of the CSX board.

Mantle Ridge owns slightly less than 5 percent of CSX stock and acquired it with the goal of shaking up CSX management.

CSX earlier said it would hold a special meeting of stockholders to discuss and vote on the Mantle Ridge demands. A date for that meeting has not yet been announced.

Board candidate nominations will now be due on March 10.

Whether it chooses Harrison or someone else, the CSX board will need to find a new CEO because incumbent head Michael Ward said last week that he plans to retire on May 31.

Numbers, Numbers. How Much is Hunter Worth?

February 20, 2017

When E. Hunter Harrison retired early from Canadian Pacific, news accounts noted that he left millions of dollars on the table in exchange for a limited waiver of a non-compete clause so he could pursue the CSX CEO job.

As it turned out, Harrison did no such thing.

On TransportationThe hedge fund Mantle Ridge agreed to pay Harrison the money he gave up at CP.

Mantle Ridge in turn wants CSX to reimburse it for the cash it guaranteed Harrison for walking away early from CP.

CSX claims that Harrison is seeking a four-year contract worth $300 million. That $75 million a year would make him not just the highest paid North American Class 1 railroad executive but also place him among the highest-paid CEOs in America.

By comparison, the man Harrison wants to replace, Michael Ward, earned $2.9 million in 2015. Another retired Class 1 CEO, Charles “Wick” Moorman, who agreed to take Amtrak’s top job for $1 a year, although he is also eligible for performance-based bonuses of up to $500,000 a year.

But Mantle Ridge counters that Harrison’s compensation package would actually be worth $200 million of which $120 million are stock options.

Such is life in the rare air of the corporate suite where eye-popping salaries are justified by saying a CEO brings a “unique skill set” to the job.

Executive compensation experts interviewed by Trains magazine said Harrison’s pay demands are at the high end of the scale, but not unreasonable by CEO pay standards.

Once the news broke that Harrison was seeking the top CSX job, the value of CSX stock jumped $10.4 billion, an increase of 30 percent.

Ben Branch, a finance professor at the Isenberg School of Management at the University of Massachusetts, told Trains that CSX stockholders might think Harrison has a “dramatic plan” for improving the company.

“It’s rare,” Branch said. “You don’t have many situations where a CEO almost single-handedly is expected to deliver dramatic improvement.”

Jason Shiel, a managing director of finance firm Cowen and Company, told Railway Age the pay demanded by Harrison is a negotiating point and he is likely to receive less, although not necessarily much less.

Harrison is known for his scheduled precision railroading operating philosophy, which some railroad industry analysts say is similar to what CSX practices now.

Ultimately, some think Harrison’s long game is to engineer a merger that creates North America’s first transcontinental railroad. It is an idea he been peddling for years and failed to pull off last year when he proposed a merger between CP and Norfolk Southern.

For us mere mortals whose primary connection with CSX is watching its trains pass by, all of this talk about eight- and nine-figure executive compensation is nothing more than a parlor game.

The numbers baffle ordinary people who have no chance in their lifetime of ever earning a salary exceeding five figures a year. Most of us can’t fathom how you become a CEO of a Fortune 500 company.

For most CSX employees, having Harrison rather than Ward at the top will make little difference.

They will continue doing what they have been doing even if there may be some changes in how they do it.

Yet it is likely that some may find themselves victims of Harrison’s expected cost cutting.

In the eyes of Harrison and other high-ranking and well-paid railroad executives, labor costs are just another number to be reduced in order to please Wall Street.

How those reductions affect individual CSX employees financially and emotionally won’t be a subject of discussion at the special CSX board meeting. It never is.

All they talk about are numbers and for most of us that is all Harrison’s pay demands are.

Mantle Ridge Disputes CSX News Release

February 18, 2017

Hedge fund Mantle Ridge took issue with some facts contained in a CSX news release issued earlier this week on the subject of E. Hunter Harrison becoming the railroad’s CEO.

CSX logo 3Mantle Ridge head Paul Hilal said he wrote to the CSX Board of Directors to take issue with the news release, in particular the size of the compensation package for Harrison and Hilal’s demands for governance changes for the CSX board.

“We owe it to the shareholders to get a deal done promptly. Let’s do it,” Hilal wrote. “If you are willing, we are glad to meet in person and hammer this out this weekend, hopefully delivering good news to the shareholders early next week.”

In the meantime, Harrison told the Wall Street Journal that he was frustrated with what he described as “chest pounding” between his investment partner and CSX, which has resulted in a stalemate in the negotiations for him take over as CSX as its CEO.

The newspaper reported that CSX had offered the CEO post to Harrison, but that Hilal, a principle at Mantle Ridge, has refused to give in on compensation and governance demands. Hilal, who is representing Harrison, has conducted most of the discussions with CSX.

Mantle Ridge holds less than 5 percent of CSX stock but wants to name six directors to the railroad’s board of directors and reduce the number of directors to 12,

In the news release, CSX said it is reluctant to allow a shareholder with such a small share of its stock to dictate the composition of its board. CSX also has described the demands to give Harrison a $300 million compensation package as “extraordinary in scope.”

The Journal said that during a recent meeting with Mantle Ridge, some CSX shareholders objected to the number of seats on the board that Mantle Ridge wants.

Hilal reportedly said during the meeting he needs to control six seats so that Harrison “has control and can execute his plan.”

CSX reportedly is objecting to paying Harrison the $89 million he gave up by leaving early as Canadian Pacific’s CEO in return for receiving a limited waiver of a non-complete clause.

Hilal contends that the compensation deal that Mantle Ridge is seeking from CSX is $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures.

Another sticking point is the 72-year-old Harrison’s refusal to agree to have a physical exam by an independent physician.

Harrison told the Journal he was willing to negotiate his pay with the CSX board,

In his letter, Hilal contended that Harrison wants $32 million per year over four years – or $128 million – of which $20 million per year is performance-based.

“His package is worth very little unless he performs spectacularly,” Hilal wrote. As for the changes on the CSX board, Hilal said he is only seeking a seat for himself.

Harrison would occupy another seat along with four other independent directors who would be agreed upon by CSX and Mantle Ridge

“Why are we asking that new directors be added? As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change,” Hilal wrote. “Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions and with no ties to any previous strategy or anyone.”

CSX Extends Deadline for Board Nominees

February 11, 2017

CSX on Friday said it would extend the deadline for nominations to its board of directors.

CSX logo 1The move is being seen as a ploy to give the Mantel Ridge hedge fund more time to negotiate an agreement with the railroad to make E. Hunter Harrison its CEO.

The deadline for board nominees had been Feb. 10 but has been extended to Feb. 24.

Harrison retired early from Canadian Pacific last month and has teamed up with Paul Hilal of Mantle Ridge to seek a management change at CSX.

News reports have said CSX and Harrison have had discussions about that prospect, but the number of seats on the board supported by Mantle Ridge has been a sticking point.

In retiring early from CP, Harrison gave up tens of millions in compensation in exchange for CP giving him a limited waiver of a non-compete clause.

If Harrison is successful in becoming the CEO of CSX, he would replace Michael Ward, who has said he plans to retire by 2019.

CSX Said to be Talking With Harrison

January 31, 2017

The Wall Street Journal reported on Monday that CSX and E. Hunter Harrison are in negotiations about the railroad’s CEO position.

CSX logo 3Harrison has presented to CSX management his plans to revamp CSX. The former CEO of Canadian Pacific, Canadian National and Illinois Central, is teaming up with Paul Hilal of the Mantle Ridge hedge fund to seek a management shakeup at CSX.

Mantle Ridge was reported to be seeking three seats on the 12-seat CSX board of directors, a demand that may be a source of conflict the Journal reported.

News reports indicate that Harrison met with CSX officials last Friday in Atlanta.

If CSX, Harrison and Mantle Ridge are unable to reach an agreement, then the hedge fund has until Feb. 10 to nominate candidates to the CSX board. CSX usually holds its annual meeting in May.

It is not clear what plans that Harrison and Mantle Ridge have for revamping operations at
CSX.

In the past year, CSX management under current CEO Michael Ward has retooled rail operations. Among other steps, CSX has emphasized longer trains and focusing capital expenditures on core routes.

In 2015, Ward said he planned to remain the CSX CEO for three more years after Oscar Munoz, who was expected to replace Ward, left to head United Airlines.

While at CP last year, Harrison unsuccessfully sought a merger with Norfolk Southern.

Some analysts on Wall Street believe CSX will be receptive to having Harrison as CEO because of his experience in leading other class 1 railroads.