Item 5.02.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Consistent with its past practices, in February, the Compensation Committee approved and adopted the Companys new three year long-term incentive program.
Specifically, on February 22, the Compensation Committee approved the CSX 2017-2019 Long-Term Incentive Plan (the 2017-2019 Plan), that seeks to motivate and reward certain employees. The program is comprised of three
componentsPerformance Units, Restricted Stock Units and Stock Optionswhich account for 50%, 25% and 25% of the awards, respectively. The Performance Units, Restricted Stock Units and Stock Options were awarded as set forth next to
each executives name in the table below.
Pursuant to the 2017-2019 Plan, the Company awarded Performance Units with potential payouts ranging from zero to
200% of the target awards depending on Company performance against predetermined goals. Performance Units will be paid out, if earned, in the form of shares of CSX common stock in early 2020, after the conclusion of the three-year performance
cycle. Payouts for certain executives are subject to downward adjustment by up to 30% based upon total shareholder return relative to specified comparator groups.
Payouts of the Performance Units will be based on the achievement of goals related to Operating Ratio (OR) and Return on Assets (ROA),
with each measure excluding nonrecurring items as disclosed in the Companys financial statements. The 2017-2019 cycle will measure cumulative OR and average ROA from the beginning of 2017 through the end of 2019. OR and ROA will each
comprise 50% of the total payout opportunity for participants and each will be measured independently of the other. OR is defined as operating expense divided by operating revenue. ROA will be calculated using
tax-adjusted
operating income divided by net property, which is defined as gross property less accumulated depreciation.
Pursuant to the 2017-2019 Plan, Restricted Stock Units and Stock Options generally will vest on February 22, 2020. The Restricted Stock Units will
be settled by delivery of a number of shares of CSX common stock equal to the number of Restricted Stock Units granted. Unexercised Stock Options will expire on February 22, 2027.
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Executive
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Performance Units
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Restricted Stock Units
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Stock Options
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Michael J. Ward *
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120,903
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60,451
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266,904
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Clarence W. Gooden *
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33,584
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16,792
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74,140
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Fredrik J. Eliasson
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33,584
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16,792
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74,140
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Frank A. Lonegro
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26,867
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13,434
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59,312
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Cindy M. Sanborn
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26,867
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13,434
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59,312
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Ellen M. Fitzsimmons
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26,867
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13,434
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59,312
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*
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As discussed below, the 2017-2019 Plan awards granted to Mr. Ward and Mr. Gooden will be prorated as of May 31, 2018, with performance-based awards remaining subject to satisfaction of
pre-established
performance goals.
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Consistent with past practices, the number of Performance Units and
Restricted Stock Units was based on the average closing price of CSX common stock for November 2016, December 2016 and January 2017, which was $37.22. The number of Stock Options was calculated based on the Black-Scholes value of $8.43
which, consistent with past practices, was determined using the average closing price of CSX common stock for November 2016, December 2016 and January 2017, which was $37.22. The exercise price of $48.39 is based on the closing price of CSX common
stock on the date of grant. The foregoing description of the awards made pursuant to the 2017-2019 Plan is qualified in its entirety by reference to the 2017-2019 Plan, which is attached to this Current Report on Form
8-K
as Exhibit 10.1, and incorporated herein by reference.
Also on February 22, 2017, in connection with the
previously announced retirements of Mr. Ward and Mr. Gooden, the Compensation Committee determined to permit their unvested 2015-2017, 2016-2018 and 2017-2019 long term incentive plan awards to remain eligible to vest through May 31,
2018, with any performance-based awards remaining subject to satisfaction of
pre-established
performance goals, so long as each of Mr. Ward and Mr. Gooden agreed to serve in an advisory capacity upon
request during the same period and to waive various rights and claims, including the cancelation of their respective change of control agreements with the Company. The foregoing description of the separation agreements does not purport to be
complete and is qualified in its entirety by reference to the Separation Agreements of Messrs. Ward and Gooden, which are attached to this Current Report on Form
8-K
as Exhibits 10.2 and 10.3, respectively,
and incorporated herein by reference.
In connection with the previously announced appointment of Mr. Eliasson as the Companys President and
Chief Sales and Marketing Officer, on February 22, 2017, the Compensation Committee made the following compensation decisions, effective as of February 15, 2017: Mr. Eliassons annual base salary was increased to $700,000; his
short-term incentive opportunity was increased to 100% of annual base salary; and his target long-term equity incentive award value was increased to $2,500,000.
The Compensation Committee also adopted on February 22, 2017 the Section 16 Officer Severance Benefit Plan (the Severance Plan) covering
certain executive officers, including Mr. Eliasson, Mr. Lonegro, Ms. Sanborn and Ms. Fitzsimmons. The Severance Plan provides eligible employees with severance payments and benefits in the event that an eligible
employees employment with the Company or one of the Companys subsidiaries is terminated on or before February 22, 2018 either (a) involuntarily by the Company for any reason other than for cause, or
(b) voluntarily by the eligible employee for good reason. The severance payments and benefits to be provided, subject to the employees execution of a release of claims, are as follows: (1) a lump sum cash payment
equal to two times the employees then base salary, (2) a lump sum payment of one times the employees target bonus for the year of separation, (3) credit for an additional three years of age and two years of service for purposes
of calculating the employees pension benefit and
(4) pro-rata
vesting of the employees unvested equity awards with any performance-based awards remaining subject to satisfaction of
pre-established
performance goals. The foregoing description of the Severance Plan does not purport to be complete and is qualified in its entirety by reference to the Severance Plan, which is attached to this
Current Report on Form
8-K
as Exhibit 10.4 and incorporated herein by reference.
Item 9.01. Exhibits.
(d) The following exhibit is being filed as part of this report:
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10.1
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CSX 2017-2019 Long Term Incentive Plan
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10.2
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Separation Agreement, effective February 27, 2017, between Michael J. Ward and CSX Corporation
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10.3
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Separation Agreement, effective February 27, 2017, between Clarence W. Gooden and CSX Corporation
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10.4
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CSX Section 16 Officer Severance Benefit Plan
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