DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule
14a-101)
SCHEDULE 14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the
Securities Exchange
Act of 1934
Filed by the
Registrant
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Filed by a
Party other than the Registrant
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appropriate box:
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o Preliminary
Proxy Statement.
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o Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2)).
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þ Definitive
Proxy Statement.
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o Definitive
Additional Materials.
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o Soliciting
Material Pursuant to § 240.14a-12.
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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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No fee
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Fee computed
on table below per Exchange Act
Rules 14a-6(i)(1)
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to Exchange Act
Rule 0-11
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state how it was determined):
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maximum aggregate value of transaction:
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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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(1)
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Form,
Schedule or Registration Statement No.:
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March 24, 2009
Dear Shareholder:
On behalf of the Board of Directors and the management of CSX Corporation, I invite you to
attend the 2009 Annual Meeting of Shareholders (the Meeting). The Meeting will be held at 10:00
a.m. (EDT) on Wednesday, May 6, 2009, at the Baltimore Marriott Inner Harbor at Camden Yards, 110
South Eutaw Street, Baltimore, MD 21201-1608.
You may have noticed changes in the way we are providing proxy materials to our shareholders
in connection with our 2009 Annual Meeting. We have elected to provide access to our proxy
materials over the Internet under the Securities and Exchange Commissions notice and access
rules. We believe that providing our proxy materials over the Internet increases the ability of our
shareholders to access important Company information, while reducing the environmental impact of
our Annual Meeting. If you want more information, please see the Questions and Answers section of
this proxy statement or visit the Annual Shareholders Meeting section of our Investor Relations web
site.
Your vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will
vote as soon as possible. You may vote over the Internet, as well as by telephone or, if you
requested to receive printed proxy materials, by mailing a proxy or voting instruction card. 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 look forward to seeing you at the Meeting.
Michael Ward
Chairman of the Board, President
and Chief Executive Officer
Notice of Annual Meeting of Shareholders
Jacksonville, Florida
March 24, 2009
To Our Shareholders:
The Annual Meeting of Shareholders of CSX Corporation (the Meeting) will be held at 10:00
a.m. (EDT) on Wednesday, May 6, 2009 at the Baltimore Marriott Inner Harbor at Camden Yards, 110
South Eutaw Street, Baltimore, MD 21201-1608, for the purpose of considering and acting upon the
following matters:
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Election of eleven directors; |
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Ratification of Ernst & Young LLP as the Independent Registered Public Accounting
Firm for 2009; and |
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Such other matters as may properly come before the Meeting. |
The above matters are described in detail in the proxy statement (the Proxy Statement). You
are urged, after reading the Proxy Statement, to vote your shares by proxy using one of the
following methods: (a) vote by telephone or via the Internet using the instructions on your proxy
card or (b) if you requested to receive printed proxy materials, complete, sign, date and return
your proxy card in the postage-paid envelope provided.
Only shareholders of record at the close of business on March 6, 2009 will be entitled to
vote, either by proxy or by ballot. The Notice of Internet Availability of Proxy Materials (the
Notice) is being mailed to those shareholders on or about March 24, 2009.
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By Order of the Board of Directors |
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Ellen M. Fitzsimmons |
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Senior Vice President-Law and Public Affairs |
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and Corporate Secretary |
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iii
Proxy Statement for 2009 Annual Meeting of Shareholders
About the Annual Meeting
What is the purpose of the Annual Meeting of Shareholders?
At our 2009 Annual Meeting of Shareholders (the Meeting), shareholders will act upon the
matters outlined in the Notice of Meeting above, including the election of directors and
ratification of the selection of the Independent Registered Public Accounting Firm (the
Independent Auditors) of CSX Corporation (the Company or CSX).
Where will the Meeting be held?
The Meeting will be held at 10:00 a.m. (EDT) on Wednesday, May 6, 2009 at the Baltimore
Marriott Inner Harbor at Camden Yards, 110 South Eutaw Street, Baltimore, MD 21201-1608.
The facility is accessible to persons with disabilities. If you have a disability, we can
provide reasonable assistance to help you participate in the Meeting upon request. If you
would like to obtain directions to be able to attend the Meeting and vote in person, you can
write to us at CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160,
Jacksonville, FL 32202 or call us at (904) 366-4242.
Why did I receive a notice in the mail regarding the Internet availability of proxy materials
instead of a full set of proxy materials?
In accordance with rules adopted by the Securities and Exchange Commission (the SEC), we
may furnish proxy materials, including this proxy statement and our 2008 Annual Report, to
our shareholders by providing access to such documents on the Internet instead of mailing
printed copies. Most shareholders will not receive printed copies of the proxy materials
unless they request them. Instead, the Notice, which was mailed to most of our shareholders,
will instruct you as to how you may access and review all of the proxy materials on the
Internet. The Notice also instructs you as to how you may submit your proxy on the Internet.
If you would like to receive a paper or email copy of our proxy materials, you should follow
the instructions for requesting such materials in the Notice.
How do I get electronic access to the proxy materials?
The Notice will provide you with instructions regarding how to:
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View our proxy materials for the Annual Meeting on the Internet; and |
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Instruct us to send our future proxy materials to you electronically by email. |
Choosing to receive your future proxy materials by email will save us the cost of printing
and mailing documents to you and will reduce the impact of printing and mailing these
materials on the environment. If you choose to receive future proxy materials by email, you
will receive an email next year with instructions containing a link to those materials and a
link to the proxy voting site. Your election to receive proxy materials by email will remain
in effect until terminated.
Who is soliciting my vote?
The Board of Directors of CSX (the Board) is soliciting your vote on matters being
submitted for shareholder approval at the Meeting.
Who is entitled to vote?
Only shareholders of record at the close of business on March 6, 2009 (the Record Date)
will be entitled to notice of, and to vote at, the Meeting or any adjournments or
postponements thereof. On that
1
date, there were issued and outstanding 399,343,121 shares of common stock, the only
outstanding class of voting securities of the Company.
A list of shareholders entitled to vote at the Meeting will be available for examination at
CSX Corporation, 500 Water Street, Jacksonville, FL 32202 for ten days before the Meeting
and at the Meeting.
What will I be voting on?
At the Meeting, shareholders will vote on:
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Election of eleven directors; |
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Ratification of the selection of Ernst & Young LLP as CSXs Independent Registered
Public Accounting Firm for 2009; and |
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Such other matters as may properly come before the Meeting. |
How many votes do I have?
You will have one vote for every share of CSX common stock you owned at the close of
business on the Record Date.
How many shares must be present to hold the Meeting?
The Companys 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 Meeting, it is deemed to be present for the transaction of all business.
Abstentions, withheld votes and shares held of record by a broker or its nominee that are
voted on any matter are included in determining the number of votes present. Broker shares
that are not voted on any matter at the Meeting will not be included in determining whether
a quorum is present.
Your vote is important--we urge you to vote by proxy even if you plan to attend the Meeting.
What are the voting procedures?
Election of Directors. The Companys state of incorporation is Virginia. Under
Virginia law and the Companys bylaws, in an uncontested election, directors are elected by
a majority of votes cast by the shares entitled to vote at a meeting at which a quorum is
present. In accordance with the Companys Corporate Governance Guidelines, in an uncontested
election, any incumbent Director nominated for reelection as a Director who is not reelected
in accordance with the Companys bylaws shall promptly tender his or her resignation
following certification of the shareholder vote. For more information on the procedures in
these circumstances, see Principles of Corporate Governance below.
Other Proposals. For all other proposals, the proposal will be approved if the
votes cast in favor of the proposal exceed the votes cast against the proposal.
Abstentions and broker non-votes are not considered votes for or against any proposal
and will have no effect on the outcome of any vote.
How do I vote?
You can vote either in person at the Meeting or by proxy without attending the Meeting. The
shares represented by a properly executed proxy will be voted as you direct.
2
To vote by proxy, you must do one of the following:
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Vote by Telephone. You can vote your shares by telephone by calling the
toll-free number listed in the Notice on a touch-tone telephone 24 hours a day.
Easy-to-follow voice prompts enable you to vote your shares and confirm that your
instructions have been properly recorded. If you are a beneficial owner, or you hold
your shares in street name, please check your voting instruction card or contact your
bank, broker or nominee to determine whether you will be able to vote by telephone. |
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Vote by Internet. You can also vote via the Internet by following the
instructions in the Notice. The website address for Internet voting is indicated in the
Notice. Internet voting also is available 24 hours a day. If you are a beneficial
owner, or you hold your shares in street name, please check your voting instruction
card or contact your bank, broker or nominee to determine whether you will be able to
vote by Internet. |
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Vote by Mail. If you requested printed proxy materials and choose to vote by
mail, complete, sign, date and return your proxy card in the postage-paid envelope
provided. Please promptly mail your proxy card to ensure that it is received prior to
the Meeting. |
If you want to vote in person at the Meeting, and you hold your CSX stock in street name
(that is, through a bank or broker), you must obtain a proxy from your bank or broker and
bring that proxy to the Meeting.
Can I change my vote?
Yes. A proxy may be revoked by a shareholder any time before it is voted by written notice
delivered to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160,
Jacksonville, FL 32202, by timely receipt of a later-dated signed proxy card, by a later
vote via the Internet or by telephone, or by voting by ballot.
Will my shares be voted if I do not provide instructions to my broker?
If you are the beneficial owner of shares held in street name by a broker, the broker, as
the record holder of the shares, is required to vote those shares in accordance with your
instructions. If you do not give instructions to the broker, the broker will be entitled to
vote the shares with respect to discretionary items but will not be permitted to vote the
shares with respect to non-discretionary items (those shares are treated as broker
non-votes).
What happens if I return my proxy card but do not give voting instructions?
If you sign your proxy card but do not give voting instructions, the shares represented by
that proxy will be voted as recommended by the Board. The Board recommends a vote FOR the
election of the eleven director nominees named in this Proxy Statement and FOR Item 2, the
ratification of Ernst & Young LLP as CSXs Independent Registered Public Accounting Firm for
2009.
What happens if other matters are voted on at the Meeting?
If any other matters are properly presented at the Meeting for consideration, the persons
named as proxies in the enclosed proxy card will have discretion to vote on those matters
for you. On the date we filed this Proxy Statement with the Securities and Exchange
Commission, the Board did not know of any other matter to be raised at the Meeting.
How are votes counted?
Votes are counted by inspectors of election appointed by the Company.
3
What is the deadline for consideration of shareholder proposals for the 2010 Annual Meeting of
Shareholders?
A shareholder who wants to submit a proposal to be included in the proxy statement for the
2010 Annual Meeting of Shareholders (the 2010 Meeting) must send it to CSX Corporation,
Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, FL, 32202, so that
it is received on or before November 24, 2009 unless the date of 2010 Meeting is changed by
more than 30 days from May 6, 2010, in which case the proposal must be received a reasonable
time before the Company begins to print and send its proxy materials for the 2010 Meeting.
A shareholder who wants to submit a proposal that will not be in the proxy statement but
will be considered at the 2010 Meeting, pursuant to our bylaws, must send it to the
principal executive offices of CSX so that it is received not earlier than the close of
business on January 6, 2010, nor later than the close of business on February 5, 2010 unless
the date of the 2010 Meeting is more than 30 days before or more than 70 days after May 6,
2010, in which case the proposal must be received not earlier than the 120th day prior to
the date of the 2010 Meeting and not later than the close of business on the later of the
90th day prior to the date of the 2010 Meeting and the 10th day following the day on which
the Company first publicly announces the date of the 2010 Meeting.
Does the Board consider director nominees recommended by shareholders?
Yes, the Governance Committee of the Board will review recommendations as to possible
nominees received from shareholders and other qualified sources. Shareholder recommendations
should be in writing addressed to the Chair of the Governance Committee, CSX Corporation,
500 Water Street, Jacksonville, FL 32202, and should include a statement about the
qualifications and experience of the proposed nominee, as discussed further below in Item 1:
Election of Directors, Committees of the Board, Governance Committee.
What happens if the Meeting is postponed or adjourned?
Unless the polls have closed, your proxy will still be in effect and may be voted at the
reconvened meeting. You will still be able to change or revoke your proxy with respect to
any item until the polls have closed for voting on such item.
Do I need a ticket to attend the Meeting?
Yes, you will be issued an admission ticket at the Shareholder Registration Desk at the
Meeting. If you hold shares in your name, please be prepared to provide proper
identification, such as a drivers license. If you hold your shares through a bank or
broker, you will need proof of ownership, such as a recent account statement or letter from
your bank or broker, along with proper identification.
How can I find CSXs proxy materials and annual report on the Internet?
Important Notice Regarding the Availability of Proxy Material for the Shareholder Meeting to
Be Held on May 6, 2009. This Proxy Statement and the 2008 Annual Report are available on
the Companys Internet website (www.csx.com).
4
Item 1: Election of Directors
Eleven directors are to be elected to hold office until the next Annual Meeting of Shareholders is
held and their successors are elected. Unless otherwise specified, the proxy holders will cast
votes, FOR the election of the nominees named below. Each of the nominees named below is a current
director standing for re-election and each was elected at the Companys 2008 Annual Meeting of
Shareholders. Mr. Christopher Hohn is not standing for re-election. Accordingly, the size of the
Board will be reduced from twelve directors to eleven directors, effective as of the date of the
Annual Meeting.
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, nor is there any arrangement or
understanding between any nominee and any other person pursuant to which the nominee was selected.
Certain information regarding each Company nominee follows. Each nominee has consented to being
named in this Proxy Statement and to serve if elected.
The Board recommends a vote FOR the following nominees.
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Donna M. Alvarado, 60, has served as a CSX director since September 2006. Ms.
Alvarado is the founder and current President of Aguila International, a
business-consulting firm.
Previously, Ms. Alvarado served as President and CEO of a global educational
publishing company and has served on corporate boards in the manufacturing,
banking, transportation, and services industries. Ms. Alvarado currently serves
on the Board of Directors of Corrections Corporation of America and as
Chairwoman of the Ohio Board of Regents.
Early in her career, following executive and legislative staff appointments at
the U.S. Department of Defense and in the U.S. Congress, Ms. Alvarado was named
by President Ronald Reagan to lead the federal agency ACTION, the nations
premier agency for civic engagement and volunteerism. |
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Alexandre Behring, 42, joined the CSX Board of Directors in July 2008. He is
the Managing Director of 3G Capital Partners Ltd., a private investment firm,
which he joined in 2005.
Previously, Mr. Behring spent 10 years at GP Investments, Latin Americas
largest private-equity firm, including eight years as a partner and member of
the firms Investment Committee. He served for seven years, from 1998 through
2004, as CEO of America Latina Logistica (ALL), Latin Americas largest
independent railroad and logistics company. He continues to serve on the
Management Committee of ALLs Board. |
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Senator John B. Breaux, 65, has served as a director of CSX since shortly after
his retirement from the U.S. Congress in 2005. Senator Breaux held numerous
leadership positions during his 18-year tenure in the U.S. Congress, serving on
the House Public Works and Transportation Committee, the Senate Finance
Committee, and the Senate Commerce Committee. Senator Breaux also founded the
Centrist Coalition of Senate Democrats and Republicans and served as chairman
of the Democratic Leadership Council.
Currently, Senator Breaux is a partner in the Breaux-Lott Leadership Group.
Senator Breaux also serves as a director of LHC Group, Inc. and as Managing
Director of Riverstone Holdings, a private equity fund. |
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Steven T. Halverson, 54, has served as a director of CSX since September 2006.
Mr. Halverson is the Chief Executive Officer of The Haskell Company, one of the
largest design and construction firms in the United States. Prior to joining
The Haskell Company in 1999, Mr. Halverson served as a Senior Vice President of
M.A. Mortenson, a national construction firm.
Mr. Halverson also serves as a director for PSS World Medical, Inc., ACIG
Insurance Co., the Florida Council of 100, the Florida Chamber of Commerce
(chair-elect) and the National Center for Construction Education and Research.
Mr. Halverson is also a St. Johns University regent. |
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Edward J. Kelly, III, 55, has served as a director of CSX since July 2002. Mr.
Kelly is currently Head of Global Banking at Citigroup, Inc. and Chief
Executive Officer of Citi Alternative Investments, an integrated alternative
investments platform within Citigroup, Inc.
Mr. Kelly previously served as a Managing Director at The Carlyle Group and
Vice Chairman of The PNC Financial Services Group, Inc. following PNCs
acquisition of Mercantile Bankshares Corporation in March 2007. At Mercantile,
Mr. Kelly held the offices of Chairman, Chief Executive Officer and President.
Before joining Mercantile, Mr. Kelly served as Managing Director and co-head of
Investment Banking Client Management at J.P. Morgan Chase and Managing Director
and Head of Global Financial Institutions at J.P. Morgan. Previously, Mr. Kelly
was a partner at the law firm of Davis Polk & Wardwell, where he specialized in
matters related to financial institutions. Early in his career, Mr. Kelly
served as a law clerk to Supreme Court Justice William J. Brennan, Jr. and U.S.
Court of Appeals Judge Clement F. Haynsworth, Jr. Mr. Kelly also serves on the
Board of Directors of The Hartford Financial Services Group. |
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Gilbert Lamphere, 56, joined the CSX Board of Directors in July 2008. He is the
Managing Director of Lamphere Capital Management, a private investment firm
which he founded in 1998, and Chairman of Wyndham Global Partners, an
international private equity investment group.
Previously, Mr. Lamphere was a director of Canadian National Railway, Chairman
of Illinois Central Railroad before its sale to Canadian National in 1998, and
a director of Florida East Coast Industries. Mr. Lamphere has served as a
director of nine other public companies, including Carlyle Industries, Inc.,
Cleveland-Cliffs Inc., R. P. Scherer Corporation, Global Natural Resources
Corporation and Recognition International, Inc. Earlier in his career, Mr.
Lamphere was Vice President of Mergers & Acquisitions at Morgan Stanley. |
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John D. McPherson, 62, joined the CSX Board of Directors in July 2008. He
served as President and COO of Florida East Coast Railway, a wholly owned
subsidiary of Florida East Coast Industries, Inc., from 1999 until his
retirement in 2007. From 1993-1998, Mr. McPherson served as Senior Vice
President Operations, and from 1998-1999, he served as President and CEO of
the Illinois Central Railroad. Prior to joining the Illinois Central Railroad,
Mr. McPherson served in various capacities at Santa Fe Railroad for 25 years.
From 1997-2007, 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. |
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Timothy OToole, 53, joined the CSX Board of Directors in September 2008. He
has been the Managing Director of the London Underground since 2003, where he
is responsible for operating and rebuilding the Tube, the worlds oldest
metropolitan railway. Mr. OToole recently resigned from the London
Underground, effective as of April 2009.
Previously, he served as President and Chief Executive Officer of Conrail from
1998 to 2001. During his more than 20 years at Conrail, he served in various
senior management roles, including Senior Vice President of Law and Government
Affairs, Senior Vice President of Finance and Chief Financial Officer, Vice
President and Treasurer, and Vice President and General Counsel. |
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David M. Ratcliffe, 60, has served as a director of CSX since January 2003. He
has been Chairman, President and Chief Executive Officer of Southern Company,
one of Americas largest producers of electricity, since 2004. From 1999 until
2004, Mr. Ratcliffe was President and CEO of Georgia Power, Southern Companys
largest subsidiary. Prior to becoming President and CEO of Georgia Power in
1999, Mr. Ratcliffe served as Executive Vice President, Treasurer and Chief
Financial Officer.
Mr. Ratcliffe also serves as a member of the boards of several organizations,
including Edison Electric Institute (Chairman), Georgia Chamber of Commerce
(Chairman, 2005), Federal Reserve Bank of Atlanta (Chairman, 2004-2006), Metro
Atlanta Chamber of Commerce, Georgia Research Alliance (Chairman, 2005-2006),
Georgia Partnership for Excellence in Education and the Woodruff Arts Center
(Trustee; Chairman, 2004 Campaign). |
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Donald J. Shepard, 62, has served as a director of CSX since January 2003. In
2008, Mr. Shepard retired as Chairman of the Executive Board and Chief
Executive Officer of AEGON N.V., one of the worlds largest life insurance and
pension companies.
He currently serves as a member of the board of directors of The PNC Financial
Services Group, Inc. He is also Vice Chairman of the U.S. Chamber of Commerce.
In addition, he is a trustee of Johns Hopkins Medicine and Johns Hopkins
University. |
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Michael J. Ward, 58, is a thirty-one year veteran of the Company and has served
as Chairman, President and Chief Executive Officer since January 2003. Mr.
Wards career with the Company has included key executive positions in nearly
all aspects of the Companys business, including sales and marketing,
operations, and finance.
Mr. Ward serves on the boards of directors of Ashland Inc., the Association of
American Railroads and the Center for Energy and Economic Development. |
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE ELEVEN NOMINEES AS DIRECTORS.
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
Meeting (an event which the Board does not now anticipate), the proxies will be voted for the
election as director of such other person or persons as the Board may designate, unless the Board,
in its discretion, reduces the number of directors.
7
Director Independence
The Board annually evaluates the independence of each of its directors and, acting through its
Governance Committee, the performance of each of its directors. The Board has determined that nine
of the eleven nominees for election as directors are independent under the listing standards of the
New York Stock Exchange (NYSE). In making this determination, the Board considered the NYSE
listing standards, as well as 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 was to determine whether any such relationships or transactions were material and thus
inconsistent with a determination that the director or nominee is independent.
During its deliberations, the Board specifically considered the Companys relationship with the
Southern Company, a producer and provider of electric power. Mr. Ratcliffe, a director and a
nominee, currently is the Chairman of the Board, President and Chief Executive Officer of the
Southern Company. CSX Transportation, a wholly-owned subsidiary of CSX, delivers coal to generating
plants operated by subsidiaries of the Southern Company. Revenue received from the Southern
Company in 2008 exceeded the thresholds set forth in the NYSE listing standards regarding director
independence.
As a result of these reviews, the Board affirmatively determined that each of the director
nominees, other than Messrs. Ratcliffe and Ward, is independent under the NYSE listing standards.
Principles of Corporate Governance
The Board is committed to corporate governance principles and practices that facilitate fulfilling
its fiduciary duties to shareholders and to the Company. The Board has adopted Corporate Governance
Guidelines that reflect the high standards that those who deal with the Company as employees,
investors, customers, suppliers or in other capacities can and should expect. Key corporate
governance principles observed by the Board and the Company include:
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Nomination of a slate of directors for election to the Companys Board, a
substantial majority of which is independent, as that term is defined in applicable
laws and NYSE listing standards. |
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Establishment of qualification guidelines for candidates for director and review of
each directors performance and continuing qualification for Board membership. |
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Membership of the Governance, Compensation and Audit Committees comprised solely of
independent directors. |
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Authority for the Governance, Compensation and Audit Committees to retain outside,
independent advisors and consultants when appropriate. |
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Adoption of a Code of Ethics, which meets applicable rules and regulations and
covers all directors, officers and employees of CSX, including the Companys CEO, Chief
Financial Officer (CFO) and Controller. |
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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. |
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Adoption of a Policy Regarding Shareholder Approval of Severance Agreements,
requiring shareholder approval of certain future severance agreements with senior
executives that provide for benefits in an amount exceeding a threshold set forth in
the Policy. |
CSXs Corporate Governance Guidelines, Code of Ethics, the charters of each standing committee, and
policies adopted by the Board are available on the Companys Internet website at 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, FL 32202.
8
Any waivers of or changes to the Code of Ethics that apply to our directors or executive officers
will be disclosed on CSXs Internet website (www.csx.com). There were no waivers to the Code of
Ethics in 2008.
Shareholders who wish to communicate with the Board generally, or with a particular director, may
forward appropriate correspondence to CSX Corporation, Office of the Corporate Secretary, 500 Water
Street, C160, Jacksonville, FL 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 directly with non-management directors may
forward correspondence to CSX Corporation, the Presiding Director, CSX Board of Directors, 500
Water Street, C160, Jacksonville, FL 32202.
Transactions with Related Persons
CSX operates under a Code of Ethics that requires all employees, officers, and directors, without
exception, to avoid engagement in activities or relationships that conflict, or would be perceived
to conflict, with the Companys 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.
CSX considers a Related Person to be: (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 CSXs
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.
A Related Person Transaction is a transaction, arrangement or relationship (or any series of
similar transactions, arrangements or relationships) in which CSX (including any of its
subsidiaries) was, is or will be a participant, the amount involved exceeds $120,000 in any fiscal
year, and in which 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).
On an annual basis in response to the annual Directors and Officers Questionnaire, each director
and executive officer submits to the Corporate Secretary a description of any current or proposed
Related Person Transactions. Any person nominated to stand for election as a director or appointed
as a director or an executive officer submits the information described above in response to a
Questionnaire prepared by the Corporate Secretary. 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:
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information provided by the Board during the required annual affirmation of
independence; |
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applicable responses to the Directors and Officers Questionnaires submitted by the
Companys officers and directors and provided to the Audit Committee; and |
9
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any other applicable information provided by any director or officer of the Company. |
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
directors status as an independent director as prescribed in the NYSE listing standards.
Meetings of the Board and Executive Sessions
During 2008, there were thirteen meetings of the Board. Each director that served on the Board for
the full year attended 75% or more of the meetings of the Board and the meetings of the committees
on which he or she served. Each director that was elected July 2008 or later, other than Mr. Hohn,
attended 75% or more of the meetings of the Board and the meetings of the committees on which he
served.
The non-management directors meet alone in executive session at each Board meeting. Non-management
directors are all those who are not Company officers. These executive sessions are chaired by a
Presiding Director who is an independent director selected annually by the Governance Committee.
Mr. Kelly currently serves as the Presiding Director. 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 Meetings of
Shareholders, the Company strongly encourages directors to attend absent an emergency.
Committees of the Board
CSX has six standing committees: the Audit Committee, the Compensation Committee, the Executive
Committee, the Finance Committee, the Governance Committee, and the Operations and Public Affairs
Committee. Each of these committees has a written charter approved by the Board, a copy of which
can be found on the Companys Internet website at investors.csx.com under the heading Corporate
Governance. As of the Record Date, the composition of the committees of the Board is as follows.
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Director
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Audit
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Compensation
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Executive
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Finance
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Governance
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Public Affairs
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Donna M. Alvarado
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X
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X |
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Alexandre Behring
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X
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X |
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John B. Breaux
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X
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X
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Chair |
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Steven T. Halverson
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Chair
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X
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X |
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Christopher Hohn
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X
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X |
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Gilbert H. Lamphere
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X
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X |
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Edward J. Kelly, III
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X
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X
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Chair |
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John D. McPherson
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X
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X |
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Timothy T. OToole
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X
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X |
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David M. Ratcliffe
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X
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Chair
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X |
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Donald J. Shepard
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Chair
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X
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X |
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Michael J. Ward
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Chair |
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Executive Committee
The Executive Committee meets only as needed and has authority to act for the Board on most matters
during the intervals between Board meetings. The Executive Committee has six members, consisting of
the Chairman of the Board and the chairs of each of the five standing committees. The Committee met
three times in 2008. Pursuant to the Committee Charter, a notice of a meeting of the Executive
Committee is required to be provided to all Board members.
10
Audit Committee
The Audit Committee selects the independent registered public accounting firm (Independent
Auditors) and submits its choice to the shareholders for ratification. Its primary functions
include oversight of the integrity of the Companys financial statements, the Companys compliance with legal and regulatory
requirements, the Independent Auditors qualifications and independence, and the performance of the
Independent Auditors and the Companys internal audit function.
Specifically, the Committee retains, appoints, oversees and approves compensation of the Companys
Independent Auditors, reviews the scope and methodology of the Independent Auditors proposed
audits, reviews the Companys financial statements, and monitors the Companys internal control
over financial reporting by, among other things, discussing certain aspects thereof with the
Independent Auditors and management. The Audit Committee is responsible for the approval of all
services performed by Ernst & Young LLP. 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
approvals to the full Committee at the next scheduled meeting. All engagements expected to cost
$250,000 or more require pre-approval of the full 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. Finally, the Committee maintains procedures for the receipt and treatment
of complaints regarding the Companys accounting, internal accounting controls or auditing matters.
The Audit Committee has four members, each of whom the Board has determined to be independent
pursuant to the independence standards promulgated by the NYSE and the Securities and Exchange
Commission (SEC). The Committee held nine meetings in 2008.
The Board has determined that the Company has at least one audit committee financial expert, as
that term is defined by SEC rules and regulations, serving on the Audit Committee. Mr. Shepard is
the Committees financial expert and is independent pursuant to the standards promulgated by the
NYSE and the SEC. Please refer to the Report of the Audit Committee below for additional
information regarding the Audit Committee.
Compensation Committee
The primary functions of the Compensation Committee are to: (i) establish the Companys philosophy
with respect to executive compensation and benefits; (ii) periodically review the Companys
compensation practices and policies, benefit plans, and perquisites applicable to all employees and
executives to ensure consistency with the Companys compensation philosophy; (iii) assure that the
Companys benefit plans, practices, programs and policies maintained for employees and directors
comply with all applicable laws; (iv) in consultation with the Board, review and approve corporate
goals and objectives relevant to compensation and benefits for the CEO, and evaluate the CEOs
performance in light of those goals and objectives, and, either as a committee or together with the
other independent directors, as directed by the Board, set the level of compensation of the CEO
based on such evaluation; (v) review and recommend approval of management compensation and Company
compensation plans, including benefits for key employees as determined by the Committee from time
to time; (vi) establish performance objectives for certain executives, and certify the attainment
of those objectives in connection with the payment of performance-based compensation within the
meaning of Section 162(m) of the Internal Revenue Code (Section 162(m)); and (vii) review the
Compensation Discussion and Analysis section of the Proxy Statement and, as appropriate, recommend
to the Board for approval the inclusion of the Compensation Discussion and Analysis (CD&A)
section in the Companys Annual Report on Form 10-K and Proxy Statement. In addition, the
Committee monitors the administration of certain executive and management compensation and benefit
programs.
The Compensation Committee has five members, all of whom are outside directors within the meaning
of regulations promulgated pursuant to Section 162(m) and are independent pursuant to the
independence standards promulgated by the NYSE. The Committee held six meetings in 2008. Please
refer to the CD&A section of this Proxy Statement for additional information regarding the
functions and operations of the Compensation Committee.
For additional information regarding the functions of the Compensation Committee, please see Role
of the Compensation Committee on pages 17-18.
11
Finance Committee
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. This four-member
Committee held three meetings in 2008.
Governance Committee
The Governance Committee of the Board identifies individuals qualified to become board members and
recommends candidates for election to the Board. In addition, the Committee develops criteria
regarding director qualification and reviews and recommends changes in Board composition, committee
structure, and director compensation. 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. The Governance Committee also reviews significant
changes in corporate structure, succession in senior management, and other internal matters of
broad corporate importance. The Committee has three members and is composed solely of independent
directors pursuant to the independence standards promulgated by the NYSE. The Committee held five
meetings in 2008.
The Governance Committee generally identifies nominees for directors based upon outside research
and suggestions from directors and officers of the Company. 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. As a group, the Board is
expected to represent a broad diversity of experience in business matters and to be able to assess
and evaluate the role and policies of the Company in the face of changing conditions in the
economy, regulatory environment and customer expectations. While there is not a formal list of
qualifications, nominees for Board membership are expected to be prominent individuals with
demonstrated leadership ability and who possess outstanding integrity, values and judgment.
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
Committee uses these and other relevant criteria to evaluate potential nominees.
Shareholders who wish to nominate a director nominee should do so in accordance with the nomination
provisions of the Companys bylaws. In general, a shareholder nomination for the 2010 Meeting
should be delivered to the Company at least 90 days but no more than 120 days prior to the first
anniversary of this years Meeting date unless the date of the 2009 Meeting is more than 30 days
before or more than 70 days after such anniversary, in which case the proposal must be received not
earlier than the 120th day prior to the anniversary date of the 2009 Meeting and not later than the
close of business on the later of the 90th day prior to the anniversary date of the 2009 Meeting
and the 10th day following the day on which the Company first publicly announces the date of the
2009 Meeting. Nominations should be accompanied by a description of the proposed nominees
qualifications and experience and his or her consent to serve if elected. A shareholders notice
regarding any such nomination should also indicate the nominating shareholders name and address
and the class and number of shares that he or she owns along with all other information required
under Article I, Section 11(a)(ii) of the Companys bylaws.
Operations and Public Affairs Committee
The Operations and Public Affairs Committee reviews operating and strategic projects and major
public policy issues facing the Corporation, and monitors how the Corporations activities and
practices affect its public reputation. This six-member Committee held five meetings during 2008.
12
Director Compensation
The Board periodically, but at least once every three years, reviews and sets the compensation for
non-management directors based on the recommendation of the Governance Committee. Director
compensation includes both cash and stock-based components. In recommending the amount and form of
director compensation, the Committee considers, among other factors, the level of compensation
necessary to attract and retain qualified, independent directors. The most recent review of the
compensation for non-management directors occurred in 2007, and resulted in no changes in the
overall compensation structure.
During 2008, each non-employee director received an annual retainer of $75,000, at least 50% of
which was payable in CSX stock pursuant to the CSX Corporation Stock Plan for Directors (the Stock
Plan). The Chair of each Board committee other than the Audit Committee received an additional
$10,000. The Chair of the Audit Committee received an additional $15,000, and each member of the
Audit Committee also received an additional $5,000. The stock component was paid to directors on
September 25, 2008, and pursuant to the terms of the Stock Plan, was determined using the closing
price per share on June 24, 2008 of $62.24, the day before the 2008 annual meeting of shareholders.
Historically, each non-employee director has also received an annual grant of shares at the
Boards December meeting. However, the Board elected to change the date of grant from December
2008 to February 2009.
During 2008, each director was eligible to defer all or a portion of his or her directors fees,
including cash compensation and stock, under the CSX Directors Deferred Compensation Plan (the
Directors Plan). Deferrals are subject to Section 409A of the Internal Revenue Code (Section
409A). Deferrals of director fees and other awards earned prior to 2005 are not subject to
Section 409A. Those deferrals will continue to be administered in accordance with the terms of the
Directors Plan in effect as of December 31, 2004. Cash deferrals may be 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 CSXs 401(k) plan.
Stock deferrals are automatically held as outstanding shares in a rabbi trust, with dividend
equivalents credited in the form of shares.
Directors also are eligible to receive other compensation and benefits as discussed below. With
the exception of his participation in the CSX Directors Matching Gift Program (Matching Gift
Program), Mr. Ward does not receive compensation for his services as a director.
13
The following table summarizes the compensation earned by each of the non-employee directors in
2008. No stock option awards were made to the directors in 2008.
Directors Compensation Table
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Change in |
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Fees Earned |
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Non-Equity |
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Pension Value |
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or Paid in |
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Stock |
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Option |
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Incentive Plan |
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and Nonqualified |
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All Other |
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Cash |
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Awards |
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Awards |
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Compensation |
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Compensation |
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Compensation |
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Total |
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Name |
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($)1 |
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($)2 |
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($) |
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($) |
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Earnings |
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($)3 |
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($)4 |
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Donna M Alvarado |
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$42,500 |
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$34,042 |
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- |
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- |
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- |
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$1,418 |
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$77,960 |
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Elizabeth E. Bailey |
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$30,625 |
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$19,858 |
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- |
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- |
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- |
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$9,378 |
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$59,861 |
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Alexandre Behring |
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$15,625 |
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$14,184 |
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- |
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|
- |
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- |
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$49,597 |
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$79,406 |
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John B. Breaux |
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$41,250 |
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$34,042 |
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- |
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- |
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- |
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$16,448 |
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$91,740 |
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Steven T. Halverson |
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$40,000 |
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$34,042 |
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- |
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- |
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- |
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$51,190 |
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$125,232 |
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Christopher Hohn |
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$9,375 |
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$8,494 |
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- |
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- |
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- |
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- |
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$17,869 |
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Edward J. Kelly, III |
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$47,500 |
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$34,042 |
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- |
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- |
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- |
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$59,378 |
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$140,920 |
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Robert D. Kunisch |
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$24,792 |
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$19,858 |
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|
- |
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- |
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|
- |
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$59,378 |
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|
$104,028 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gilbert Lamphere |
|
|
$15,625 |
|
|
$14,184 |
|
|
- |
|
|
- |
|
|
- |
|
|
$50,597 |
|
|
$80,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
John D. McPherson |
|
|
$15,625 |
|
|
$14,184 |
|
|
- |
|
|
- |
|
|
- |
|
|
$10,597 |
|
|
$40,406 |
|
|
|
|
|
|
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|
Southwood J. Morcott |
|
|
$21,875 |
|
|
$19,858 |
|
|
- |
|
|
- |
|
|
- |
|
|
$57,378 |
|
|
$99,111 |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
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|
Timothy OToole |
|
|
$10,625 |
|
|
$8,494 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
$19,119 |
|
|
|
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David M. Ratcliffe |
|
|
$47,500 |
|
|
$34,042 |
|
|
- |
|
|
- |
|
|
- |
|
|
$59,378 |
|
|
$140,920 |
|
|
|
|
|
|
|
|
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|
William C.
Richardson |
|
|
$39,375 |
|
|
$25,531 |
|
|
- |
|
|
- |
|
|
- |
|
|
$57,378 |
|
|
$122,284 |
|
|
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Frank S. Royal |
|
|
$28,125 |
|
|
$25,531 |
|
|
- |
|
|
- |
|
|
- |
|
|
$59,378 |
|
|
$113,034 |
|
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Donald J. Shepard |
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|
$57,500 |
|
|
$34,042 |
|
|
- |
|
|
- |
|
|
- |
|
|
$61,048 |
|
|
$152,590 |
|
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|
1 Fees Earned or Paid in Cash - Includes cash retainer ($37,500) and any Chairman or Audit
Committee fees earned in 2008. Messrs. Breaux, Ratcliffe, and Shepard elected to defer 100% of
their cash retainers and fees in the form of stock into the CSX Directors Deferred Compensation
Plan. The number of shares deferred was 905, 995 and 1,205, respectively.
2 Stock Awards - Amounts disclosed in this column include the Companys cost recorded in the
2008 financial statements in accordance with FAS 123(R) for the equity portion of the directors
annual retainer. The annual 5,000 share stock grant for directors was moved from December 2008 to
February 2009. Thus, the directors did not receive a stock grant in 2008 other than the stock
portion of their annual retainer.
3 All Other Compensation Includes excess liability insurance, amounts for personal aircraft
usage, Company matches under the CSX Directors Matching Gift Program, incremental costs associated
with the administration of the CSX Directors Charitable Gift Plan and discounts at The Greenbrier,
a CSX-owned resort. Under the Directors Matching Gift Program, the Company makes direct
contributions to approved charities selected by a director who contributes his or her own funds as
well. The Directors Matching Gift Program is described on page 15. The only perquisites to exceed
$10,000 for any director were the Company matches under the Directors Matching Gift Program and
included matches in the following amounts:
14
$50,000 for each of Messrs. Halverson, Kelly, Kunisch, Lamphere, Ratcliffe, Royal and Shepard,
$49,000 for Mr. Behring, $48,000 for Messrs. Morcott and Richardson, $12,000 for Sen. Breaux and
$10,000 for Mr. McPherson.
4 Total - The differences in the amounts in this column are largely attributable to fees for
committee Chairs, for service on the Audit Committee and the Company match on charitable
contributions under the CSX Directors Matching Gift Program.
5 Mr. Morcott retired from the Board and Dr. Bailey and Mr. Kunisch resigned from the Board
effective July, 2008. Dr. Richardson and Dr. Royal resigned from the Board in September, 2008.
6 Messrs. Behring, Lamphere, and McPherson joined the Board in July 2008 and Messrs. Hohn and
OToole joined the Board in September 2008.
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 directors annual retainer. Moreover, non-employee
directors may only dispose of shares held in excess of 1.2 times the applicable ownership
threshold. If the annual 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. Further
information on the Stock Ownership Guidelines is available on CSXs website at investors.csx.com
under the heading Corporate Governance.
Charitable Gift Plan
At one time, CSX had in place a charitable gift plan for directors funded in part by life insurance
policies. Accordingly, directors elected before 2004 are eligible to participate in the CSX
Directors Charitable Gift Plan (Charitable Plan). Under the Gift 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 directors retirement and the balance payable in
installments of $100,000 per year, starting at the time of the directors death. Only four current
directors are eligible to participate in the Charitable Plan.
Matching Gift Plan and Other Benefits
Directors may participate in the CSX Directors Matching Gift Program (Matching Gift Program),
which is considered an important part of CSXs philanthropy and community involvement. CSX will
match director contributions to organizations that qualify for support under CSX guidelines, up to
a maximum annual CSX contribution of $50,000 per director. During 2008, 48 philanthropic
organizations in areas served by the Company received $593,000 under the Matching Gift Program.
The matching amounts are included in the directors compensation table on page 14.
Other Benefits
CSX makes available to directors personal excess liability insurance at no expense to the
directors. In addition, directors are entitled to certain discounts (not to exceed an aggregate of
$10,000 per director) when visiting The Greenbrier, a CSX-owned resort. During 2008, the value of
the excess liability insurance and the discounts described above varied by director but did not
exceed $4,500 for any current director.
15
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with
management. Based on its review and on the discussion described below, 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, Chairman
Donna M. Alvarado
Alexandre Behring
Gilbert A. Lamphere
Donald J. Shepard
16
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
The purpose of CSXs executive compensation program is to attract and retain talented,
high-performing executives, reward recent performance, create incentive for future performance, and
align the long-term interests of executives with those of shareholders. This Compensation
Discussion and Analysis (CD&A) describes and analyzes the Companys executive compensation
program for our Chief Executive Officer, Michael J. Ward, and our other named executive officers.
The CD&A emphasizes the Companys commitment to a pay-for-performance philosophy. It is divided
into three sections in order to help explain and analyze CSXs compensation philosophy, policies
and programs. It discusses how these programs are administered, how they operated in 2008, and how
understanding them can contribute to a better understanding of CSX, its management and its
corporate governance. The principal sections of our CD&A are:
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Role of the Compensation Committee, Independent Consultant and CEO |
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|
Philosophy and Purpose of CSXs Executive Compensation Program; and |
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|
Analysis of Elements of CSXs Executive Compensation Program. |
Role of the Compensation Committee
The development of compensation and benefit plans for senior executives is the responsibility of
the Compensation Committee of the Board (the Committee). The Committee is comprised solely of
independent directors, and its membership currently consists of Steven T. Halverson, Committee
Chair, Donna M. Alvarado, Alexandre Behring, Gilbert H. Lamphere and Donald J. Shepard. The members
of the Committee are recommended by the Governance Committee and elected by the Board annually. For
more information and discussion of the Committee and the independence of its members, see page 11.
The Committee endeavors to design short- and long-term incentive plans that reward performance
based on achievement of different, but complementary, financial and strategic objectives. The
Committee believes this balanced approach motivates managements efforts to drive positive outcomes
in both the current and future environment and mitigates the risk that any one incentive could lead
executive officers to take actions that are not in CSXs interest.
In establishing individual executive compensation opportunities and awarding actual payments, the
Committee considers analyses and recommendations from its independent compensation consultant,
competitive practices, the CEOs recommendations (for his subordinates), and internal practices.
However, the Committee ultimately applies its judgment in establishing these compensation
opportunities and determining appropriate payouts for executives. The Committee does not rely
solely on guidelines or formulas, or short-term changes in business performance. Key factors
affecting these determinations include:
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performance compared to the specific goals and objectives determined for CSX and for the
individual executive at the beginning of the year; |
|
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|
|
contribution to CSXs financial results; |
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|
|
effectiveness in leading CSXs initiatives to increase customer service, productivity,
and employee
development; |
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|
the nature, scope, and level of the executives responsibilities and associated market
comparisons; |
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|
|
contribution to CSXs performance in the area of safety; and |
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|
|
contribution to CSXs commitment to corporate responsibility, including the executives
success |
17
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|
|
in creating a culture of unyielding integrity and compliance with applicable law and CSXs
ethics
policies. |
Role of the Independent Compensation Consultant
The Committee retains an independent compensation consultant to provide objective analysis and to
assist in the development and evaluation of the Companys compensation programs. This consultant,
Semler Brossy Consulting Group, LLC (the Consultant), reports directly to the Chairperson of the
Committee and performs no other work for the Company. The Consultant generally attends all meetings
of the Committee where evaluations of the effectiveness of overall executive compensation programs
are conducted or where compensation for executive officers is analyzed or approved. The Consultant
is paid on an hourly fee basis, with such hourly rate approved by the Committee annually. The
performance and independence of the Consultant are reviewed on an annual basis by the Committee, at
which time they make a determination as to the renewal of the Consultants annual contract. Semler
Brossy has been the independent compensation consultant for the Committee since 2003.
In 2008, the Consultants duties and responsibilities included:
|
|
|
reviewing alternative compensation tools and explaining their accounting, cash flow,
tax, equity, dilution, pay for performance, and other consequences including the total
cost of different combinations of compensation and benefit programs, their prevalence,
and application; |
|
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|
|
performing due diligence in the development of a comparison of peer group companies; |
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|
|
analyzing financial information, stock price, and other performance data as critical
inputs to recommended compensation level changes, while factoring in the business needs
of CSX and the benefits to shareholders; |
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|
reviewing performance targets for the Companys short- and long-term incentive plans; and |
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providing the Committee with an independence letter each December in a form approved by
the Committee Chairperson. |
The performance of the Consultants duties in 2008 required an understanding of all relevant CSX
internal factors including Company practices, critical business issues, human resource
considerations, strategic imperatives, financial plans and actual results, performance drivers and
cultural factors.
Role of the CEO in Compensation Decisions
The CEO reviews compensation comparison benchmark data, as more fully discussed on page 21, for
members of his senior executive team. Using this data, he considers information on executive
performance and scope of responsibility and makes individual compensation recommendations to the
Committee for each member of the senior executive team. These recommendations include possible
salary adjustments, generally made every other year and adjustments to the annual incentive
compensation payout for each member of the executive team based on his or her individual
performance during the previous year.
The CEO provides input regarding targets for performance-based compensation plans but does not
formally establish such targets, as this is a role of the Committee. The CEO does not review data
or make recommendations with respect to his own compensation and he is not present when the
Committee discusses his individual compensation.
Philosophy and purpose of CSXs Executive Compensation Program
CSX operates in a competitive industry subject to substantial government oversight. Accordingly,
the Companys success depends largely on its ability to attract and retain highly-qualified
management with exceptional leadership abilities. The Committee believes that the creation of
long-term shareholder value is contingent upon the Companys ability to appropriately value the
quality, skills and dedication of the senior executive officers so that they are motivated to
remain with the Company over time. The executive
18
compensation program is structured to achieve the following objectives with an emphasis on the
creation of long-term shareholder value:
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Drive business and financial performance. Inspire leaders to achieve
or exceed annual business unit goals; |
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|
Focus on long-term success. Hold leaders accountable for long-term
success and risk mitigation strategies so the Company continues to
deliver superior returns for shareholders over time; |
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|
Ownership. Align the long-term interests of executives with those of
CSXs shareholders so that a significant portion of overall
compensation is equity-based; and |
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|
|
Attraction and retention. Attract and retain talented, motivated,
high-performing executives with specific skill sets and relevant
experience. |
CSX uses a variety of compensation tools to achieve these objectives including: (i) direct paybase
salary, short-term and long-term incentives, and (ii) indirect payemployee benefits, including
retirement benefits, nonqualified deferred compensation plans, and perquisites.
The Companys compensation decisions are premised on the following two key principles:
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balanced, performance-based compensation is essential to enhancing shareholder value;
and |
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|
|
the total executive compensation opportunity, including benefits, should be competitive
with
reasonable market comparisons. |
Performance-based Compensation
In light of the Committees belief that the talents and experience of management play a vital role
in the Companys success, the Committee has structured the Companys executive compensation program
to recognize those talents while rewarding actual performance results. A substantial portion of an
executive officers potential compensation depends upon achievement of preset financial and
strategic objectives. For example, in 2008, base salary was targeted to comprise approximately 15%
to 25% of targeted direct pay with the remaining 75% to 85% of a named executive officers targeted
total direct compensation being at-risk. The at-risk component of executive compensation means
that if the Company did not meet or exceed certain predetermined threshold financial performance
levels, the executive would not receive a payout under either of the Companys incentive programs.
The short-term incentive serves to reward executives and other key members of management for
improving financial performance within a twelve month period and provides a means to connect
individual compensation directly to Company and individual performance. CSX measures achievement
of this objective using two components: financial achievement based on operating income and
strategic achievement based on goals established by the Committee. The strategic component of the
Companys short-term incentive plan includes on-going initiatives regarding safety, service,
productivity, corporate governance, public affairs, and employee development. These components
have been selected to ensure that senior executives do not focus exclusively on short-term
operating results.
Long-term incentive compensation is intended to provide a direct link between executive
compensation and shareholder value creation. Incentives are based on performance measures that are
substantially within managements direct control and have historically driven long-term shareholder
value. The primary performance measure for our current long-term incentive plans is operating
ratio as defined on page 27, which has historically shown a high correlation to the Companys share
price with additional earnings per share targets (EPS) for senior executive officers. Long-term
incentive opportunities are designed to emphasize internal performance while also aligning
executives interests with those of shareholders by linking the payouts value to share price by
paying in CSX common stock. The price of CSX common stock is only applicable if threshold
performance measures are achieved first.
19
The Committee believes that a balance between short-term and long-term incentives and between
financial and strategic goals, together with the connection between compensation and shareholder
interests, encourage senior management to achieve improved performance without taking unnecessary
or excessive risks.
Results of performance-based compensation philosophy
The Committee believes its compensation philosophy has contributed to the Companys ability to
attract and retain a highly qualified, performance-driven management team, which has played a key
role in producing stronger, safer and more efficient business operations. The Committee also
believes there is a direct relationship between the Companys performance-based incentive
compensation philosophy and the substantial performance improvements since the programs were
implemented in 2004. The current short- and long-term incentive compensation programs have
sharpened managements focus and commitment to driving improvements in operating performance,
safety and customer service.
As discussed in detail below, the Companys incentive compensation programs are focused on
improving operating ratio, operating income, as well as various strategic and safety measures.
Incorporated into these measures are various aspects of the Companys risk management processes,
which are interwoven into the Companys long-term business and strategic planning process that is
presented to the Board annually. In assessing performance of the named executive officers in
connection with incentive compensation payouts, the Committee conducts a detailed review of
strategic goals, which consider enterprise, legal, compliance and fraud risk assessments.
In the past five years, operating performance has improved consistently and management continues
its drive to further improve operating income and operating ratio. The tables below reflect the
substantial improvements since 2003 in operating income, operating ratio and EPS, all of which are
key financial performance measures under the Companys incentive compensation programs. The
Committee believes that sustained improvements in these operating measurements have played a
critical role in the creation of long-term shareholder value during this time period.
20
Competitive Compensation: Benchmarking and Competitive Comparisons
In accordance with the principle of having compensation practices that are competitive with
reasonable market standards, competitive data from peer railroad companies as well as general
industry companies is collected and analyzed. Data is received via broad surveys of general U.S.
companies conducted by third parties and through analysis of proxy disclosures of other U.S.
railroads. This process includes reviewing market data and best practices, determining appropriate
milestones to assess CSXs performance and discussing appropriate levels of compensation based upon
both individual and Company performance. The Consultant reviews in detail all competitive data
taking into consideration total compensation as well as each element of compensation
individually.
In 2008, CSX Human Resources contracted with Towers Perrin, an executive compensation consulting
firm, to assist in gathering and analyzing market data for compensation market data. The railroad
group used to compare pay and performance was comprised of the other major U.S. railroads (BNSF,
Norfolk Southern, and Union Pacific), referred to as the peer group. The peer group analysis
considers a view of the relative size and performance of each railroad.
The Committee also reviews competitive pay and performance data from broad surveys of general U.S.
companies. We refer to these companies as the general industry companies. The general industry
companies included 143 companies with revenues between $6 billion and $15 billion (see list in
Appendix A) with financial services and the banking industry excluded because they have
historically paid in excess of market rates for similar-sized companies.
The Company benchmarks each component of total direct compensation for the named executive officers
with that of similar positions at peer and general industry companies. Both targeted and actual
payout data is evaluated. For 2008, the Committee focused primarily on data at both the
50th and 75th percentiles in setting targeted total direct compensation
amounts for named executive officers. The Committee bases final pay decisions on this data in
addition to the scope of the individuals responsibilities and their individual
performance. Comparator data from the general industry companies was adjusted for the Chief
Commercial Officer and Chief Operating Officer positions, for known differences between these
positions at CSX and those at the general industry companies. In 2008, the Committee did not
specifically benchmark indirect compensation for the named executive officers as that is reviewed
periodically on a Company-wide basis for competitiveness.
21
Stock Ownership Guidelines
CSX believes that, in order to connect the interests of executive officers to those of its
shareholders, it is important that executive officers hold an ownership position in CSX common
stock. To achieve this linkage, CSX has established the following formal stock ownership
guidelines. These guidelines are generally at or above the stock ownership requirements of the
general industry group to the extent those companies have publicly-stated stock ownership
guidelines. Senior executive officers must retain 100% of net shares issued until the guidelines
are achieved and have five years in which to do so. Upon achievement, such officers may dispose of
shares held in excess of 1.2 times the applicable ownership threshold. The requirements are as
follows:
|
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|
|
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 and Equivalent
|
|
1 time base salary |
As of March 16, 2009, all named executive officers held amounts of CSX common stock in excess of
these ownership guideline requirements.
Accounting, Tax and Dilution Considerations
As discussed above, a significant portion of each named executive officers direct compensation is
based solely on performance. Internal Revenue Code Section 162(m) (Section 162(m)) imposes a
$1 million limit on the amount that CSX may deduct for compensation paid to the named executive
officers. 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 upon attainment of preestablished objective performance goals and the Committee
that establishes such goals consists only of outside directors.
The Committee and the Board have considered the Section 162(m) requirements. While the tax effect
of any compensation arrangement is a key factor to be considered, the effect is evaluated by the
Committee in light of CSXs overall compensation philosophy and objectives. CSXs compensation
program for named executive officers has both objective and discretionary elements. Generally, the
Committee wishes to maximize CSXs federal income tax deductions for compensation expense and,
therefore, has structured the short-term and long-term incentive elements of executive compensation
to meet the requirements for deductibility under Section 162(m). Nonetheless, the Committee
believes that there are circumstances in which the provision of compensation that is not fully
deductible may be more consistent with CSXs compensation philosophy and objectives and may be in
the best interests of CSX and its shareholders. The Committees 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 also considers the accounting, tax, and shareholder dilutive costs of specific
executive compensation programs, and seeks to balance the earnings, tax, and dilutive impact of
executive compensation plans with the need to attract, retain and motivate highly-qualified
executives.
22
Analysis of Elements of CSXs 2008 Compensation Program
The Committee made its decisions concerning the specific compensation elements and total
compensation paid or awarded to CSXs named executive officers within the framework discussed below
and after consultation with the Consultant. Total direct compensation consists of base salary plus
short- and long-term incentives. The objective is to provide total pay opportunities that are
competitive with those provided by peer companies in the railroad industry and general industry,
with actual payment dependent upon results. In its efforts to achieve this objective, the Committee
considers the appropriate balance between incentives for short- and long-term performance and
compensation paid to the executives peers. The Committee also periodically reviews the
competitiveness of indirect compensation (health and welfare, retirement benefits and perquisites).
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
compensation objectives.
The total compensation plan consisted of the following key elements:
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DIRECT COMPENSATION
|
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Compensation Element |
|
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Description of the Element
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Reasons Offered |
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Salary
|
|
|
Salary is a
market-competitive, fixed
level of compensation
reviewed every other year
by the Compensation
Committee.
|
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|
Provides attraction and retention,
consistent with market practices of
our peer and general industry
companies |
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Provides threshold level of cash
compensation |
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Short-term Incentives
|
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The Companys annual
short-term incentive
program rewards
performance based on the
achievement of financial
and strategic objectives.
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Provides attraction and retention,
consistent with market practices of
our peer and general industry
companies |
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Actual payouts can vary
from year to year based
on Company performance.
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Creates clear, near-term reward for
performance based on pre-
established goals
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Drives success in achieving
specific annual goals |
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Long-term Incentives
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Long-term equity-based
grants paid out in the
form of common stock
based on operating ratio
improvement over a
three-year period.
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Provides attraction and retention
consistent with market practices of
our peer and general industry
companies |
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Creates clear reward for strong
performance in achieving multi-
year strategic vision, while
managing risks and immediate
business objectives |
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Drives success in achieving multi-
year objectives and long-term
evolution of business |
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Creates further alignment
with shareholders interests |
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23
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INDIRECT COMPENSATION
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Compensation Element
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Description of the Element
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Reasons Offered |
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Health and Welfare
Benefits
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Provides medical and
dental insurance, short
and long-term disability
coverage, basic life
insurance and accidental
death and dismemberment
insurance, all on the
same terms available to
all management employees
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Provides attraction and retention
consistent with market practices of
our peer and general industry
companies |
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Retirement Benefits
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Retirement benefits
include: qualified and
nonqualified pension
plan; 401(k) plan; and
nonqualified deferred
compensation program
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Provides attraction and retention
consistent with market practices
and competitive companies |
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Perquisites
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The Company provides the
following benefits to
approximately 50
executives including the
named executive officers:
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Provides attraction and retention
consistent with market practices
and competitive companies |
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an annual physical
examination; an annual
perquisite allowance of
$15,000; and a one-time
country club initiation
fee of up to $25,000. |
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Financial planning
services and excess
liability insurance are
provided to named
executive officers and
selected others. |
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An annual discount is
provided at The
Greenbrier resort not to
exceed $10,000 maximum
per year for
approximately 160
executives. (Discontinued
in March 2009). |
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Board-mandated aircraft
usage and a home security
system are provided for
the CEO. Other named
executive officers may
use Company aircraft in
exceptional
circumstances. |
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24
Target Compensation Mix
The graph below illustrates the amount of targeted total direct compensation, including
compensation that is at risk for our Chief Executive Officer. Actual percentages may vary in a
given year depending on the payouts under the incentive compensation programs. In 2008, the amount
of compensation actually received by the CEO that was at-risk was a higher percentage of overall
compensation than reflected in the table due to the achievement of performance above target. The
targeted at-risk compensation for the CEO in 2008 was 83%.
Base Salary
The Committee determines a salary for each named executive officer based on its assessment of the
individuals experience, abilities, performance and contribution to CSX. For purposes of recruiting
and retention, base salaries are targeted by considering the median of salaries paid for similar
positions by the peer group and general industry companies. Base salary is generally 15-25% of the
named executive officers targeted total direct compensation consistent with the preceding graph.
This reflects CSXs philosophy that a substantial portion of total compensation should be at-risk
and consist of performance-based incentives that link to CSXs financial and nonfinancial results.
Base salary may represent a larger or smaller percentage of total direct compensation if actual
performance under the incentive plans discussed below exceeds or falls short of performance
targets.
In accordance with the Companys philosophy to review base salary every other year, base salary
adjustments were made in May 2008. Mr. Wards pay was adjusted by 10% to $1,100,000 annually.
Adjustments for other named executive officers included 8.3% for Mr. Munoz, 14.3% for Mr. Ingram,
10% for Mr. Gooden and 11.1% for Ms. Fitzsimmons. No adjustments will be made in 2009. Base pay
adjustments will not be considered again until May 2010. Following these adjustments, base
salaries for the named executive officers remain competitive with the median salaries of the peer
group and general industry companies.
Short-term Incentives
The Senior Executive Incentive Plan (SEIP) is the Companys vehicle for providing annual
incentives to the named executive officers while preserving the Companys tax deductions under
Section 162(m). 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
named executive officer, or (ii) $3,000,000. The Committee may adjust this amount downward in its
sole discretion. In 2008, as in prior years, the Committee exercised its downward discretion by
utilizing the same methodology and performance achievement used under the Companys Management
Incentive Compensation Plan (MICP). The MICP is the Companys annual incentive plan for eligible
employees other than the named executive officers. The MICP is also 100% performance-based and
requires attainment of both financial and strategic objectives. No payout is made under the MICP
unless a preset operating income level is achieved, regardless of achievement of strategic goals.
25
Applying the methodology utilized under the MICP, each named executive officer has an incentive
opportunity expressed as a percent of base salary earned during the year. This is known as the
target incentive opportunity. The actual payout is adjusted to reflect Company and individual
performance.
The Committee reviews the Companys performance for the given year against the preapproved
performance goals for that year. The performance goals are divided between: (i) the financial
measurementoperating incomewhich, at a given level, can result in a payment between 0% and 120%
of the named executive officers target incentive opportunity, and (ii) the strategic measurements
that can result in a payment between 0% and 40% of the named executive officers target incentive
opportunity. The principal strategic measures are rail operations, safety, governance, and employee
development, in addition to financial metrics including revenue, earnings per share, operating
ratio, cash flow, and the performance of subsidiaries.
The chart below illustrates the Companys historical surface transportation operating income (as
defined below) and the percentage payout under the MICP since 2003.
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MICP Payout History: 2000 2008 (Dollars in millions)
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Year |
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2003 |
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2004 |
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2005 |
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2006 |
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2007 |
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2008 |
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Operating Income* |
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$651 |
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$993 |
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$1,549 |
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$2,126 |
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$2,251 |
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$2,768 |
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Percentage of
Target Payout |
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0% |
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75% |
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150% |
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160% |
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90% |
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150% |
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*Operating Income for 2003 through 2007 was based on the Companys Surface Transportation
operating segment as reported in the Form 10-K. Beginning in 2008, all items within other
operating income and certain items within other income were reclassified into the Surface
Transportation segment. As a result of this change, CSX consolidated operating income and Surface
Transportation operating income are now the same; therefore, the Company no longer reports separate
Surface Transportation results. Operating income was not materially impacted by these
reclassifications.
The Committee establishes annual incentive targets that align with the Companys business plan and
strictly adhere to achievement of those goals when approving awards. The chart below illustrates
the improvement percentage required from year-to-year to achieve a target payout.
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MICP Target Level
of Difficulty (Dollars in
millions)
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MICP
Year
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MICP Operating
Income Target
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Percentage Increase From Previous
Year Target to Current Year Target |
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2005
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$1,310
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20% |
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2006
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$1,650
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26% |
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2007
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$2,300
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39% |
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2008
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$2,475
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8% |
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Payment for 2008
Under the MICP, the target incentive opportunity as a percent of salary for the named executive
officers in 2008 was 120% for Mr. Ward, 90% for Messrs. Munoz, Gooden and Ingram, and 80% for
Ms. Fitzsimmons.
The Committee approved an overall payout of 150% of target based on the achievement of operating
income in 2008, and the assessment by the Committee of thirty-nine separate strategic measures.
Adjustments were then made for individual performance. The payouts are reported as 2008 Non-equity
Incentive Plan Compensation in the Summary Compensation Table. As in prior years, the payout for
the named executive officers was substantially less than the maximum available to each individual
under the SEIP.
26
Long-Term Incentives
Long-term incentive compensation is intended to enhance the relationship between executive
compensation and the creation of shareholder value. This is accomplished by providing incentives
based on performance measures that have historically driven long-term shareholder value and are
within managements direct control. Long-term compensation is approved in the form of performance
grants earned over a 3-year performance cycle and paid out as a percentage of the original grant in
the form of shares of CSX common stock pursuant to the shareholder-approved CSX Omnibus Incentive
Plan (Omnibus Plan). Each three-year performance period represents a long-term incentive plan
(LTIP) cycle.
New LTIP cycles begin in May when the Committee grants performance units to participants. These
grants are made following Board review of the Companys business plan for the applicable three-year
period, upon which the performance targets are based. The initial dollar value of the performance
units (one unit equates to one share) is determined based on the stock price at the time of grant.
Actual payouts under the LTIP 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 awards in terms of both the
number of shares paid out and the market value of CSX stock at the time of payout.
In 2006, the Committee selected surface transportation operating ratio (Operating Ratio), as the
performance measure for long-term incentive performance grants. Operating Ratio is defined as
annual Surface Transportation operating expenses divided by Surface Transportation revenue of CSXs
rail and intermodal businesses, adjusted by excluding nonrecurring items that are disclosed in the
Companys financial statements.1 After consideration of various financial measures,
including free cash flow and return on invested capital, operating ratio was selected due to its:
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high correlation to Company stock price over a 15-year history; |
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alignment with shareholder interest; |
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ability of covered employees to understand the impact of their actions in relation
to Company performance; |
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support of service improvement and asset utilization; and |
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efficient use of Company resources. |
Upon approval of the 2009-2011 cycle in May 2009, the Company will have three long-term incentive
cycles running concurrently2007-2009, 2008-2010 and 2009-2011. In these outstanding cycles,
operating ratio will be measured in the final year against the goals set by the Committee at the
beginning of the cycle. Since the price of oil has a material impact on operating ratio, provision
is made at the beginning of each cycle for adjustment of the operating ratio targets by a
predetermined amount if the per barrel cost of oil changes significantly. The payout is dependent
on the Companys performance against these goals as determined at the end of a given cycle. The
value of the payout is derived by multiplying the number of performance grants earned by the share
price of the CSX common stock at the time of payout.
The range of payouts under each cycle, if any, will primarily depend on the actual level of
operating ratio achieved versus the goals. For named executive officers, the number of shares paid
out may be adjusted upward or downward by 20% based on an additional financial measure. For the
2006-2008 cycle, the additional financial measure was earnings per share or EPS as measured in
the final year of the cycle. For the 2007-2009 cycle, cumulative operating income targets serve as
the additional financial measure. The 2008-2010 cycle provides no such adjustment.
In addition to the potential financial measure adjustments for named executive officers, the payout
is also subject to a discretionary downward adjustment of up to 30% based on performance against
certain strategic objectives under each cycle. In exercising its downward discretion for LTIP
payouts for the named executive officers, the
1 In first quarter of 2008, the Company reclassified
items within Other Operating Income and certain items within Other Income
into the Rail segment as disclosed in the Companys Form 10-Q filed with the
SEC on April 16, 2008. For purposes of the 2006-2008 and 2007-2009 LTIPs,
surface transportation operating ratio will continue to be calculated in the
same manner as it has been calculated for prior periods.
27
Committee takes into account several strategic goals and other factors, including (i) the potential
total value of the individual and aggregate payouts, (ii) the Companys share price at the time of
Committee approval of any payouts, (iii) the specific contributions of the named executive officer
with consideration for their levels of corporate responsibility, (iv) leadership and strategic
planning goals, (v) safety, and (vi) service measures. Discretionary adjustments by the Committee
are applied to all named executive officers in the same manner. Allowing for variations in actual
performance and the exercise of the Committees downward discretion, the number of shares of CSX
common stock comprising the payouts for named executive officers at the end of the performance
cycle can range from 0% to 240% of the target number of shares on the date of the grant.
The three-year performance cycle and the Committees discretion to reduce awards based on
additional strategic goals that contribute to the long-term vitality of CSX help to discourage
management from taking short-term risks solely to meet financial objectives.
Awards are subject to forfeiture if employment terminates before payout for any reason other than
death, disability, or retirement. If employment terminates due to death, disability, or
retirement, participants, or their estate, receive a prorated portion of any payout based on the
time period they were an active participant in the plan. Change-in-control provisions that may
affect vesting under the Omnibus Plan are discussed on page 44.
Target level of difficulty for each performance cycle
We use the operating ratio projections as set forth in the Companys 3-year business plans to
establish the threshold, target and maximum payouts under the applicable LTIP cycles. To achieve a
payout at target or above, the operating ratio in the final year of each cycle requires attaining
or outperforming the Companys business plan goals.
28
The following chart illustrates the alignment of the Companys 3-year business plan with the
2006-2008 cycles targets. For instance: (i) to achieve a threshold payout, an operating ratio
improvement of 2.2 percentage points over the 2005 operating ratio was needed, (ii) to achieve a
target payout, an operating ratio improvement 4.5 percentage points was needed, and (iii) to
achieve a maximum payout, an operating ratio improvement of 9.0 percentage points was needed.
Alignment of 2006-2008 LTIP Targets with the Long-Term Business Plan
Long range business plan targets approved by the Board of Directors in April 2006
If the threshold operating ratio goal is not achieved, no payout will result.
2006-2008 LTIP Actual Payout
The 2006-2008 cycle, approved and implemented in May 2006, was paid out in January 2009 to
approximately 840 participants, including the named executive officers. Payouts were based on a
2008 operating ratio of 75.5%, earnings per share of $3.52 and an average price per barrel of West
Texas Intermediate crude oil of $99.61. The anticipated fuel price when developing the original
operating ratio targets for the 2006-2008 LTIP cycle was $65 per barrel. The Committee exercised
its downward discretion by reducing the payout from 212.5% to 177.1% of the target for executive
team members, which is the same payout received by all employees participating in this LTIP. The
stock price on the day the award was approved was $29.09. Payout information for the named
executive officers is provided in the Options Exercised and Stock Vested Table.
2007-2009 Cycle
In May 2007, the Committee approved and implemented the 2007-2009 cycle with operating ratio as the
primary performance measure. Awards to the executive team, including the named executive officers,
are further subject to adjustments based on the achievement of a predetermined three-year
cumulative operating income target and subject to downward discretionary adjustments by the
Committee of up to 30%. The Committee decided to utilize cumulative operating income in this cycle
instead of EPS primarily because cumulative operating income (i) requires consistent, continuous
operating improvements, (ii) since 1990, has had a higher correlation to stock price than EPS, and
(iii) eliminates the need to annually adjust EPS to reflect the Companys share repurchase program.
The Operating Ratio performance target for the 2007-2009 cycle requires improvement over the
2006-2008 cycle target.
2008-2010 Cycle
In May 2008, the Committee approved and implemented the 2008-2010 cycle. As in recent years,
Operating Ratio is the primary measurement, but this cycle does not include any additional
financial measure for the
29
executive team because cumulative operating income was included in the strategic goals. As a
result, the maximum payout under the 2008-2010 cycle is 200% of target. The Committee retains
discretion to reduce awards by as much as 30% for executive officers based upon its assessment of
such goals.
Clawback Provisions and Non-Compete Agreements
Clawbacks. Beginning with the 2007-2009 cycle, the LTIP contains a provision for Vice Presidents
and above (Senior Management) that requires the repayment to the Company of any award received
if, within the two-year period following the receipt of the award, the employee violates certain
conditions including (i) separation from the Company and working for a competitor in a similar
capacity as the participant has functioned during the past five years at the Company, or
(ii) engaging in other types of conduct that puts the Company at a competitive disadvantage. In the
event the Company is required to restate its financial statements, due to accounting
irregularities, the clawback also requires amounts in excess of the otherwise proper award be
repaid to the Company.
Non-Compete Agreements. Since 2007, members of Senior Management are required to enter into formal
noncompete agreements with the Company as a condition for participation in the LTIP. The noncompete
agreement allows the Company to preclude an employee from working for a competitor. The noncompete
conditions are similar to those contained in the clawback provision but extend for a period of
18 months following separation from employment.
Restricted Stock and Stock Options
From time to time, the Committee may award shares of restricted stock. Generally, CSX makes such
awards in connection with attracting and, through the use of multi-year or cliff vesting schedules,
retaining certain executive officers. CSX did not grant any restricted stock awards to any of the
named executive officers in 2008. In addition, as part of its new stock ownership guidelines, the
Company adopted a one-year holding period requirement applicable to all restricted stock for
executive team members. Accordingly, named executive officers must wait one year before entering
into any stock transaction involving the vested stock following completion of the vesting period.
The Committee has not granted stock options to the named executive officers or any other employees
since 2003. The Committee has the ability to grant options under the Omnibus Plan should it decide
to do so in the future.
Benefits
Health and Welfare Benefits
CSX provides health and welfare benefits to the named executive officers on the same terms
available to eligible employees, including medical plan options from which to choose and dental
benefits under a preferred provider plan. 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. The Company also provides to the named executive
officers salary continuance in the event of short-term disability plus long-term disability (LTD)
insurance, travel accident insurance on the same basis as other employees, and vacation based on
length of service.
CSX also sponsors a post-retirement health and welfare plan for employees hired before January 1,
2003. The Company stopped providing post-retirement health and welfare benefits for employees,
including executive officers, hired on or after January 1, 2003, as a cost-saving measure and
because providing these benefits was no longer necessary to remain competitive in the labor market.
30
Retirement Compensation
CSXs retirement programs consist of two components: a defined benefit pension plan and a 401(k)
plan. The retirement programs described below are provided to the named executive officers under
the following plans:
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CSX Pension Plan (the Pension Plan) |
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|
Special Retirement Plan for CSX Corporation and Affiliated Corporations (the
Special Retirement Plan); |
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|
The Tax Savings Thrift Plan for Employees of CSX Corporation and Affiliated
Companies (CSXtra); and |
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|
The Executive Deferred Compensation Plan (EDCP). |
CSX Pension Plan and CSX Special Retirement Plan
The Pension Plan is qualified under the Internal Revenue Code (Code) and covers most of CSXs
non-union employees upon the completion of one year of service and the attainment of age 21. The
Special Retirement Plan is nonqualified and primarily provides benefits that are otherwise limited
by the qualified plan Code provisions. In general, pension benefits accrue in two different ways:
for employees hired before January 1, 2003, benefits accrue based on a final average pay formula,
and for employees hired on or after January 1, 2003, benefits accrue based on a cash balance
formula. Further information on the Pension Plan and Special Retirement Plan can be found in the
footnotes to the Pension Benefits Table.
CSXtra 401(k) Plan
All CSX non-union employees may also contribute to the Company-wide CSXtra Plan, which is a
traditional qualified 401(k) plan. Participants may contribute on a pre-tax and post-tax basis and
receive Company matching contributions equal to 50% of the employees contribution up to 6% of base
salary. Participants may invest contributions among available funds, which include the stable
value fund, balance fund, large cap value fund, S&P 500 Index fund, large cap growth fund,
international equity fund, small cap growth fund, retirement target date funds, and a CSX stock
fund.
Executive Nonqualified Deferred Compensation Plans
CSX maintains elective nonqualified deferred compensation plans, in compliance with Code
Section 409A, for the benefit of its eligible executives and certain other employees. The types of
compensation eligible for deferral include base salary, short-term incentive compensation (annual
incentive), and LTIP awards.
The purpose of the elective nonqualified deferred compensation plans is to provide executives with
the opportunity to:
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defer compensation in excess of qualified plan limits; |
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|
defer compensation to allow them to receive the full Company matching contribution
of 3% of base salary not otherwise available to them under the 401(k) plan; and |
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|
defer compensation (and earnings) until retirement or another specified date or
event. |
Cash deferrals are treated as invested by the participant as selected from the same investment
funds that are available under the 401(k) plan but no funds are actually set aside. The interest
earned on these cash deferrals is at market rates. Stock deferrals are automatically held as
outstanding shares in a trust account that is subject to corporate creditors. Dividend equivalents
are either credited in the form of shares, or paid in cash in connection with stock deferrals made
prior to 2005. For stock deferrals made in 2005, or any time thereafter, dividend equivalents are
credited in the form of shares.
EDCP participants may elect to receive payment of their deferred amounts, including earnings, upon
separation of service, the attainment of a specified age, or upon the occurrence of a change in
control. Payment options include lump sum or semi-annual installments for a defined period not
exceeding 20 years. Beginning with deferrals made on or after January 1, 2005, distribution of
deferred amounts plus earnings to participants who are
31
specified employees may not be made for at least six months following separation from service.
Specified employees as defined by the Code are generally the senior executive officers.
Perquisites
In 2008, approximately 50 members of senior management, including the named executive officers,
were provided an annual perquisite allowance of $15,000 and an annual physical examination.
Financial planning services, excess liability insurance and annual physicals were valued at
approximately $14,600 for each named executive officer. A one-time club initiation fee of up to
$25,000 is also made available to the named executive officers. Additionally, approximately 160
members of senior management, including the named executive officers, were eligible to receive
discounts of 50% (not to exceed an aggregate of $10,000 per eligible employee per year) at The
Greenbrier, a CSX-owned resort in West Virginia. Effective January 1, 2009, the $15,000 annual
perquisite allowance defined above has been discontinued for named executive officers and in March,
2009, the Company discontinued Greenbrier discounts for all members of senior management.
For security reasons, since Mr. Ward became CEO in 2003, he has been required to travel by Company
aircraft at all times, and a home security system has been provided to him. In 2008, the value of
Mr. Wards Board-mandated personal aircraft usage was $106,050. All other executive team members
are entitled to occasional private air travel however none utilized company aircraft for personal
travel in 2008.
More information on aircraft and other perquisites, including specific details about perquisites
afforded to each named executive officer in 2008, is available at page 34.
Other Post-Employment Compensation
With the exceptions discussed in the Post-Termination and Change in Control Payments section, the
Company does not generally provide for any special termination of employment payments or benefits
that favor the named executive officers in scope, terms or operation. Payments are generally
available to all salaried employees whose positions are eliminated, pursuant to the terms of CSXs
Severance Plan, which pays benefits based upon years of service. The benefits range 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).
Change-in-Control Agreements
CSX has entered into change-in-control agreements with each of the named executive officers
(Change-in-Control Agreements). We believe these agreements will help assure continuity of
management in the event of a change in control. CSX also has a goal of ensuring management
objectivity in the face of a potential transaction and believes these agreements accomplish that
goal. By utilizing a double trigger contractthat is, payment is conditioned upon a
change-in-control as well as employment terminationexecutives are financially protected and
thereby properly positioned to negotiate in the best interests of shareholders. We have designed
the provisions of these agreements to align with market practices.
A detailed description of the Change-in-Control Agreements is set forth on pages 42-48 under the
section entitled Post-Termination and Change-in-Control Payments.
Severance Agreements
In December 2007, the Board adopted a new policy for severance benefits payable to senior
executives (defined as named executive officers within the meaning of the Securities Exchange Act
of 1934), which applies only to agreements entered into after December 12, 2007. The policy was
designed to cover new agreements only none of the existing, automatic, self-renewing agreements
are covered by this policy. The policy limits the payment of severance benefits, without
shareholder approval, to 2.99 times base salary plus bonus, as defined in the policy. Severance
benefits under the new policy do not qualify for excise tax gross-up payments. .
All named executive officers are covered under agreements entered into prior to December 12, 2007,
which have a maximum severance benefit of 3.0 times base salary plus bonus and provide for excise
tax gross-up payments. The policy is available on the Companys Internet website at
investors.csx.com under the heading Corporate Governance.
32
COMPENSATION TABLES
Summary Compensation Table
The Summary Compensation Table shows the amount and type of compensation received, as well as
granted, in 2008 for the CEO, the CFO, and the next three most highly-paid executive officers.
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Change in |
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Pension |
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Value and |
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Nonqualified |
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Non-Equity |
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Deferred |
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Stock |
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Option |
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Incentive Plan |
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Compensation |
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All Other |
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Salary |
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Bonus |
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Awards1 |
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Awards2 |
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Compensation3 |
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Earnings4 |
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Compensation5 |
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Total |
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Name |
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Year |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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($) |
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Michael J. Ward
Chairman, President
and CEO
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2008
2007
2006
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$1,058,333
$1,000,000
$995,833
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-
-
-
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|
$4,693,329
$11,413,605
$6,385,128
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|
$44,765
$202,940
$529,198
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|
$2,032,000
$1,080,000
$2,031,500
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|
$4,333,389
$2,680,048
$3,672,230
|
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|
$211,530
$202,117
$157,587
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|
$12,373,346
$16,578,710
$13,771,476 |
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Oscar Munoz
Executive Vice
President and CFO.
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2008
2007
2006
|
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$629,167
$600,000
$595,833
|
|
|
-
-
-
|
|
|
$1,760,000
$4,305,817
$2,452,611
|
|
|
$13,989
$59,454
$117,742
|
|
|
$906,000
$486,000
$836,000
|
|
|
$69,330
$58,112
$62,169
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|
|
$41,251
$54,317
$49,226
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|
$3,419,737
$5,563,700
$4,113,581 |
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Tony L. Ingram
Executive Vice
President and COO
CSX Transportation,
Inc.
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|
2008
2007
2006
|
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|
$568,750
$525,000
$520,833
|
|
|
-
-
-
|
|
|
$1,775,180
$4,366,627
$2,495,743
|
|
|
-
-
-
|
|
|
$767,813
$448,000
$825,000
|
|
|
$183,562
$117,910
$1,255,114
|
|
|
$70,992
$39,129
$54,738
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|
$3,366,297
$5,496,666
$5,151,428 |
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Clarence W. Gooden
Executive Vice
President and CCO
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2008
2007
2006
|
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|
$529,167
$500,000
$495,833
|
|
|
-
-
-
|
|
|
$1,760,000
$4,346,975
$2,443,734
|
|
|
$3,357
$16,172
$54,177
|
|
|
$738,188
$382,500
$750,000
|
|
|
$1,528,693
$826,842
$1,363,633
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|
|
$48,675
$58,141
$61,086
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|
|
$4,608,080
$6,130,630
$5,168,463 |
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Ellen M.
Fitzsimmons
Senior Vice
President-
Law & Public Affairs
and Corporate
Secretary
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|
2008
2007
2006
|
|
|
$479,167
$450,000
$445,833
|
|
|
-
-
-
|
|
|
$1,259,119
$3,138,627
$2,134,571
|
|
|
$5,596
$25,685
$73,015
|
|
|
$613,333
$324,000
$571,000
|
|
|
$202,619
$230,086
$227,987
|
|
|
$37,747
$48,806
$49,060
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|
|
$2,597,581
$4,217,204
$3,501,466 |
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1 Stock Awards Amounts disclosed in this column are related to performance
grants under the 2006-2008, 2007-2009 and the 2008-2010 LTIP cycles for all
named executive officers, as well as restricted stock granted in prior years
for Mr. Ingram and Ms. Fitzsimmons. The amounts disclosed represent the
Companys compensation cost recorded in its 2008 financial statements for these
awards in accordance with FAS 123(R). These amounts do not correspond to the
actual value that will be received by the named executive officers. The 2008
accrual for performance grants was based on an estimate of the likely
performance achievement for expense purposes under FAS 123(R). Since the
awards are paid in shares, all values are based on the grant date fair value of
shares which could potentially be earned. The grant date fair market values
for each LTIP cycle are as follows: 2006-2008 - $36.88, 2007-2009 - $43.32, and
2008-2010 - $65.08. For more information, see Note 4, Stock Plans and
Share-Based Compensation in the Notes to Consolidated Financial Statements in
the Companys 2008 Form 10-K, which was filed on February 19, 2009.
2 Option Awards This column represents the 2008 FAS 123(R) expense for
outstanding stock option awards, which were unvested during 2008. All
outstanding options are fully vested.
3 Non-Equity Incentive Plan Compensation SEIP, which was paid in February
2009, was based on the 150% payout of the MICP, adjusted for individual
performance. For more information regarding the awards, see Short-term
Incentives on pages 25-26.
4 Change in Pension Value and Nonqualified Deferred Compensation Earnings
The values in this column reflect only changes in pension value as there were
no above-market nonqualified deferred compensation earnings to report. The
present value of accumulated benefits for 2008 reflects a discount rate of 6.5%
compared to the 6.00% discount rate applicable for 2007. This discount rate
change was the result of actuarial adjustments based on changes in corporate
bond rates. An increase in the discount rate reduces the incremental increase
in
33
pension value. There were no other changes in plan provisions or
assumptions that affected the value. Beginning in 2008, CSX measures its
pension values as of December 31, 2008. In prior years, September 30 had been
used as the valuation date. In this table, values have been normalized, in
accordance with SEC regulations, so that the disclosed amount represents the
change in value over a 12-month period.
5 All Other Compensation The values in this column include a $15,000
perquisite allowance for each named executive officer as well as amounts for
personal aircraft usage, financial planning services, physical examination,
excess liability insurance, life insurance and discounts at The Greenbrier, a
CSX-owned resort. Also included for Mr. Ingram only was a one-time
reimbursement for club initiation fees in the amount of $25,000. For Mr. Ward,
this column includes, along with the items discussed above, Company-mandated
aircraft usage by Mr. Ward in the amount of $106,050 as well as a Company match
pursuant to the CSX Directors Matching Gift Program in the amount of $50,000,
which is a perquisite available to Mr. Ward pursuant to his service as a
director. Mr. Wards personal aircraft usage amount was calculated using the
direct operating cost of $2,100 per flight hour, which was the hourly operating
cost for 2008. The aggregate incremental cost for the use of Company aircraft
for personal travel, including travel for outside board meetings, is calculated
by multiplying the hourly variable cost rate (including fuel, oil, airport and
hangar fees, crew expenses, maintenance and catering) 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.
34
2008 Grants of Plan-Based Awards Table
The Grants of Plan-Based Awards Table is a supporting table to the Summary Compensation
Table. In 2008, the named executive officers received the plan-based awards as shown in the table
below.
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Estimated Possible Payouts |
|
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Estimated Future Payouts |
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All Other |
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Under Non-Equity |
|
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Under Equity Incentive |
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Stock |
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Incentive Plan Awards1 |
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Plan Awards2 |
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Awards; |
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Number |
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Grant Date |
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of |
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Fair Value of |
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shares of |
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Stock and |
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stock |
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Option |
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Threshold |
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Target |
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Maximum |
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Threshold |
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Target |
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Maximum |
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or units |
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Awards3 |
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Name |
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Grant Date |
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($) |
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($) |
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($) |
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(# units) |
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(# units) |
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(# units) |
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(#) |
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($) |
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Michael J. Ward |
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May 6, 2008 |
|
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- |
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- |
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- |
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12,293 |
|
|
61,463 |
|
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122,926 |
|
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- |
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$4,000,012 |
|
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- |
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$127,000 |
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$1,270,000 |
|
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$3,000,000 |
|
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- |
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- |
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- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar Munoz |
|
|
May 6, 2008 |
|
|
|
|
|
|
|
|
|
|
|
4,610 |
|
|
23,049 |
|
|
46,098 |
|
|
- |
|
|
$1,500,029 |
|
|
|
|
|
- |
|
|
$56,625 |
|
|
$566,250 |
|
|
$3,000,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony L. Ingram |
|
|
May 6, 2008 |
|
|
|
|
|
|
|
|
|
|
|
4,610 |
|
|
23,049 |
|
|
46,098 |
|
|
|
|
|
$1,500,029 |
|
|
|
|
|
- |
|
|
$51,188 |
|
|
$511,875 |
|
|
$3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarence W. Gooden |
|
|
May 6, 2008 |
|
|
|
|
|
|
|
|
|
|
|
4,610 |
|
|
23,049 |
|
|
46,098 |
|
|
- |
|
|
$1,500,029 |
|
|
|
|
|
- |
|
|
$47,625 |
|
|
$476,250 |
|
|
$3,000,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellen M. Fitzsimmons |
|
|
May 6, 2008 |
|
|
- |
|
|
- |
|
|
- |
|
|
3,073 |
|
|
15,366 |
|
|
30,732 |
|
|
- |
|
|
$1,000,019 |
|
|
|
|
|
- |
|
|
$38,333 |
|
|
$383,334 |
|
|
$3,000,000 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
1 Estimated Possible Payouts Under Non-Equity Incentive Plan Awards The
amounts in these columns reflect what the potential payments could have been
for 2008 under the SEIP as typically administered by the Committee using the
target incentive opportunity and Company performance under the MICP. The
values reflect a threshold payout of 10%, a target payout of 100% and a maximum
payout that cannot exceed the lesser of 0.3% of operating income for the CEO
and 0.2% of operating income for each other named executive officer, or $3
million under the shareholder approved SEIP. At the Committees discretion,
payouts can be zero. The actual payment for 2008 is shown in the Summary
Compensation Table.
2 Estimated Future Payouts Under Equity Incentive Plan Programs The values
in these columns reflect the potential payout in shares under the 2008-2010
LTIP cycle based on preestablished financial performance and strategic goals.
For the named executive officers, the Companys operating ratio for the final
year of the LTIP will determine a payout of shares which can range from 0% to
200% of the grant. The values reflect a threshold payout of 20%, a target
payout of 100% and a maximum payout of 200%.
3 Grant Date Fair Value of Stock and Option Awards The value in this column
reflects the number of performance grants, which is the target number,
multiplied by $65.08 (the closing price of CSX stock on the date of grant).
35
2008 Outstanding Equity Awards at Fiscal Year-End
The table below presents information pertaining to all outstanding equity awards held by the named
executive officers as of December 26, 2008 and their potential value based on CSXs closing price
on December 26, 2008 of $31.50. Outstanding equity awards are comprised of vested stock options and
outstanding LTIP grants.
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|
|
Option Awards |
|
|
Stock Awards |
|
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Equity |
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Incentive |
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Plan |
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|
Equity |
|
|
Awards: |
|
|
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|
|
|
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|
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|
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|
|
|
|
|
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|
|
Incentive |
|
|
Market or |
|
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|
Plan |
|
|
Payout |
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|
Market |
|
|
Awards: |
|
|
Value of |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
Value of |
|
|
Number of |
|
|
Unearned |
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Shares or |
|
|
Unearned |
|
|
Shares, |
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Units of |
|
|
Shares, |
|
|
Units or |
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Stock |
|
|
Units or |
|
|
Other |
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
Stock That |
|
|
That |
|
|
Other Rights |
|
|
Rights That |
|
|
|
|
|
Options |
|
|
Options |
|
|
Exercise |
|
|
Option |
|
|
Have Not |
|
|
Have Not |
|
|
That Have |
|
|
Have Not |
|
|
|
|
|
(#) |
|
|
(#) |
|
|
Price2 |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Not Vested4 |
|
|
Vested5 |
|
|
Name |
|
|
Exercisable |
|
|
Unexercisable |
|
|
($) |
|
|
Date3 |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Ward
|
|
|
|
350,000
133,332
290,000 |
|
|
|
-
-
-
|
|
|
|
19.7975
19.0700
16.0725 |
|
|
|
05/17/11
02/13/12
05/07/13
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
|
196,987
-
- |
|
|
|
$6,205,078
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
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|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar Munoz
|
|
|
|
250,000 |
|
|
|
-
|
|
|
|
16.0725 |
|
|
|
05/07/13
|
|
|
-
|
|
|
-
|
|
|
|
73,870 |
|
|
|
$ |
2,326,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony L. Ingram
|
|
|
|
- |
|
|
|
-
|
|
|
|
- |
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
73,870 |
|
|
|
$ |
2,326,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarence W.
Gooden
|
|
|
|
40,000 |
|
|
|
-
|
|
|
|
16.0725 |
|
|
|
05/07/13
|
|
|
-
|
|
|
-
|
|
|
|
73,870 |
|
|
|
$ |
2,326,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellen M.
Fitzsimmons
|
|
|
|
27,666
20,000
66,666 |
|
|
|
-
-
-
|
|
|
|
19.7975
19.0700
16.0725 |
|
|
|
05/17/11
02/13/12
05/07/13
|
|
|
-
-
-
|
|
|
-
-
-
|
|
|
|
49,247
-
- |
|
|
|
$1,551,287
-
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
1 Option Exercise Price The option exercise price is the average of the high and low stock
price on the grant date of the stock option award. The approval date and grant date are the same
for each individual stock option grant listed above.
2 Option Expiration Date The stock option awards expire on the tenth anniversary of the grant
date.
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 shares that would be payable under the 2007-2009 and
2008-2010 LTIP cycles if the Companys actual performance in 2008 was applied to each plans
performance measures. The Companys 2008 performance would create a 122.5% payout for the
2007-2009 cycle and no payout for the 2008-2010 LTIP. The SEC requires that projected payouts be
shown at the next higher performance measure. Therefore, the number of performance grants shown
above is equal to a 200% payout for the 2007-2009 cycle and a 20% payout for the 2008-2010 cycle.
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 closing stock price as of December 26,
2008 of $31.50. The value can be more or less than these amounts based on the stock price at the
end of the performance period.
36
2008 Option Exercises and Stock Vested
The table below presents the stock options exercised and restricted stock that vested for
2008, the number of shares paid from the 2006-2008 cycle, and the value realized from each.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
Shares Acquired |
|
|
Value Realized |
|
|
Shares Acquired |
|
|
Value Realized |
|
|
|
|
|
on Exercise1 |
|
|
on Exercise |
|
|
on Vesting3 |
|
|
on Vesting |
|
|
Name |
|
|
(#) |
|
|
($)2 |
|
|
(#) |
|
|
($)4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Ward |
|
|
330,000 |
|
|
$11,082,056 |
|
|
218,187 |
|
|
$6,347,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar Munoz |
|
|
|
|
|
|
|
|
81,820 |
|
|
$2,380,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony L. Ingram |
|
|
|
|
|
|
|
|
101,820 |
|
|
$3,359,544 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Clarence W. Gooden |
|
|
|
|
|
|
|
|
81,820 |
|
|
$2,380,144 |
|
|
|
|
|
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|
|
|
|
|
|
Ellen M. Fitzsimmons |
|
|
|
|
|
|
|
|
64,857 |
|
|
$1,913,084 |
|
|
|
|
|
|
|
|
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|
|
|
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1 Shares Acquired on Exercise The amount listed in this column includes 80,000 options
exercised in connection with a charitable gift and 250,000 options exercised to satisfy obligations
under a domestic relations agreement. Shares acquired by Mr. Ward were not retained through the
end of the year.
2 Value realized Number of options multiplied by sales price exercise price.
3 Shares Acquired on Vesting Shares acquired through stock awards include the number of shares
that were issued pursuant to the 2006-2008 LTIP grants as discussed in the Compensation Discussion
and Analysis section. For Mr. Ingram and Ms. Fitzsimmons, restricted stock that vested in 2008 is
also included. The final 20,000 shares of restricted stock from Mr. Ingrams 2004 grant vested on
March 14, 2008 at a stock price of $48.970. The final 10,310 shares of restricted stock from Ms.
Fitzsimmons 2005 grant vested on December 22, 2008 at a stock price of $31.65.
4 Value Realized Number of shares issued pursuant to the 2006-2008 LTIP multiplied by $29.09,
the closing price of CSX stock price on January 21, 2008, the date the award was approved by the
Committee plus the number of restricted stock shares that vested in 2008 multiplied by the closing
stock price on the date of vesting.
37
Pension Benefits Table
As reflected by the Pension Benefits Table, and as described below, CSX maintains defined benefit
plans (qualified and nonqualified) under which the named executive officers are entitled to
benefits: the CSX Pension Plan and the Special Retirement Plan for CSX Corporation and Affiliated
Corporations. The pension values set forth below were valued as of December 31, 2008. In prior
years, CSX used September 30 as the valuation date.
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Payments |
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Number of Years |
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Present Value of |
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During Last |
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Name |
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Credited Service |
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Accumulated Benefit |
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Fiscal Year |
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Plan Name |
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(#) |
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($) |
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($) |
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Michael J. Ward1
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Qualified CSX Pension Plan
Nonqualified Special Retirement Plan
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31.583
42.913
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$1,044,881
$18,310,275
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Oscar Munoz
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Qualified CSX Pension Plan
Nonqualified Special Retirement Plan
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5.667
5.667
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$53,551
$240,874
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Tony L. Ingram2
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Qualified CSX Pension Plan
Nonqualified Special Retirement Plan
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4.833
39.250
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$54,443
$5,538,078
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Clarence W. Gooden3
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Qualified CSX Pension Plan
Nonqualified Special Retirement Plan
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37.803
44.000
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$1,173,457
$6,247,434
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Ellen M. Fitzsimmons
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Qualified CSX Pension Plan
Nonqualified Special Retirement Plan
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17.333
17.333
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$314,783
$1,029,372
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1 Special Retirement Plan (Nonqualified) Mr. Wards credited service under the Special
Retirement Plan is 42.913 years, including additional years of service credited in accordance with
the Special Retirement Plan (see section entitled Special Retirement Plan of CSX and Affiliated
Corporations Additional Service Credit); his actual years of service are 31.583 years. The
present value of his accumulated benefit under the Special Retirement Plan that is attributable to
his credited years of service above his actual years of service is $5,169,229. Note that Mr. Ward
was designated for participation in the Special Retirement Plan in September 1995, eight years
before he became CEO. Beginning in 2007, Mr. Ward voluntarily waived the right to any future
accruals of extra years of service under this plan. The table uses a September 30 measurement date
and thus, extra service from October 1, 2006 through December 31, 2006 still appears in this Proxy
Statement. See discussion below of the Special Retirement Plan on pages 40-41.
2 Special Retirement Plan (Nonqualified) Mr. Ingrams credited service under the Special
Retirement Plan is 39.250 years due to the crediting of his service with his prior employer under
his employment agreement; his actual years of service are 4.833 years. However, his CSX pension
benefit is offset by the pension benefits he receives from his prior employer as well as any
monthly amount payable from his CSX cash balance benefit. The present value of his accumulated
benefit under the Special Retirement Plan that is attributable to his credited years of service
above his actual years of service is $4,682,938. See discussion below of the Special Retirement
Plan on pages 40-41.
3 Special Retirement Plan (Nonqualified) Mr. Goodens credited service under the Special
Retirement Plan is 44 years, including additional years of service credited in accordance with the
Special Retirement Plan (see section entitled Special Retirement Plan of CSX and Affiliated
Corporations Additional Service Credit), and his actual years of service are 37.083 years. Mr.
Gooden will receive no additional years of service credit under this plan going forward. The
present value of his accumulated benefit under the Special Retirement Plan that is attributable to
his credited years of service above his actual years of service is $1,191,861. See discussion
below of the Special Retirement Plan pages 40-41.
Final Average Pay Formula for Employees Hired Before January 1, 2003
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, annual incentive payments and matching contributions made
under CSXs 401(k) plans. The benefit is
38
equal to 1.5% of the employees final average pay multiplied by the employees years of service.
This amount is then reduced by 40% of the employees Social Security benefits or 60% of the
employees Railroad Retirement benefits, or a percentage of both, whichever is applicable. The
resulting benefit is subject to a cap imposed under Code Section 415 (the 415 Limit). The 415
Limit for 2008 is $185,000 (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 $230,000 for 2008 and is
also subject to adjustment for future cost of living changes. Messrs. Ward and Gooden and
Ms. Fitzsimmons were hired before January 1, 2003, and are covered by the final average pay formula
under the Pension Plan.
Cash Balance Formula for Employees Hired on or After January 1, 2003
Employees who become eligible to participate in the Pension Plan on or after January 1, 2003 earn
pension benefits under a cash balance formula, which are expressed in the form of a hypothetical
account balance. For each month of service, the participants account is credited with a percentage
of the participants pay for that month. The percentage of pay credited is determined based on the
participants age and years of service.
The hypothetical account earns interest credits on a monthly basis based on the annual 10-year
Treasury bond rate and the participants account balance as of the end of the prior month. The
average annual 10-year Treasury bond rate used for 2008 was 3.66%. Pay for purposes of the cash
balance formula is defined in the same way as for the final average pay formula. The 415 Limit and
Compensation Limit also apply in determining benefits under the cash balance formula.
Because Mr. Munoz and Mr. Ingram were hired after January 1, 2003, they are covered by the cash
balance formula. Mr. Munozs current percentage of pay credit is 4% and Mr. Ingrams current
percentage of pay credit is 5%. However, Mr. Ingram, pursuant to his employment agreement, receives
a benefit under the Special Retirement Plan based on the final average pay formula, as defined
above, offset by (i) his Norfolk Southern pension benefit and (ii) any monthly benefit payable
under the CSX cash balance 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. This
enhancement is to make up for any retirement benefit lost due to discontinuance of Railroad
Retirement service.
Vesting
Benefits under the Pension Plan vest upon the earlier of the completion of five years (3 years for
cash balance participants) of service or attainment of age 65.
Early Retirement
The Pension Plan has a normal retirement age of 65. However, employees with 10 years of service may
retire as early as age 55, but with a reduction from full benefits to reflect early commencement of
the benefit prior to age 65. If an active participant reaches age 55 with 10 years of service, the
reduction for early retirement is 1/360th of the pension benefit for each month the benefit
commences prior to age 60 (rather than age 65). Messrs. Ward and Gooden have already attained age
55 with 10 years of service and thus are currently eligible to retire under the early retirement
provisions of the Pension Plan. Mr. Ingram is eligible for early retirement under his employment
agreement discussed on pages 42-43.
Form of Payment of Benefits
Benefits under the Pension Plans final average pay formula are payable in various annuity forms at
retirement. Benefits under the cash balance 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
CSXs 2008 Form 10-K.
39
Special Retirement Plan of CSX and Affiliated Corporations
The Special Retirement Plan is a nonqualified plan that generally covers CSX executives, including
the named executive officers, 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 it
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 Section 415
Limit and the Compensation Limit, both described above.
Additional Service Credit
The Special Retirement Plan provides for the granting of additional service credit to executives
designated by the CEO where it is necessary to do so in order to provide competitive retirement
benefits. Messrs. Ward and Gooden have been covered by the Special Retirement Plans additional
service crediting provisions since September 2, 1995 and December 21, 1996, respectively. Pursuant
to the Special Retirement Plans applicable service crediting rules, an eligible executive is
credited with one additional year of service for each actual year of service worked beginning no
earlier than age 45 continuing until age 65. Total service cannot exceed a maximum of 44 years,
unless actual service exceeds 44 years. The additional service credit vests upon an executives
attainment of age 55 and completion of ten years of actual service. Mr. Ward voluntarily waived his
right to future extra service credits in 2007, and Mr. Gooden is not entitled to any extra service
credits as he has reached the maximum. As discussed below, Mr. Ingram is entitled to pension
benefits under the Special Retirement Plan that are based on service with his prior employer.
CSX has previously granted additional service credit to executives in accordance with the above
provisions in situations where it determines it is necessary to do so in order to provide
competitive retirement benefits. The additional two-for-one service credits discussed above were
awarded in the mid-1990s 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. Of the named executive officers, only Messrs. Ward and Ingram have such benefits.
Mr. Ward: Mr. Wards benefit ensures that any shortfall that may arise under the transfer benefit
(discussed on page 39) will be paid under the Special Retirement Plan.
Mr. Ingram: Pursuant to the employment agreement between CSX and Mr. Ingram (detailed on pages
42-43), CSX agrees to provide Mr. Ingram with a special pension benefit payable under the Special
Retirement Plan. The amount payable is equal to the benefit calculation under the CSX traditional
formula utilizing his years of service at Norfolk Southern Corporation and his CSX final average
pay minus any benefit received from Norfolk Southern and any CSX cash balance benefit paid as an
annuity. The employment agreement further provides that: if he is terminated for cause, which
is generally defined as (i) a willful and continued failure to substantially perform his duties;
(ii) willful engagement in illegal conduct or gross misconduct that is harmful to CSX and performed
in bad faith; or (iii) a violation of CSXs Code of Ethics, no benefit is payable to Mr. Ingram
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 Messrs. Ward and Gooden are permitted to elect to
receive their Special Retirement Plan pension benefits in the form of a lump sum.
40
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 in 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 CSXs
2008 Annual Report on Form 10-K.
Nonqualified Deferred Compensation Table
The Nonqualified Deferred Compensation Table provides a summary of 2008 deferrals made under the
Executive Deferred Compensation Plan (EDCP), CSXs current executive nonqualified deferral
program, as well as 2008 earnings, distributions, and year-end balances. Two types of deferrals are
represented below: cash deferrals and stock deferrals. Cash deferrals include deferred portions of
a named executive officers base salary and short-term incentive payments. Stock deferrals include
deferred portions of compensation payable in the form of CSX common stock. The Committee believes
that such stock deferrals help assure that executives will share the same risks and rewards of
ownership with shareholders, with less liquidity since they generally cannot sell or access such
deferral stock until the end of the deferral period.
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Executive |
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Registrant |
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Aggregate |
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Aggregate |
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Aggregate |
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Contributions |
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Contributions |
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Earnings |
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Distributions |
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Balance |
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Name |
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Last Fiscal Year |
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Last Fiscal Year |
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Last Fiscal Year1 |
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|
Last Fiscal Year2 |
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Last Fiscal Year3 |
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|
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($) |
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($) |
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($) |
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($) |
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($) |
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Michael J. Ward |
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- |
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- |
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(1,744,060) |
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$101,975 |
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$4,457,387 |
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Oscar Munoz |
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|
$27,375 |
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|
$11,813 |
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30,369 |
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- |
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$861,146 |
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Tony L. Ingram |
|
|
$21,375 |
|
|
$9,938 |
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(1,732,271) |
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- |
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$4,571,894 |
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Clarence W. Gooden |
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$27,625 |
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$8,813 |
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(542,974) |
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- |
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$1,338,240 |
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Ellen M. Fitzsimmons |
|
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$14,625 |
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$7,313 |
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(97,878) |
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$5,111 |
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$251,175 |
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1 Aggregate Earnings Last Fiscal Year Earnings on cash deferrals include the total gains and
losses credited in 2008 based on the hypothetical investment of those amounts in the manner
described below. Earnings on stock deferrals reflect the difference between the closing stock
price at the end of 2007 and 2008, plus any dividend equivalents credited in 2008.
2 Aggregate Distributions Last Fiscal Year Distributions include any dividend equivalents
credited on deferred stock balances in 2008 that were paid out in the form of cash. Such an option
is allowed only on stock deferred prior to 2005.
3 Aggregate Balance Last Fiscal Year Of the aggregate balances listed in this column, the
amounts attributable to deferred stock are as follows: Mr. Ward, $4,171,687; Mr. Munoz, $0; Mr.
Ingram, $4,498,885; Mr. Gooden, $1,148,839; and Ms. Fitzsimmons, $209,099.
Eligible Deferrals
Under the EDCP, participants are entitled to elect to defer (a) up to 50% of base pay, (b) awards
payable in cash under CSXs incentive compensation plans, and (c) long-term incentive awards
payable in the form of stock. Participants also are entitled to matching contributions (in the form
of credits) based on the amount of additional matching contributions that the named executive
officer would have received under CSXs 401(k) plan assuming that (i) certain Code limits did not
apply and (ii) contributions made under the EDCP were instead made under CSXs 401(k) plan.
41
Investment of Deferred Amounts
Deferred amounts other than stock awards are, in accordance with a participants individual
elections, 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 Benefit Payments
EDCP participants may elect to receive payment of their deferred amounts, including earnings, upon
separation from service, the attainment of a specified age, or upon a change in control.
Participants may elect to receive payment in the form of a lump sum or in semi-annual installments
over a number of years not in excess of twenty 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 up to 5% of the
amount to be distributed. All benefit payments under the EDCP are paid in the form of cash, except
that deferred amounts attributable to stock awards are paid in the form of CSX common stock.
Post-Termination and Change-in-Control Payments
Employment and Separation Agreements
CSX occasionally enters into employment agreements with named executive officers. In general, these
agreements are offered in connection with recruiting executive officers when CSX deems it advisable
to provide employment security to new hires. Agreements of this type exist to provide severance pay
and related benefits upon a termination of employment, other than during the employment period
covered by the Change-in-Control Agreements. Of the named executive officers, only Messrs. Ingram
and Munoz, both of whom were recruited and hired from outside CSX, have employment agreements.
Each entered into such agreement upon joining CSX. The agreements do not provide for a specific
duration of employment, but relate primarily to the provision of benefits upon separation.
Mr. Munoz
Under the terms of an agreement entered into in April 2003, Mr. Munoz is employed as Executive Vice
President and CFO of CSX. The agreement provides for an annual base salary of no less than $500,000
and an annual target incentive opportunity of 90% of his base salary. Upon joining CSX, Mr. Munoz
received a stock option grant of 250,000 shares and a restricted stock award of 50,000, both of
which are now fully vested. Mr. Munoz is also entitled to participate in employee benefit plans
and to receive perquisites generally made available to senior executives of CSX.
If Mr. Munoz is terminated by CSX (including a constructive termination) for reasons other than
cause or disability, he will be entitled to a lump sum amount equal to his then current annual
base salary.
Mr. Ingram
Pursuant to the terms of his employment agreement, Mr. Ingram is employed as Executive Vice
President and Chief Operating Officer of CSX Transportation. The agreement provides for an annual
base salary of no less than $450,000 and an annual target incentive opportunity of 90% of his base
salary. Mr. Ingram is also entitled to participate in employee benefit plans and to receive
perquisites generally made available to senior executives of CSX. If Mr. Ingrams employment is
terminated for any reason other than cause, he is eligible for a special pension benefit as
described in the narrative following the Pension Benefits Table.
42
If Mr. Ingram is terminated by CSX (including a constructive termination) for reasons other
than cause or disability, or Mr. Ingram terminates employment for good reason, he will be
entitled to the following benefits:
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Before March 14, 2009, a lump sum severance payment equal to two times his then
current annual base salary, and any then unvested restricted stock granted at the
commencement of his employment will vest immediately. |
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After March 14, 2009, a lump sum amount equal to his then current annual base salary. |
In Messrs. Munozs and Ingrams employment agreements, the termination triggers are defined
as follows:
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Cause generally refers to (1) the executives willful and continued failure
substantially to perform his duties; (2) any willful engagement by the executive
in illegal conduct or gross misconduct that is harmful to CSX and performed in
bad faith; or (3) any violation by the executive of CSXs Code of Ethics. |
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Disability is generally defined by reference to CSXs long-term disability plan. |
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Constructive termination generally refers to (1) a material diminution in the
executives duties or responsibilities or (2) a reduction in base salary, target
annual incentive, other incentive opportunities, benefits or perquisites (unless
peer executives suffer a comparable reduction). In Mr. Munozs agreement,
constructive termination also includes the circumstance where CSX requires the
executive to be based at any location other than its corporate headquarters. |
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|
Good reason, as used in Mr. Ingrams agreement, generally refers to
(1) a material diminution in the executives duties or
responsibilities, (2) the failure by CSX to comply with the
compensation provisions of the employment agreement or (3) any
direction by CSX of Mr. Ingram to act in a manner that would cause a
breach in his confidentiality and non-solicitation agreement with his
previous employer. |
Termination Provisions
The following narrative disclosure and tables provide information about CSX benefits to named
executive officers in connection with two types of termination-General Termination and Change in
Control Termination:
General Termination
Severance
Except as discussed above, the Company does not generally provide for any special termination of
employment payments or benefits that favor the named executive officers in amount, terms or
operation. Rather, payments are available under certain circumstances to all salaried employees
pursuant to the terms of the CSX Severance Plan, which pays benefits based upon years of service.
The benefits range 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.
Long-term Incentive Vesting
Upon termination (except in the case of retirement, death, or disability), performance grants and
restricted stock granted under the Omnibus Plan are forfeited. In the case of retirement, death or
disability, participants receive a pro rata award based on the number of months elapsed between the
date of grant and the date of termination.
Change in Control Termination
Full and Immediate Vesting under Omnibus Plan
The named executive officers grants generally governed by the terms of the Omnibus Plan,
including performance grants under any outstanding LTIP cycles, restricted stock, and stock
options. Pursuant to the terms of such Plan, upon the occurrence of a change in control:
43
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(i) |
|
all grants under the 2006-2008, 2007-2009 and 2008-2010 LTIP cycles are considered
fully earned and are immediately payable at target in cash, |
|
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(ii) |
|
all vesting conditions applicable to restricted stock are deemed to have been met, and |
|
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(iii) |
|
all outstanding stock options become immediately exercisable. |
The following table quantifies the benefits that would have been payable under the
Omnibus Plan to each named executive upon the hypothetical occurrence on December 26, 2008 of an
event described above.
Potential Payouts Under the Omnibus Plan Upon Change in Control
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Restricted |
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Unvested Stock |
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Aggregate |
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Name |
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LTIP Payment1 |
|
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Stock |
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Options |
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Payments |
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Michael J. Ward |
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$8,725,815 |
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$0 |
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$0 |
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$8,725,815 |
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Oscar Munoz |
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$3,272,189 |
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$0 |
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$0 |
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$3,272,189 |
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Tony L. Ingram |
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$3,272,189 |
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$0 |
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$0 |
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$3,272,189 |
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Clarence W. Gooden |
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$3,272,189 |
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$0 |
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$0 |
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$3,272,189 |
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Ellen M. Fitzsimmons |
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$2,181,470 |
|
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$0 |
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$0 |
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$2,181,470 |
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1 LTIP Payment Full LTIP payout based on 100% attainment of target levels under the 2006-2008,
2007-2009 and 2008-2010 LTIP cycles, as of December 26, 2008, at a stock price of $31.50.
Change-in-Control Triggers
The following discussion describes potential payments to named executive officers, along with other
executives, following a change in control. Under the plans and agreements described below, a
change in control generally includes any of the following:
|
|
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the acquisition of beneficial ownership of 20% or more of CSXs
outstanding common stock or the combined voting power of CSXs
outstanding voting stock by an individual or group as defined under
applicable SEC rules (except in the case of deemed beneficial
ownership of shares relating to total return swaps referenced in a
lawsuit filed by CSX on March 17, 2008 in the Southern District of New
York); |
|
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|
if individuals, who as of the date of the Change-in-Control Employment
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 Companys
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); |
|
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a business combination (such as a merger, consolidation or disposition
of substantially all of the assets of CSX or its principal
subsidiary), excluding business combinations that will not result in a
change in the equity and voting interests held in CSX, or a change in
the composition of the Board, over a specified percentage; or |
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the liquidation or dissolution of CSX or its principal subsidiary. |
44
Each Change-in-Control Agreement provides for salary and benefits to be continued at no less than
specified levels generally for a period of up to three years after a change in control (the
Employment Period), and for certain payments and other benefits to be paid or provided by CSX
upon an executives termination of employment within the Employment Period. No payments have been
made to any named executive officer pursuant to the Change-in-Control Agreements.
Benefits During the Employment Period Following a Change in Control
During the Employment Period, CSX is required to:
|
|
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pay the executive an annual base salary that is at least equal to the
highest base salary payable to the executive in the 12-month period
immediately preceding the Employment Period (although certain
reductions in salary that are also applicable to similarly situated
peer executives may be permitted); |
|
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provide the executive with an opportunity to earn an annual incentive
at a minimum, target and maximum level that is not less favorable than
the executives opportunity to earn such annual incentives prior to
the Employment Period (although certain reductions also applicable to
similarly situated peer executives may be permitted); and |
|
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cause the executive to be eligible to participate in incentive,
retirement, welfare and other benefit plans and to benefit from paid
vacation and other policies of CSX and its affiliates, on a basis not
less favorable than the benefits generally available to the executive
before the Employment Period (or the benefits generally available to
peer executives at any time after the beginning of the Employment
Period, whichever is more favorable). |
Benefits Upon Termination Following a Change in Control
Under the Change-in-Control Agreements, CSX will provide severance payments and other benefits to
named executive officers upon their termination of employment during the Employment Period. The
amount of benefits depends on the reason for termination.
Termination Without Cause or Resignation for Good Reason; Constructive Termination. CSX will
pay to the executive the severance benefits described below if, during the Employment Period, CSX
terminates the executives employment other than for cause or disability, or the executive
resigns for good reason or upon a constructive termination. An executive whose employment is
terminated without cause in anticipation of a change in control is also entitled to the following
benefits. Each of these payment triggers is defined further below.
|
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Cash Severance Payment a lump sum cash payment equal to the sum of the
following: |
|
o |
|
the executives (1) accrued pay and (2) Highest Annual Bonus
(pro-rated based on the number of days worked in the calendar year). An
executives Highest Annual Bonus is the higher of (a) the executives most
recently established target annual incentive and (b) the highest annual
incentive amount received by the executive in the three full calendar years
preceding the beginning of the Employment Period; |
|
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o |
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three times the sum of the executives annual base salary and
the executives Highest Annual Bonus; and |
|
|
o |
|
the actuarial present value of the amount that the executive
would have been entitled to receive under the Pension Plan and the Special
Retirement Plan had the executive continued employment with CSX for an
additional three years after the actual date of termination. |
|
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|
Medical and Other Welfare Benefits the equivalent of continued medical,
life and other welfare benefit plan coverage for three years after termination of
employment at a level at least as favorable as the benefits provided to the executive
during the Employment Period (or the benefits then |
45
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|
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generally available to peer executives, whichever is more favorable). The executive
also receives credit for three additional years of service for purposes of determining
eligibility for retiree medical benefits. |
|
|
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Outplacement outplacement services at a cost to CSX not to exceed $20,000. |
Termination for Other Reasons. If the executives employment is terminated due to the executives
death or disability, or by the executive other than for good reason or upon a constructive
termination, CSX will make a lump sum cash payment to the executive equal to his or her
(1) accrued pay and (2) Highest Annual Bonus pro-rated based on the number of days worked in the
calendar year. If the executives 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 of Payment Triggers
In the Change-in-Control Agreements:
|
|
|
Good reason generally refers to the occurrence of any of the following (except, in the
case of a business combination subject to approval by the Surface Transportation Board,
during the portion of the Employment Period prior to that agencys final decision): |
|
o |
|
the assignment to the executive of duties inconsistent with, or a
diminution of, his or her position, authority, duties or responsibilities; |
|
|
o |
|
any failure of CSX to comply with its compensation obligations during
the Employment Period; |
|
|
o |
|
CSXs requiring the executive to be based more than 35 miles from his
or her location or to travel on business to a materially greater extent than
before; |
|
|
o |
|
any purported termination by CSX of the executives employment other
than as permitted by the Change-in-Control Agreements; or |
|
|
o |
|
any failure of CSX to require a successor to assume the agreement. |
Termination for good reason also includes the termination by the executive of his or her
employment for any reason during a 30-day period following the date that is (1) one year after
final approval by the Surface Transportation Board of a business combination subject to its
approval or (2) six months after any other change in control.
|
|
|
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 agencys final
decision: |
|
o |
|
the substantial diminution of the executives duties or
responsibilities; |
|
|
o |
|
a reduction in compensation payable during the Employment Period (other
than a reduction in incentive opportunities, benefits and perquisites where the
executives peer executives suffer a comparable reduction); |
|
|
o |
|
CSXs requiring the executive 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 |
|
|
o |
|
any purported termination by CSX of the executives employment other
than for cause. |
|
|
|
Cause generally refers to (1) the willful and continued failure of the executive to
perform his or her duties to CSX or (2) the willful engagement in illegal conduct or gross
misconduct that is materially and demonstrably injurious to CSX. |
46
|
|
|
Disability generally refers to the executives absence from duties for 180 consecutive
business days as a result of total and permanent mental or physical illness. |
The following table quantifies the severance benefits to which each of the named executive officers
would be entitled under his or her Change-in-Control Agreement upon the hypothetical termination of
employment following a change in control by CSX other than for cause or disability or by the
executive for good reason or upon a constructive termination as of December 26, 2008.
Potential Payouts Under Change-in-Control Agreements
|
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Pro-rata |
|
|
Retirement |
|
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|
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|
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|
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|
|
|
|
|
|
|
Bonus |
|
|
Benefit |
|
|
Welfare Benefit |
|
|
|
|
|
Excise Tax & |
|
|
Aggregate |
|
|
Name |
|
|
Severance1 |
|
|
Payment2 |
|
|
Increase3 |
|
|
Values4 |
|
|
Outplacement5 |
|
|
Gross-Up6 |
|
|
Payments |
|
|
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|
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|
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|
Michael J. Ward |
|
|
$9,394,500 |
|
|
$2,003,671 |
|
|
$4,861,724 |
|
|
$70,761 |
|
|
$20,000 |
|
|
- |
|
|
$16,350,656 |
|
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|
Oscar Munoz |
|
|
$4,458,000 |
|
|
$824,548 |
|
|
$254,188 |
|
|
$64,962 |
|
|
$20,000 |
|
|
- |
|
|
$5,621,698 |
|
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|
Tony L. Ingram |
|
|
$4,275,000 |
|
|
$813,699 |
|
|
$3,000,166 |
|
|
$30,257 |
|
|
$20,000 |
|
|
$3,409,914 |
|
|
$11,549,035 |
|
|
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|
Clarence W. Gooden |
|
|
$3,900,000 |
|
|
$739,726 |
|
|
$2,519,629 |
|
|
$62,135 |
|
|
$20,000 |
|
|
$2,669,192 |
|
|
$9,910,682 |
|
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|
Ellen M. Fitzsimmons |
|
|
$3,213,000 |
|
|
$563,178 |
|
|
$2,111,887 |
|
|
$62,360 |
|
|
$20,000 |
|
|
$2,271,288 |
|
|
$8,241,714 |
|
|
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1 Severance Severance payment equal to three (3) times the sum of the executives annual base
salary at the time of the termination and the Highest Annual Bonus.
2 Pro-rata Bonus Payment The Highest Annual Bonus pro-rated for the number of days in the
calendar year prior to a hypothetical termination of employment as of December 26, 2008.
3 Retirement Benefit Increase Increase in actuarial present value of retirement benefits as of
December 31, 2008 due to the accrual of retirement benefits for three additional years of
employment upon a qualifying termination following a change in control. The total retirement
benefits would be equal to: Mr. Ward ($24,105,866), Mr. Munoz ($548,612), Mr. Ingram ($8,624,012),
Mr. Gooden ($11,165,893) and Ms. Fitzsimmons ($2,898,812).
4 Welfare Benefits 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 in control.
5 Outplacement Executive is provided with outplacement services not to exceed $20,000.
6 Excise Tax & Gross-up Gross-up covering the full cost of excise tax under Code Sections 280G
and 4999. Note that this amount is highly dependent on a variety of factors, including the
characterization of some compensation as earned for service with CSX or an acquirer, and thus is
only theoretical. It represents a calculation based on each executive being terminated on the
assumed change of control date at the end of 2008. The excise tax and gross-up shown in this table
include amounts payable under a change in control under the Omnibus Plan, as well as amounts
payable upon a termination under the Change-in-Control Agreement.
Gross-up for excess parachute payments
The Change-in-Control Agreements provide that, if the payments and benefits provided to the
executive in connection with a change in control and subsequent termination are subject to the
golden parachute excise tax imposed under Code Section 4999, the named executive officers will be
entitled to a gross-up payment such that, after taking into account all income and excise taxes,
the named executive officers will receive the same after-tax amount that he or she would have
received had no excise tax been imposed under Section 4999. Also refer to the
Severance Benefits Policy discussed above.
47
Confidentiality
Each of the Change-in-Control Agreements requires the named executive officer to keep confidential
any proprietary information or data relating to CSX and its affiliates. After termination of
employment, an executive may not disclose confidential information without prior written permission
from CSX.
Executive Deferred Compensation Plan; Retirement Plans
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 on pages 38-41 in the narrative accompanying the Pension Benefits Table, the Special
Retirement Plan also contains certain change in control provisions.
48
Item 2: Ratification of Independent Registered Public Accounting Firm
The Audit Committee of the Board appointed the firm of Ernst & Young LLP as Independent Auditors to
audit and report on CSXs financial statements for the fiscal year 2009. 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.
Ernst & Young LLP 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 Ernst &
Young LLP will be present at the 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.
Fees Paid to Independent Registered Public Accounting Firm
Ernst & Young LLP served as the Independent Auditors for the Company in 2008. Approximate fees paid
to Ernst & Young LLP were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Audit Fees: |
|
|
$2,712,000 |
|
|
|
$2,595,000 |
|
Include fees associated with the integrated audit, testing internal
controls over financial reporting (SOX 404), the reviews of the Companys
quarterly reports on Form 10-Q, statutory audits and other attestation
services related to regulatory filings. |
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
Audit Related Fees: |
|
|
$295,000 |
|
|
|
$228,000 |
|
Principally include audits of employee benefit plans and subsidiary audits. |
|
|
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|
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|
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|
Tax Fees: |
|
|
$59,000 |
|
|
|
$41,000 |
|
Include fees for tax compliance, expatriate tax compliance, tax advice and
tax planning. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Fees: |
|
|
$6,000 |
|
|
|
$13,000 |
|
Include fees for a subscription to an accounting research tool. The Audit
Committee has concluded that the services covered under the caption All
Other Fees are compatible with maintaining Ernst & Young LLPs independent
status. |
|
|
|
|
|
|
|
|
Pre-Approval Policies and Procedures
The Audit Committee is responsible for the approval of all services performed by Ernst & Young LLP.
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 approvals to the full committee at the next
scheduled meeting. All engagements expected to cost $250,000 or more require pre-approval of the
full 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 2007 and 2008, the Audit
Committee preapproved all services performed by Ernst & Young LLP.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
49
Report of the Audit Committee
The Audit Committee has reviewed and discussed the Companys audited financial information with
management and has discussed with the Independent Auditors the matters required to be discussed by
Statement of Auditing Standards No. 61, as amended. In addition, the Audit Committee has received
the written disclosures and letter from Ernst & Young LLP, the Companys Independent Registered
Public Accounting Firm, as required by Rule 3526 of the Public Company Accounting Oversight Board,
Communication with Audit Committees Concerning Independence. The Committee has discussed Ernst &
Young LLPs independence with them. Based on its review and on the discussions described above, the
Audit Committee has recommended to the full Board that the audited financial statements be included
in the Companys Annual Report on Form 10-K for the fiscal year ended December 26, 2008.
Audit Committee
Donald J. Shepard, Chair
Donna M. Alvarado
John B. Breaux
Timothy T. OToole
Jacksonville, Florida
February 17, 2009
50
Security Ownership of Certain Beneficial Owners, Directors and Executive Officers
The following table sets forth, as of March 6, 2009, the beneficial ownership of the Companys
common stock by each of the executive officers named in the Summary Compensation Table, by
directors and nominees, by each person believed by the Company to beneficially own more than 5
percent of the Companys common stock, and by all current executive officers and directors of the
Company as a group. Shares of common stock subject to options that are exercisable within 60 days
of the Record Date are deemed beneficially owned by the person holding such options and are treated
as outstanding for the purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage of any other person. The
business address of each of the Companys directors and executive officers is CSX Corporation, 500
Water Street, Jacksonville, FL 32202.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of Beneficial Ownership |
|
|
|
|
|
|
Shares for which |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Ownership |
|
|
Total |
|
|
Percent |
|
Name of |
|
Beneficially |
|
|
can be Acquired |
|
|
Beneficial |
|
|
of |
|
Beneficial Owner 1 |
|
Owned |
|
|
within 60 Days2 |
|
|
Ownership |
|
|
Class3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donna M. Alvarado |
|
|
17,132 |
|
|
|
|
|
|
|
17,132 |
|
|
* |
|
Alexandre Behring4 |
|
|
17,239,725 |
|
|
|
|
|
|
|
17,239,725 |
|
|
4.3% |
|
Sen. John B. Breaux |
|
|
28,494 |
|
|
|
|
|
|
|
28,494 |
|
|
* |
|
Steven T. Halverson |
|
|
17,150 |
|
|
|
|
|
|
|
17,150 |
|
|
* |
|
Christopher Hohn5 |
|
|
17,802,148 |
|
|
|
|
|
|
|
17,802,148 |
|
|
4.5% |
|
Edward J. Kelly, III |
|
|
42,383 |
|
|
|
|
|
|
|
42,383 |
|
|
* |
|
Gilbert H. Lamphere |
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
|
* |
|
John D. McPherson |
|
|
5,251 |
|
|
|
|
|
|
|
5,251 |
|
|
* |
|
Timothy T. OToole |
|
|
7,650 |
|
|
|
|
|
|
|
7,650 |
|
|
|
|
David M. Ratcliffe |
|
|
43,367 |
|
|
|
|
|
|
|
43,367 |
|
|
* |
|
Donald J. Shepard |
|
|
52,191 |
|
|
|
|
|
|
|
52,191 |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Ward |
|
|
278,803 |
|
|
|
773,332 |
|
|
|
1,052,135 |
|
|
* |
|
Ellen M. Fitzsimmons |
|
|
193,737 |
|
|
|
114,332 |
|
|
|
308,069 |
|
|
* |
|
Clarence W. Gooden7 |
|
|
311,679 |
|
|
|
40,000 |
|
|
|
351,679 |
|
|
* |
|
Tony L. Ingram |
|
|
322,691 |
|
|
|
|
|
|
|
322,691 |
|
|
* |
|
Oscar Munoz |
|
|
289,996 |
|
|
|
250,000 |
|
|
|
539,996 |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive officers as a group |
|
|
36,755,848 |
|
|
|
1,189,330 |
|
|
|
37,945,178 |
|
|
9.5% |
|
(a total of 18 including those named
above and all directors and nominees) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Childrens Investment Fund Management (UK) |
|
|
17,802,148 |
|
|
|
|
|
|
|
17,802,148 |
|
|
4.5% |
|
LLP5, 6
7 Clifford Street
London W1S 2WE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3G Capital Partners Ltd.4, 6 |
|
|
17,232,854 |
|
|
|
|
|
|
|
17,232,854 |
|
|
4.3% |
|
600 Third Avenue
37th Floor
New York, New York 10016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Research Global Investors8 |
|
|
26,300,000 |
|
|
|
|
|
|
|
26,300,000 |
|
|
6.6% |
|
333 South Hope Street
Los Angeles, CA 90071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citigroup Inc.9 |
|
|
21,403,930 |
|
|
|
|
|
|
|
21,403,930 |
|
|
5.4% |
|
399 Park Avenue
New York, NY 10043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Except as otherwise noted, the persons listed have sole voting power as to all shares
listed, 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 |
|
Represents shares underlying options exercisable within 60 days. |
51
3 |
|
Based on 399,343,121 shares outstanding on March 6, 2009, plus shares deemed outstanding
for which beneficial ownership can be acquired within 60 days by that individual or group. An
asterisk (*) indicates that ownership is less than one percent of class. |
4 |
|
3G Capital Partners Ltd. (3G Capital Ltd.) is the general partner of 3G Capital Partners,
L.P. (3G Capital L.P.), which is the sole member of 3G Fund Partners, Ltd. (3G Fund Ltd.),
which is the general partner of 3G Fund L.P (3G Fund, and, together with 3G Capital Ltd., 3G
Capital L.P. and 3G Fund Ltd., 3G Capital). Mr. Behring is the Managing Director of 3G
Capital Ltd. and is therefore in a position to determine the investment and voting decisions
made by 3G Fund. Mr. Behring disclaims beneficial ownership of any and all securities held by
3G Fund except to the extent of his pecuniary interest therein. |
5 |
|
The ownership of The Childrens Investment Master Fund, a Cayman Islands exempted company
(the TCI Fund) includes 5,150 shares of Common Stock held directly by Mr. Hohn for the
benefit of the TCI Fund, and 17,796,998 shares of Common Stock held by the TCI Fund. The
Childrens Investment Fund Management (Cayman) Ltd., a Cayman Islands exempted company
(TCIF) and The Childrens Investment Fund Management (UK) LLP, an English limited liability
partnership (TCIF UK, and, together with the TCI Fund, TCIF and Mr. Hohn, the TCI Reporting
Persons) serve as management companies for the TCI Fund. Christopher Hohn is the managing
partner of TCIF UK and the 100% owner of TCIF, and therefore is in a position to determine the
investment and voting decisions made by the TCI Fund. |
6 |
|
Based on the decision of the Federal District Court for the Southern District of New York
in CSX Corporation v. The Childrens Investment Fund Management (UK) LLP et al, issued on June
11, 2008 (the Action), which decision is being appealed by the TCI and 3G Capital (the
Reporting Persons), the Reporting Persons also may be deemed to beneficially own any Shares
(the Swap Shares) purchased for hedging purposes by the counterparties to the total return
swaps to which the Reporting Persons are party (the Swaps). The counterparties to the Swaps
are not required to purchase any Shares in connection with the Swaps or inform the Reporting
Persons if the counterparties in fact hold any Swap Shares at any given time or the extent of
any such holdings. To the extent that the Action is not reversed on appeal and the Reporting
Persons are deemed the beneficial owners of the Swap Shares pursuant to the Action, and
assuming that the counterparties have fully hedged the Swaps by purchasing the aggregate
number of shares of Common Stock referenced by the Swaps, (i) the maximum number of Swap
Shares held by TCI would be 17,988,900 shares of Common Stock, representing approximately 4.5%
of the shares of Common Stock outstanding, and (ii) the maximum number of Swap Shares held by
3G Capital would be 3,280,000 shares of Common Stock, representing approximately .8% of the
shares of Common Stock outstanding. Accordingly, the TCI Reporting Persons would be deemed to
beneficially own a total of 35,791,048 shares of Common Stock, representing approximately 9.0%
of the shares of Common Stock outstanding and 3G Capital would be deemed to beneficially own a
total of 20,512,854 shares of Common Stock, representing approximately 5.1% of the shares of
outstanding shares. The TCI Reporting Persons expressly disclaim beneficial ownership of the
Swap Shares. |
7 |
|
The ownership of Mr. Gooden includes 54,758 shares held in a family members trust over
which he has voting and investment power. |
8 |
|
As disclosed in its Schedule 13G filed on February 13, 2009, Capital Research Global
Investors disclaims beneficial ownership pursuant to Rule 13d-4. |
9 |
|
As disclosed in its Schedule 13G filed on February 11, 2009, Citigroups ownership
position assumes conversion/exercise of certain securities held through its subsidiary
Citigroup Financial Products, Inc. |
52
Equity Compensation Plan Information
The following table sets forth information about the Companys equity compensation plans as of
December 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities to be |
|
|
|
|
|
Number of securities |
|
|
Plan category |
|
|
issued upon exercise of |
|
|
Weighted-average exercise |
|
|
remaining available for |
|
|
|
|
|
outstanding options, warrants |
|
|
price of outstanding options, |
|
|
future issuance under equity |
|
|
|
|
|
and rights (000s) |
|
|
warrants and rights |
|
|
compensation plans (000s)1,2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders
|
|
|
6,984 |
|
|
$17.99 |
|
|
11,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
325 |
|
|
$22.48 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,309 |
|
|
- |
|
|
11,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The number of shares remaining available for future issuance under plans approved by
shareholders includes 921,550 shares available for stock option grants, payment of director
compensation and stock grants pursuant to the CSX Stock Plan for Directors; and 10,982,977
shares available for grant in the form of stock options, performance grants, restricted stock,
stock appreciation rights and stock awards pursuant to the Omnibus Plan. |
2 |
|
The 1990 Stock Award Plan (1990 Plan) is the only CSX equity compensation plan that has
not been approved by shareholders. The 1990 Plan became effective September 12, 1990. Its
purpose is to further the long-term stability and financial success of CSX by rewarding
selected meritorious employees with awards of Company stock. Each stock award and stock
option grant under the 1990 Plan must be approved or ratified by the Board. |
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities Exchange Act of 1934 requires the Companys executive officers and directors, and
any persons owning more than 10 percent of a class of the Companys 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 received by it, the Company believes that the Companys executive officers and
directors complied with the SECs reporting requirements with respect to transactions which
occurred during fiscal 2008 with the following exceptions. Mr. Lamphere filed (i) an amended Form
3 to include 1,620 previously omitted shares of common stock, and (ii) a Form 4 reporting receipt
of his annual retainer, which filing was one day late.
Based on the decision of the Federal District Court for the Southern District of New York in CSX
Corporation v. The Childrens Investment Fund Management (UK) LLP et al., issued on June 11, 2008
(the Action), which decision is being appealed by The Childrens Investment Fund Management (UK)
LLP, The Childrens Investment Fund Management (Cayman) Ltd. and TCI Master Fund (the TCI
entities) and Mr. Hohn (together with the TCI entities, TCI) and 3G Capital Partners Ltd., 3G
Capital Partners, L.P. and 3G Fund, L.P. (the 3G entities) and Mr. Behring (together with the 3G
entities, 3G) (TCI and 3G collectively, the Reporting Persons), the Reporting Persons may be
deemed to beneficially own any Shares (the Swap Shares) purchased for hedging purposes by the
counterparties to the total return swaps to which they are a party. In addition, to the extent
that the Action is not reversed on appeal, the Reporting Persons may have been deemed to be a
group under Section 16(a) of the Exchange Act no later than February 13, 2007, and the group
members may have been deemed to be greater than ten percent owners as of that date. In an October
6, 2008 Schedule 13D filing, TCI and 3G disclaimed membership in any group with each other as of
October 4, 2008. Depending on the outcome of the appeal, additional filing requirements may have
been previously triggered.
Householding of Proxy Materials
In December 2000, the SEC adopted new rules that permit companies and intermediaries (e.g.,
brokers) to satisfy the delivery requirements for proxy statements with respect to two or more
security holders sharing the same
53
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 the past few years, a number of brokers with accountholders 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 proxy statement 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. If,
at any time, you no longer wish to participate in householding and would prefer to receive a
separate proxy statement, please notify your broker or write us at CSX Corporation, Office of the
Corporate Secretary, 500 Water Street, C160, Jacksonville, FL 32202. You may also call us at
(904) 366-4242.
Shareholders who currently receive multiple copies of this Proxy Statement at their address and
would like to request householding of their communications should contact their broker.
54
Notice of Electronic Availability of Proxy Materials
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholders Meeting
to be Held on May 6, 2009. The proxy statement and Annual Report on Form 10-K are available at
www.proxyvote.com.
As permitted by rules adopted by the Securities and Exchange Commission, we are making our proxy
material 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 our 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 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 Fiscal 2008 Annual Report on Form 10-K (without exhibits) is available on www.csx.com or the
report (with exhibits) is available at the website maintained by the Securities and Exchange
Commission (www.sec.gov). You may submit a request for a printed version in one of the following
manners:
|
|
Send your request by mail to CSX Corporation, Investor Relations, 500 Water Street, Jacksonville,
Florida 32202, or |
|
|
|
Call CSX Investor Relations at (904) 366-5353. |
March 24, 2009
|
|
|
|
|
|
By Order of the Board of Directors |
|
|
|
|
|
|
|
|
|
|
|
Ellen M. Fitzsimmons |
|
|
Senior Vice President-Law and Public Affairs and Corporate |
|
|
Secretary |
55
Appendix A
Companies included in the 2007 Towers Perrin General Industry Executive Compensation Survey, $6B -
$15B
|
|
|
|
|
|
|
|
|
AFLAC
|
|
Clear Channel
|
|
Harley-Davidson
|
|
Navistar International
|
|
SAFECO |
Air Products and Chemicals
|
|
CMS Energy
|
|
Health Net
|
|
NCR
|
|
SAIC |
Amazon.com
|
|
Colgate-Palmolive
|
|
Hilton Hotels
|
|
NIKE
|
|
Schering-Plough |
Ameren
|
|
ConAgra Foods
|
|
H.J. Heinz
|
|
Norfolk Southern
|
|
Seagate Technology |
American Electric Power
|
|
Consolidated Edison
|
|
Horizon Blue Cross Blue Shield of NJ
|
|
Nortel Networks
|
|
Sempra Energy |
Amgen
|
|
Crown Holdings
|
|
Hovnanian Enterprises
|
|
Northeast Utilities
|
|
Sherwin-Williams |
A&P
|
|
|
|
Huntsman
|
|
Northwest Airlines
|
|
Smurfit-Stone Container |
Applied Materials
|
|
Dana
|
|
|
|
NOVA Chemicals
|
|
Southern Company Services |
ARAMARK
|
|
Dean Foods
|
|
IAC/InterActive
|
|
|
|
Starbucks |
ArvinMeritor
|
|
DIRECTV
|
|
Independence Blue Cross
|
|
ONEOK
|
|
Sun Microsystems |
Ascension Health
|
|
DTE Energy
|
|
Ingersoll-Rand
|
|
Oracle |
|
|
Ashland
|
|
|
|
Integrys Energy Group
|
|
Owens Corning
|
|
Tenet Healthcare |
Atmos Energy
|
|
Eastman Chemical
|
|
ITT - Corporate
|
|
Owens-Illinois
|
|
Tennessee Valley Authority |
Automatic Data Processing
|
|
Eastman Kodak
|
|
|
|
|
|
Terex |
Avon
|
|
Eaton
|
|
Jacobs Engineering
|
|
Pacific Gas & Electric
|
|
Texas Instruments |
|
|
Edison International
|
|
|
|
Parker Hannifin
|
|
Textron |
Ball
|
|
Embarq
|
|
Kaiser Foundation Health Plan
|
|
Pepco Holdings
|
|
Thomson Corporation |
Baxter International
|
|
EMC
|
|
KBR
|
|
PPG Industries
|
|
Trane |
Black & Decker
|
|
Energy Future Holdings
|
|
Kellogg
|
|
PPL
|
|
TRW Automotive |
Blue Cross Blue Shield of FL
|
|
Entergy
|
|
Knight
|
|
Praxair |
|
|
Boston Scientific
|
|
EPCO
|
|
Lenovo
|
|
Progress Energy
|
|
Unum Group |
Burlington Northern Santa Fe
|
|
|
|
Limited
|
|
Progressive |
|
|
|
|
Federal-Mogul
|
|
Lincoln Financial
|
|
Public Service Enterprise Group
|
|
VF |
Calpine
|
|
FirstEnergy
|
|
L-3 Communications
|
|
Pulte Homes
|
|
Viacom |
Campbell Soup
|
|
Fluor
|
|
|
|
|
|
Visteon |
Catholic Healthcare West
|
|
Fortune Brands
|
|
Marriott International
|
|
QUALCOMM
|
|
Williams Companies |
CBS
|
|
Freeport-McMoRan Copper
|
|
Masco
|
|
Quest Diagnostics
|
|
Winn-Dixie Stores |
Celestica
|
|
|
|
McGraw-Hill
|
|
Qwest Communications
|
|
WPP |
CenterPoint Energy
|
|
Gannett
|
|
MeadWestvaco
|
|
Reed Elsevier
|
|
Xcel Energy |
Chevron Phillips Chemical
|
|
Genentech
|
|
Medtronic
|
|
Reliant Resources |
|
|
CHS
|
|
General Mills
|
|
Monsanto
|
|
Reynolds American
|
|
Yahoo! |
|
|
Genworth Financial
|
|
Murphy Oil
|
|
Rohm and Haas
|
|
Yum! Brands |
|
|
|
|
|
|
Ryder System |
|
|
|
|
|
|
|
|
|
CSX CORPORATION 500
WATER STREET
JACKSONVILLE, FL 32202
|
|
VOTE VIA THE INTERNET OR TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK THROUGH 11:59 P.M. EDT ON TUESDAY,
MAY 5, 2009.
VOTE
BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions
and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand
when you access the web site and follow the
instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our
company in mailing proxy materials, you can consent
to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the
Internet. To sign up for electronic delivery, please
follow the instructions above to vote using the
Internet and, when prompted, indicate that you agree
to receive or access proxy materials electronically
in future years.
VOTE
BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. 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.
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TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS:
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CSXCO1 |
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH
AND RETURN THIS PORTION
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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CSX CORPORATION |
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For All |
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Withhold All |
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For All Except |
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To withhold authority to vote for any individual
nominee(s), mark For All Except
and write the
number(s) of the nominee(s) on the line below.
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The Board of
Directors recommends you vote
FOR
Items 1 AND 2.
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o |
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1. |
Election of Directors Nominees: |
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01) D. M. Alvarado
02) A. Behring
03) Sen. J. B. Breaux
04) S. T. Halverson
05) E. J. Kelly, III
06) G. H. Lamphere
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07) J. D. McPherson
08) T. T. OToole
09) D. M. Ratcliffe
10) D. J. Shepard
11) M. J. Ward
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Vote On Proposal |
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For
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Against
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Abstain |
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2.
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Ratification
of the selection of Ernst & Young LLP as CSXs Independent Registered
Public Accounting Firm for 2009 |
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For address changes and/or comments, please check
this box and write them on the back where indicated. |
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Please indicate
if you plan to attend this meeting. |
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Yes |
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No |
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Note: Please sign below exactly as the name appears above. When shares are held by joint owners,
both should sign. When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign full corporate name by an authorized
corporate officer. If a partnership, please sign in partnership name by authorized person.
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Signature [PLEASE SIGN WITHIN BOX] |
Date |
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Signature (Joint Owners) |
Date |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice, Proxy Statement and Annual Report are available at www.proxyvote.com.
CSXCO2
CSX CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting on May 6, 2009
The undersigned hereby appoints MICHAEL J. WARD, ELLEN M. FITZSIMMONS, and NATHAN D. GOLDMAN, and each of them, as proxies, each with full power of substitution, to act and vote the shares which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held on May 6, 2009, at 10:00 a.m. (EDT), at Baltimore Marriott Inner Harbor at Camden Yards, 110 South Eutaw Street,
Baltimore, MD 21201-1608, 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 received by the undersigned shareholder. If no direction is made, the proxy will be voted: (a) "FOR" the election of the director
nominees and (b) in accordance with the recommendations of the Board of Directors on the other matters referred to on the reverse side.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. If you vote your proxy via the Internet or by telephone, please DO NOT mail back this proxy card. Proxies submitted by telephone or the Internet must
be received by 11:59 P.M. Eastern Time on Tuesday, May 5, 2009.
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Address Changes/Comments: |
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)