DEF 14A 1 d289601ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.      )

 

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¨    Soliciting Material Pursuant to §240.14a-12

 

 

Norfolk Southern Corporation


(Name of Registrant as Specified In Its Charter)

 

 

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LOGO

 


 

Notice and Proxy Statement

Annual Meeting of Stockholders

 

NORFOLK SOUTHERN CORPORATION

Three Commercial Place, Norfolk, Virginia 23510

 

Notice of Annual Meeting

of Stockholders to be Held

on Thursday, May 10, 2012

 


 

We will hold our Annual Meeting of Stockholders at the Conference Center, Williamsburg Lodge, South England Street, Williamsburg, Virginia, on Thursday, May 10, 2012, at 10:00 A.M., Eastern Daylight Time, for the following purposes:

 

  1.   Election of ten directors for one year terms ending in 2013.

 

  2.   Ratification of the appointment of KPMG LLP, independent registered public accounting firm, as our independent auditors for 2012.

 

  3.   Approval, by non-binding vote, of executive compensation.

 

  4.   Transaction of such other business as properly may come before the meeting.

 

Only stockholders of record as of the close of business on March 2, 2012 will be entitled to notice of and to vote at the meeting.

 

By order of the Board of Directors,

            HOWARD D. McFADDEN

            Corporate Secretary

 

Dated: March 21, 2012

 

If you do not expect to attend the meeting, we urge you to provide your proxy by marking, dating and signing the enclosed proxy card and returning it in the accompanying envelope, or by submitting your proxy over the telephone or the Internet as more particularly described on the enclosed proxy card. You may revoke your proxy at any time before your shares are voted by following the procedures described in the accompanying proxy statement.


TABLE OF CONTENTS

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 10, 2012

     1   

PROPOSALS REQUIRING YOUR VOTE

     3   

ITEM 1: ELECTION OF DIRECTORS

     3   

ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     9   

ITEM 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     10   

ITEM 4: OTHER MATTERS

     11   

SUPPLEMENTAL INFORMATION

     11   

BENEFICIAL OWNERSHIP OF STOCK

     11   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     14   

BOARD OF DIRECTORS

     14   

Composition and Attendance

     14   

Corporate Governance

     14   

Qualifications of Directors and Nominees

     15   

Director Independence

     17   

Retirement Policy

     18   

Compensation

     18   

Risk Oversight

     21   

Committees

     21   

AUDIT COMMITTEE REPORT

     25   

TRANSACTIONS WITH RELATED PERSONS

     26   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     26   

EXECUTIVE COMPENSATION

     27   

Compensation Discussion and Analysis

     27   

Compensation Tables

     38   

Retirement Benefits

     46   

Deferred Compensation

     47   

Potential Payments Upon a Change in Control or Other Termination of Employment

     48   

COMPENSATION POLICY RISK ASSESSMENT

     56   

COMPENSATION COMMITTEE REPORT

     57   

STOCKHOLDER PROPOSALS

     58   


 

Norfolk Southern Corporation

Three Commercial Place

Norfolk, Virginia 23510

 

March 21, 2012

 

PROXY STATEMENT

 

This proxy statement and the accompanying proxy card relate to the Board of Directors’ solicitation of your proxy for use at our Annual Meeting of Stockholders to be held on May 10, 2012. We began mailing to you and other stockholders this proxy statement and the accompanying proxy card on approximately March 21, 2012, in order to furnish information relating to the business to be transacted at the 2012 Annual Meeting. We also included a copy of our 2011 Annual Report and its Form 10-K (referred to together herein as the “annual report”) in the mailing for informational purposes; the annual report is not a part of the proxy solicitation materials.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 10, 2012

 

Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. In accordance with SEC rules, you may access our notice and proxy statement and annual report at www.voteproxy.com, which does not have “cookies” that identify visitors to the site. The notice and proxy statement are also available at that web site. In addition, this proxy statement and our annual report are available on our web site at www.nscorp.com.

 

INFORMATION ABOUT VOTING

 

Only stockholders of record as of the close of business on March 2, 2012, are entitled to notice of and to vote at the 2012 Annual Meeting. As of the March 2, 2012, record date, 347,161,677 shares of our common stock were issued and outstanding. Of those shares, 326,840,900 shares were owned by stockholders entitled to one vote per share. The remaining 20,320,777 shares were held by our wholly owned subsidiaries, which are not entitled to vote those shares under Virginia law.

 

As a convenience, you may vote by telephone or the Internet in the manner described on the enclosed proxy card. Or, you may vote by mail by marking, dating and signing the enclosed proxy card and returning it to American Stock Transfer and Trust Company Shareholder Services. Alternatively, you may vote in person at the 2012 Annual Meeting.

 

To obtain directions to attend the meeting and vote in person, you may contact: Howard D. McFadden, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, 13th Floor, Norfolk, Virginia 23510-9219 (telephone 757-823-5567).

 

If you are the beneficial owner of any shares held in street name by a broker, bank or other nominee, you may vote your shares by submitting your voting instructions to that entity. Please refer to the voting instruction card that your broker, bank or other nominee record holder included with these materials. Your shares may be voted on certain matters if they are held in street name by a broker, even if you do not provide the record holder with voting instructions; brokers have the authority under New York Stock Exchange rules to vote shares for which their customers do not provide voting instructions on certain “routine” matters. The ratification of the selection of KPMG LLP as our


independent registered public accounting firm (Item 2) is considered a routine matter for which brokers may vote shares they hold in street name, even in the absence of voting instructions from the beneficial owner. The election of directors (Item 1) and advisory vote on executive compensation (Item 3) are not considered routine matters, and the broker cannot vote the shares on these proposals if it has not received voting instructions from the beneficial owner of the shares with respect to the proposals (“broker non-vote”).

 

If shares are credited to your account in the Norfolk Southern Corporation Thoroughbred Retirement Investment Plan or the Thrift and Investment Plan, your proxy submitted in the form of a proxy card or over the telephone or Internet serves as voting instructions for the trustee of the plans, Vanguard Fiduciary Trust Company. If your proxy is not received by 5 P.M. Eastern Time on May 7, 2012, the trustee of these plans will vote your shares for each item on the proxy card in the same proportion as the shares that are voted for that item by the other participants in the respective plan.

 

Any stockholder of record may revoke a previously submitted proxy at any time before the shares are voted by: (a) giving written notice of revocation to our Corporate Secretary; (b) submitting subsequent voting instructions over the telephone or the Internet; (c) delivering a validly completed proxy card bearing a later date; or (d) attending the 2012 Annual Meeting and voting in person.

 

The presence, either in person or by proxy, of the holders of a majority of the outstanding shares of our common stock entitled to vote at the 2012 Annual Meeting is necessary to constitute a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum.

 

We will pay the cost of preparing proxy materials and soliciting proxies, including the reimbursement, upon request, of trustees, brokerage firms, banks and other nominee record holders for the reasonable expenses they incur to forward proxy materials to beneficial owners. Our officers and other regular employees may solicit proxies by telephone, facsimile, electronic mail or personal interview; they receive no additional compensation for doing so. We have retained Innisfree M&A Incorporated to assist in the solicitation of proxies at an anticipated approximate cost of $10,000 plus reasonable out-of-pocket expenses.

 

We currently plan to deliver multiple annual reports and proxy statements to multiple record stockholders sharing an address, but intermediaries may choose to deliver a single copy of one or both of these documents. Upon request, we will promptly deliver a separate copy of the annual report or proxy statement to a stockholder at a shared address to which a single copy of the document was delivered. If you would like a separate copy of this proxy statement or the 2011 Annual Report now or in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you may contact: Howard D. McFadden, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, 13th Floor, Norfolk, Virginia 23510-9219 (telephone 757-823-5567).

 

CONFIDENTIALITY

 

We have policies in place to safeguard the confidentiality of proxies and ballots. American Stock Transfer and Trust Company, Brooklyn, N.Y., which we have retained to tabulate all proxies and ballots cast at the 2012 Annual Meeting, is bound contractually to maintain the confidentiality of the voting process. In addition, each Inspector of Election will have taken the oath required by Virginia law to execute duties faithfully and impartially.

 

None of our employees or members of our Board of Directors have access to completed proxies or ballots and, therefore, do not know how individual stockholders vote on any matter. However, when a stockholder writes a question or comment on a proxy or ballot, or when there is a need to determine the validity of a proxy or ballot, our management and/or their representatives may be involved in providing the answer to the question or in determining such validity.

 

2


PROPOSALS REQUIRING YOUR VOTE

 

ITEM 1:   ELECTION OF DIRECTORS

 

At the 2012 Annual Meeting, the terms of ten directors will expire: those of Gerald L. Baliles, Erskine B. Bowles, Robert A. Bradway, Wesley G. Bush, Daniel A. Carp, Karen N. Horn, Steven F. Leer, Michael D. Lockhart, Charles W. Moorman and J. Paul Reason. Gene R. Carter and Landon Hilliard retired from the Board of Directors effective the date of the last Annual Meeting in accordance with the director retirement policy in the Corporation’s Governance Guidelines, and at that time the number of directors on the Board was reduced from thirteen to eleven. On July 25, 2011, the Board of Directors amended our Bylaws to increase the number of directors from eleven to twelve and elected Robert A. Bradway to fill the resulting vacancy at the recommendation of the Governance and Nominating Committee. On February 27, 2012, the Board of Directors amended our Bylaws to increase the number of directors from twelve to thirteen and elected Wesley G. Bush to fill the resulting vacancy at the recommendation of the Governance and Nominating Committee. Under Virginia law, the term of a director elected by the Board to fill a vacancy expires at the next stockholders’ meeting at which directors are elected.

 

At the 2010 Annual Meeting, the Corporation’s stockholders approved an amendment to the Articles of Incorporation to declassify the Board of Directors. As a result, each of the directors elected at this meeting will serve one-year terms continuing until the 2013 Annual Meeting of Stockholders. Continuing directors will serve the remainder of their three-year terms. At the 2013 Annual Meeting of Stockholders, all directors will be elected at that meeting and will serve one-year terms.

 

Unless you instruct otherwise when you give us your proxy, it will be voted in favor of the election of Gov. Baliles, Mr. Bowles, Mr. Bradway, Mr. Bush, Mr. Carp, Dr. Horn, Mr. Leer, Mr. Lockhart, Mr. Moorman and Adm. Reason as directors for one-year terms that begin at the 2012 Annual Meeting of Stockholders and continue until the 2013 Annual Meeting of Stockholders or until the election and qualification of their respective successors or their earlier removal or resignation.

 

If any nominee becomes unable to serve, your proxy will be voted for a substitute nominee to be designated by the Board of Directors, or the Board of Directors will reduce the number of directors. Two nominees for election at this meeting, Robert A. Bradway and Wesley G. Bush, previously have not been elected by the stockholders of Norfolk Southern. Messrs. Bradway and Bush were each recommended by a third party director search firm retained by the Governance and Nominating Committee. Norfolk Southern paid a fee in 2011 and 2012 to the firm on behalf of the Governance and Nominating Committee to identify, evaluate and recommend potential candidates for election to the Board of Directors.

 

So that you have information concerning the independence of the process by which our Board of Directors selected the nominees and directors whose terms will continue after the 2012 Annual Meeting, we confirm, as required by the SEC, that (1) there are no family relationships among any of the nominees or directors or among any of the nominees or directors and any officer and (2) there is no arrangement or understanding between any nominee or director and any other person pursuant to which the nominee or director was selected.

 

The Board of Directors recommends that the stockholders vote FOR each of the nominees for election as directors.

 

Vote Required to Elect a Director: Pursuant to our Bylaws, in uncontested elections of directors, such as this election, directors are elected at a meeting, so long as a quorum for the meeting exists, by a majority of votes cast by the shares entitled to be voted in the election. Abstentions or shares that are not voted are not counted as cast for this purpose. Any nominee for director who is not elected pursuant to this Bylaw provision must promptly tender his or her resignation to the Board of Directors for consideration by our Governance and Nominating Committee.

 

3


Additional information on the “Areas of Expertise” for directors and nominees can be found on page 15 of this proxy statement under “Qualifications of Directors and Nominees.”

 

Nominees—for terms expiring in 2013

 

LOGO

Gerald L. Baliles
Charlottesville,

Virginia

  

Independent

Director since 1990

 

Areas of Expertise

CEO/Senior Officer

Governance/Board

Governmental Relations

Human Resources/

Compensation

Strategic Planning

Transportation

   Governor Baliles, 71, has been Director of the Miller Center of Public Affairs at the University of Virginia since April 2006. Gov. Baliles was a Partner in the law firm of Hunton & Williams, a business law firm with offices in several major U.S. cities and international offices, from 1990 until his retirement in March 2006. He is a former Governor and Attorney General of the Commonwealth of Virginia. Gov. Baliles also serves as a director of Altria Group, Inc.

LOGO

Erskine B. Bowles

Charlotte,

North Carolina

  

Independent

Director since 2011

 

Areas of Expertise

CEO/Senior Officer

Finance/Accounting

Governance/Board

Governmental Relations

Human Resources/

Compensation

Strategic Planning

  

Mr. Bowles, 66, has been a Senior Advisor to BDT Capital Partners, LLC, since January 2012 and a Senior Advisor to Carousel Capital since 2001. He was Co-Chairman of the National Commission on Fiscal Responsibility and Reform. He is currently a director of Morgan Stanley, Cousins Properties, Inc., Facebook and Belk, Inc. Mr. Bowles was President of the University of North Carolina system from 2006 to 2010, and previously served as White House Chief of Staff under President Clinton. Mr. Bowles was formerly a director of General Motors, North Carolina Mutual Life Insurance Company, Merck & Co., Inc., and VF Corporation.

 


LOGO

Robert A. Bradway

Thousand Oaks, California

  

Independent

Director since 2011

 

Areas of Expertise

CEO/Senior Officer Governance/Board Governmental Relations Finance/Accounting Information Technology Strategic Planning

   Mr. Bradway, 49, has been President and Chief Operating Officer of Amgen, Inc., a biotechnology company, since 2010, and became a director in 2011. Prior thereto he served as Amgen’s Executive Vice President and Chief Financial Officer from 2007 to 2010 and Vice President, Operations Strategy from 2006 to 2007.

 

4



LOGO

Wesley G. Bush

McLean, VA

  

Independent

Director since 2012

 

Areas of Expertise

CEO/Senior Officer Governance/Board Governmental Relations Finance/Accounting Strategic Planning Transportation

   Mr. Bush, 50, has been Chief Executive Officer and President of Northrop Grumman Corporation, a global aerospace and defense technology company, since 2010, having served prior thereto as Northrop Grumman’s President and Chief Operating Officer from 2007 to 2009, and President and Chief Financial Officer from 2006 to 2007. Mr. Bush is a director of Northrop Grumman and was elected as Chairman of the Board of Directors in 2011.

LOGO

Daniel A. Carp

Naples, Florida

  

Independent

Director since 2006

 

Areas of Expertise

CEO/Senior Officer

Governance/Board

Human Resources/

Compensation

Information Technology

Strategic Planning

Transportation

   Mr. Carp, 63, served as Chairman of the Board and Chief Executive Officer of Eastman Kodak Company from 2000 to 2005, having previously served as President and Chief Operating Officer and as a director of Eastman Kodak. He retired from Kodak at the end of 2005. He is non-executive Chairman of the Board of Delta Air Lines, Inc. and is also a director of Texas Instruments Incorporated. Mr. Carp has previously served as a director of Fifth & Pacific Cos.

LOGO

Karen N. Horn

Lyme, Connecticut

  

Independent

Director since 2008

 

Areas of Expertise

CEO/Senior Officer

Finance/Accounting

Governance/Board

Human Resources/

Compensation

Strategic Planning

   Dr. Horn, 68, has been a partner with Brock Capital Group since 2003. Dr. Horn served as president of Private Client Services and managing director of Marsh, Inc., a subsidiary of MMC, from 1999 until her retirement in 2003. Prior to joining Marsh, she was senior managing director and head of international private banking, Bankers Trust Company; Chair and Chief Executive Officer of Bank One, Cleveland, N.A.; President of the Federal Reserve Bank of Cleveland; Treasurer of Bell Telephone Company of Pennsylvania; and Vice President of First National Bank of Boston. Dr. Horn serves as director of T. Rowe Price Mutual Funds, Simon Property Group, Inc., and Eli Lilly and Company and as Vice Chairman of the U.S. Russia Foundation. She is a member of the Executive Committee of the National Bureau of Economic Research and the Council on Foreign Relations.

 

5



LOGO

Steven F. Leer

St. Louis, Missouri

  

Independent

Director since 1999

 

Areas of Expertise

CEO/Senior Officer

Environmental/Safety

Governance/Board

Human Resources/

Compensation

Marketing

Strategic Planning

Transportation

   Mr. Leer, 59, has been Chief Executive Officer and a director of Arch Coal, Inc., a company engaged in coal mining and related businesses, since 1992, and became Chairman of the Board in December 2006. He is also a director of USG Corporation.

LOGO

Michael D. Lockhart

Rembert,
South Carolina

  

Independent

Director since 2008

 

Areas of Expertise

CEO/Senior Officer

Finance/Accounting

Governance/Board

Marketing

Strategic Planning

Transportation

   Mr. Lockhart, 62, served as Chairman of the Board, President and Chief Executive Officer of Armstrong World Industries, Inc., and its predecessor, Armstrong Holdings, Inc. from 2000 until his retirement in February 2010. Mr. Lockhart previously served as Chairman and Chief Executive Officer of General Signal, a diversified manufacturer, from September 1995 until it was acquired in 1998. He joined General Signal as President and Chief Operating Officer in 1994. From 1981 until 1994, Mr. Lockhart worked for General Electric Company in various executive capacities in GE Capital, GE Transportation, and GE Aircraft Engines. Mr. Lockhart has previously served as a director of Armstrong World Industries, Inc.

LOGO

Charles W.
Moorman, IV
Virginia Beach,
Virginia

  

Director since 2005

 

Areas of Expertise

CEO/Senior Officer

Environmental/Safety

Governance/Board

Governmental Relations

Information Technology

Strategic Planning

Transportation

   Mr. Moorman, 60, has been Chairman of Norfolk Southern since February 2006, Chief Executive Officer since November 2005 and President since October 2004. Prior thereto he served as Senior Vice President Corporate Planning and Services from December 2003 to October 2004, Senior Vice President Corporate Services from February 2003 to December 2003 and President Thoroughbred Technology and Telecommunications, Inc. from 1999 to November 2004.

 

6



LOGO

J. Paul Reason

Washington, DC

  

Independent

Director since 2002

 

Areas of Expertise

CEO/Senior Officer

Governance/Board

Governmental Relations

Human Resources/

Compensation

Information Technology

Strategic Planning

   Admiral Reason, 70, served as Vice Chairman and previously as President and COO of Metro Machine Corp., an employee-owned ship repair company that operates shipyards in Norfolk, Virginia and Philadelphia and Erie, Pennsylvania, from 2000 to 2006. Adm. Reason was Vice President for Ship Systems at SYNTEK Technologies, Inc., from the end of his naval service in 1999 until 2000. From 1996 until 1999 he served as Commander in Chief of the US Atlantic Fleet. Adm. Reason serves as a director of Amgen, Inc. He is also Chair of the ORAU Foundation, a member of the Oak Ridge Associated Universities Board, a member of the National War Powers Commission and a member of the Naval Studies Board of the National Academies. Adm. Reason has previously served as a director of Wal-Mart Stores, Inc. and Todd Shipyards, Inc.

 

7


Continuing Directors—those whose terms expire in 2013

 

LOGO

Thomas D. Bell, Jr.

Atlanta, Georgia

  

Independent

Director since 2010

 

Areas of Expertise

CEO/Senior Officer Governance/Board Governmental Relations Human Resources/ Compensation Marketing Strategic Planning

   Mr. Bell, 62, is the Chairman of Mesa Capital Partners, LLC, a real estate investment company and non-executive Chairman of SecurAmerica LLC, a provider of contract security services. Mr. Bell previously served as Chairman and Chief Executive Officer of Cousins Properties, Inc. He is a director of Regal Entertainment Group and AGL Resources and has also previously served as a director of Cousins Properties, Inc., Credit Suisse First Boston, Credit Suisse Group and Lincoln Financial Group.

LOGO

Alston D. Correll

Atlanta, Georgia

  

Independent

Director since 2000

 

Areas of Expertise

CEO/Senior Officer

Environmental/Safety

Finance/Accounting

Governance/Board

Human Resources/

Compensation

Marketing

Strategic Planning

Transportation

   Mr. Correll, 70, has been Chairman of Atlanta Equity Investors, LLC since September 2007. He retired as Chairman and Chief Executive Officer of Georgia-Pacific Corporation, a manufacturer and distributor of tissue, pulp, paper, packaging, building products and related chemicals, in January 2006, a position he had held since 1993. He is also a director of SunTrust Banks, Inc. Mr. Correll has previously served as a director of Georgia-Pacific Corporation.

LOGO

Burton M. Joyce

Gulfport, Florida

  

Independent

Director since 2003

 

Areas of Expertise

CEO/Senior Officer

Finance/Accounting

Governance/Board

Human Resources/

Compensation

Strategic Planning

   Mr. Joyce, 70, served as Chairman of the Board of Directors of IPSCO Inc., a leading steel producer, from 2000 to 2007. Mr. Joyce previously served as Vice Chairman, President and Chief Executive Officer of Terra Industries, Inc. Mr. Joyce has previously served as a director of IPSCO Inc., Hercules Inc., Chemtura, Terra Nitrogen and Terra Industries.

 

8


ITEM 2:   RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

At a meeting held on January 23, 2012, the Audit Committee of the Board of Directors appointed the firm of KPMG LLP (“KPMG”), independent registered public accounting firm, to perform for 2012 the integrated audit of our consolidated financial statements and internal control over financial reporting.

 

For the years ended December 31, 2011, and December 31, 2010, KPMG billed us for the following services:

 

     2011

     2010

 

Audit Fees1

   $ 2,525,308       $ 2,145,000   

Audit-Related Fees2

   $ 101,564       $ 91,170   

Tax Fees3

   $ 51,500       $ 0   

All Other Fees

   $ 0       $ 0   

1Audit Fees include fees for professional services performed by KPMG for the audit of our annual financial statements and internal control over financial reporting (integrated audit), the review of financial statements included in our 10-Q filings, and services that are normally provided in connection with statutory and regulatory filings or engagements.

 

2Audit-Related Fees principally include fees for audit-related tax services, employee benefit plan audits and audits of subsidiaries and affiliates.

 

3Tax Fees consist of tax compliance and preparation for approximately $10,000 and tax advice, planning, and consulting for approximately $41,500.

 

The Audit Committee requires that management obtain the prior approval of the Audit Committee for all audit and permissible non-audit services to be provided. KPMG rendered only audit and audit-related services to us in 2010. In 2011, the Audit Committee adopted a general practice that in certain circumstances it may be appropriate due to KPMG’s knowledge, experience, and expertise with respect to Norfolk Southern’s financial statements, to request that KPMG perform specified tax related activities. The Audit Committee considers and approves at each January meeting anticipated services to be provided during the year, as well as the projected fees for those services. The Audit Committee considers and pre-approves additional services and projected fees as needed at each meeting. The Audit Committee has delegated authority to its Chair to pre-approve services between meetings, provided that the Chair reports any such pre-approval to the Audit Committee at its next meeting. The Audit Committee will not approve non-audit engagements that would violate SEC rules or impair the independence of KPMG. All services rendered to us by KPMG in 2011 and 2010 were pre-approved in accordance with these procedures.

 

Representatives of KPMG are expected to be present at the 2012 Annual Meeting, with the opportunity to make a statement if they so desire, and available to respond to appropriate questions.

 

The Audit Committee recommends, and the Board of Directors concurs, that stockholders vote FOR the proposal to ratify the selection of KPMG as our independent registered public accounting firm for the year ending December 31, 2012, even though such stockholder approval is not legally required.

 

Vote Required to Ratify Appointment: Under Virginia law and under our Restated Articles of Incorporation, actions such as the ratification of the appointment of auditors are approved, so long as a quorum for the meeting exists, if the number of votes cast favoring the action exceeds the number of votes cast opposing the action. Abstentions or shares that are not voted are not “cast” for this purpose. You should note that brokers have the authority to vote their customers’ shares on the ratification of the appointment of KPMG as our independent registered public accounting firm even if they do not receive instructions as to how to vote on the matter.

 

9


ITEM 3:   ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

We are requesting that our stockholders approve, by advisory vote, the compensation of our Named Executive Officers, as such compensation is reflected in our “Compensation Discussion and Analysis” beginning on page 27 and our Executive Compensation Tables beginning on page 38. This “Say-on-Pay” vote is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). While the Say-on-Pay vote is advisory, and therefore not binding on the Board, the Compensation Committee will consider the results of any significant vote against the compensation of the Named Executive Officers and determine whether any actions are necessary or advisable to address the concerns expressed by stockholders. In accordance with the recommendation of the Corporation’s stockholders at the last Annual Meeting, the Board of Directors has determined to seek a stockholder advisory vote on executive compensation annually.

 

Our executive compensation program has been designed by our Compensation Committee and Performance-Based Compensation Committee with advice from their compensation consultant. As of May 12, 2011, the Board of Directors eliminated the Performance-Based Compensation Committee, so executive compensation decisions after that time have been made by the Compensation Committee. The executive compensation program is designed to align executives’ compensation with our overall business strategies, attract and retain highly qualified executives, and provide incentives that drive stockholder value. The Compensation Committee and Performance-Based Compensation Committee approved a mix of salary and cash and equity incentive compensation that they believe best serves the interests of the Corporation and its stockholders in achieving those objectives.

 

The compensation of our Named Executive Officers in 2011 consisted primarily of the following components, all as described more fully in the “Compensation Discussion and Analysis” beginning on page 27:

 

  ·  

Base Salary.

 

  ·  

Annual Bonus: The annual bonus paid under the Executive Management Incentive Plan is based on performance against financial, operational and service metrics.

 

  ·  

Long-Term Incentive Awards: The Company’s long-term equity incentive awards under the Long-Term Incentive Plan target longer-term achievement of Corporate objectives and are designed to create an ownership culture among the executives of the Corporation. Grants under the Long-Term Incentive Plan include stock options, time-based restricted stock units and performance shares that are earned out based on achievement of Corporate objectives over a three-year performance cycle, all as more fully described in the Compensation Discussion and Analysis.

 

  ·  

Retirement Plans and Programs: The Retirement Plan and Supplemental Benefit Plan of the Corporation, both as more fully described in the Compensation Discussion and Analysis, provide retirement benefits to the Corporation’s Named Executive Officers and provide the Corporation with the ability to retain key executives over a longer period.

 

The Board of Directors and its Compensation Committee believe the program for compensation of the Named Executive Officers is appropriately designed to support the Corporation’s goals and has an appropriate mix of cash and equity and an appropriate balance between short-term and long-term compensation. Accordingly, the Board of Directors recommends that stockholders approve the program by approving the following advisory resolution:

 

RESOLVED, that the stockholders of Norfolk Southern Corporation approve, on an advisory basis, the compensation of the individuals identified in the Summary Compensation Table, as disclosed in the Proxy Statement for the 2012 Annual Meeting of Stockholders pursuant to the

 

10


compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2011 Summary Compensation Table and the other related tables and disclosures.

 

The Board of Directors unanimously recommends a vote FOR the resolution approving the compensation of the Corporation’s Named Executive Officers.

 

Vote Required

 

Under Virginia law and under our Restated Articles of Incorporation, actions such as the resolution on executive compensation are approved, so long as a quorum for the meeting exists, if the number of votes cast favoring the action exceeds the number of votes cast opposing the action. Abstentions or shares that are not voted are not “cast” for this purpose. You should note that brokers do not have the authority to vote their customers’ shares on this matter if they do not receive instructions as to how to vote on this item.

 

ITEM 4:   OTHER MATTERS

 

The Board of Directors does not know of any other matters to be presented at the 2012 Annual Meeting, other than as noted elsewhere in this proxy statement. If any other proposal is properly brought before the 2012 Annual Meeting for a vote, the holders of proxies solicited hereby intend to exercise their discretionary authority and vote on any such proposal as they deem appropriate.

 

SUPPLEMENTAL INFORMATION

 

Applicable SEC rules require that we furnish you the following information relating to the oversight and management of Norfolk Southern and to certain matters concerning our Board of Directors and officers who are designated by our Board of Directors as executive officers for purposes of the Securities Exchange Act of 1934 (“Executive Officers”).

 

BENEFICIAL OWNERSHIP OF STOCK

 

To our knowledge, no person beneficially owns more than 5% of our common stock.

 

The following table shows, as of February 29, 2012, the beneficial ownership of our common stock for:

 

  (1)   each director and each nominee;

 

  (2)   our principal executive officer, our principal financial officer, each of the other three most highly compensated Executive Officers, based on total compensation for 2011, and all other officers serving at the executive vice president level (collectively, the “Named Executive Officers”); and

 

  (3)   all directors and Executive Officers as a group.

 

11


Unless otherwise indicated by footnote to the data in the table, all such shares are held with sole voting and investment power, and no director or Executive Officer beneficially owns any Norfolk Southern equity securities other than our common stock. No one director or Executive Officer owns as much as 1% of the total outstanding shares of our common stock. All directors and Executive Officers as a group own approximately .71% of the total outstanding shares of our common stock.

 

Name


  

Shares of
Common Stock


      

Name


  

Shares of
Common Stock


 

Gerald L. Baliles

     62,666 1       Michael D. Lockhart      15,287 1 

Thomas D. Bell, Jr.

     10,664 1       Charles W. Moorman, IV      773,934 2 

Erskine B. Bowles

     3,055 1       J. Paul Reason      44,792 1 

Robert A. Bradway

     3,000 1       James A. Squires      142,894 3 

Wesley G. Bush

     3,000 1       Deborah H. Butler      78,664 4 

Daniel A. Carp

     25,589 1      

James A. Hixon

     300,701 5 

Alston D. Correll

     54,049 1      

Mark D. Manion

     206,921 6 

Karen N. Horn

     15,008 1      

John P. Rathbone

     267,913 7 

Burton M. Joyce

     36,530 1      

Donald W. Seale

     315,149 8 

Steven F. Leer

     56,783 1                 

20 directors and Executive Officers as a group (including the persons named above)

     2,454,449 9 

1Includes a one-time grant of 3,000 restricted shares to each non-employee director when that director was first elected to the Board (or on January 1, 1994, if serving at that time). These grants were made pursuant to the Directors’ Restricted Stock Plan; the director may vote these shares, but has no investment power over them until they are distributed (see information under the “Board of Directors” caption on page 14). The amounts reported include 2,055 restricted stock units awarded pursuant to the Long-Term Incentive Plan to directors who were serving on the Board on January 26, 2012, and who have served on the Board for at least two years, qualifying them to receive the shares immediately upon leaving the Board. The amounts do not include 2,055 restricted stock units awarded to Messrs. Bowles and Bradway, who have not served as directors for two years. The amounts reported also include restricted stock units previously held as follows: Governor Baliles, 57,611; Mr. Bell, 5,609; Mr. Bowles, 0; Mr. Bradway, 0; Mr. Bush, 0; Mr. Carp, 20,116; Mr. Correll, 43,994; Dr. Horn, 9,953; Mr. Joyce, 29,475; Mr. Leer, 50,528; Mr. Lockhart, 9,953; and Admiral Reason, 39,095. These restricted stock units will be settled in stock. While the directors have neither voting power nor investment power over the shares underlying these restricted stock units, the directors are entitled to receive the shares immediately upon leaving the Board. See below under “Narrative to Non-Employee Director Compensation Table—Long-Term Incentive Plan” for more information regarding these restricted stock units. Also includes 5,000 shares over which Mr. Correll, 1,200 shares over which Mr. Leer and 100 shares over which Admiral Reason share voting and investment power with another individual. The amounts reported also include shares credited to certain directors’ accounts in our Dividend Reinvestment Plan.

 

2Includes 2,481 shares credited to Mr. Moorman’s account in our Thrift and Investment Plan; 395,459 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Moorman has the right to acquire beneficial ownership within 60 days.

 

3Includes 133 shares credited to Mr. Squires’ account in our Thrift and Investment Plan; and 68,436 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Squires has the right to acquire beneficial ownership within 60 days.

 

4Includes 1,284 shares credited to Ms. Butler’s account in our Thrift and Investment Plan; and 34,000 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Ms. Butler has the right to acquire beneficial ownership within 60 days.

 

5Includes 7,874 shares credited to Mr. Hixon’s account in our Thrift and Investment Plan; and 134,000 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Hixon has the right to acquire beneficial ownership within 60 days.

 

12


6Includes 5,771 shares credited to Mr. Manion’s account in our Thrift and Investment Plan; and 104,000 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Manion has the right to acquire beneficial ownership within 60 days.

 

7Includes 9,703 shares credited to Mr. Rathbone’s account in our Thrift and Investment Plan; 144,000 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Rathbone has the right to acquire beneficial ownership within 60 days; and 150 shares over which Mr. Rathbone shares voting and investment power.

 

8Includes 3,035 shares credited to Mr. Seale’s account in our Thrift and Investment Plan; and 129,459 shares subject to stock options granted pursuant to our Long-Term Incentive Plan with respect to which Mr. Seale has the right to acquire beneficial ownership within 60 days.

 

9Includes 30,924 shares credited to Executive Officers’ individual accounts under our Thrift and Investment Plan. Also includes: 1,037,813 shares subject to stock options granted to Executive Officers pursuant to our Long-Term Incentive Plan with respect to which the optionee has the right to acquire beneficial ownership within 60 days; and 150 shares over which Executive Officers share voting and investment power. For officers, this amount does not include restricted stock units which will ultimately be settled in shares of common stock upon the satisfaction of applicable vesting requirements.

 

The following table shows, as of February 29, 2012, the number of NS stock units credited to those non-employee directors who have made elections under the Directors’ Deferred Fee Plan to defer all or a portion of compensation and have elected to invest such amounts in “phantom” units of our common stock, as well as the shares of common stock (and units to be settled in shares of common stock) beneficially owned. A more detailed discussion of director compensation can be found beginning on page 18. A stock unit represents the economic equivalent of a share of our common stock and serves to align the directors’ individual financial interests with the interests of our stockholders because the value of the directors’ holdings fluctuates with the price of our common stock. These stock units ultimately are settled in cash.

 

Name


  

Number of

NS Stock

Units1


    

Number of

Shares

Beneficially

Owned2


    

Total Number

of NS Stock Units

and Shares

Beneficially

Owned


 

Gerald L. Baliles

     4,710         62,666         67,376   

Thomas D. Bell, Jr.

     0         10,664         10,664   

Erskine B. Bowles

     1,315         3,055         4,370   

Robert A. Bradway

     0         3,000         3,000   

Wesley G. Bush

     0         3,000         3,000   

Daniel A. Carp

     5,742         25,589         31,331   

Alston D. Correll

     13,911         54,049         67,960   

Karen N. Horn

     0         15,008         15,008   

Burton M. Joyce

     9,219         36,530         45,749   

Steven F. Leer

     26,243         56,783         83,027   

Michael D. Lockhart

     5,476         15,287         20,763   

J. Paul Reason

     0         44,792         44,792   

1Represents NS stock units credited to the accounts of non-employee directors who have elected under the Directors’ Deferred Fee Plan to defer all or a portion of compensation and have elected to invest such amounts in “phantom” units whose value is measured by the market value of shares of our common stock, but which ultimately will be settled in cash, not in shares of common stock. NS stock units have been available under the Directors’ Deferred Fee Plan as a hypothetical investment option since January 1, 2001.

 

2Figures in this column are based on the beneficial ownership that appears on page 12.

 

13


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16 of the Securities Exchange Act of 1934 requires our directors and Executive Officers and any persons beneficially owning more than 10 percent of a class of our stock to file reports of beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5) with the SEC. Based solely on our review of copies of Forms 3, 4 and 5 available to us, or written representations that no Forms 5 were required, we believe that all required Forms concerning 2011 beneficial ownership were filed on time by all directors and Executive Officers.

 

BOARD OF DIRECTORS

 

Composition and Attendance

 

On February 29, 2012, our Board of Directors consisted of thirteen members. At the 2010 Annual Meeting, the Corporation’s stockholders approved an amendment to the Corporation’s Articles of Incorporation to declassify the Board of Directors. As a result, the Corporation no longer has a classified board, however directors will continue to serve the remainder of their three-year terms. As of the date of the 2013 Annual Meeting of Stockholders, each director will stand for re-election annually. Gene R. Carter and Landon Hilliard retired from the Board of Directors effective the date of the last Annual Meeting in accordance with the director retirement policy in the Corporation’s Governance Guidelines, and at that time the Board reduced the number of directors from thirteen to eleven. On July 25, 2011, the Board of Directors amended our Bylaws to increase the number of directors from eleven to twelve and elected Robert A. Bradway to fill the resulting vacancy. On February 27, 2012, the Board of Directors amended our Bylaws to increase the number of directors from twelve to thirteen and elected Wesley G. Bush to fill the resulting vacancy.

 

The Board met six times in 2011. Each director attended not less than 75% of the aggregate number of meetings of the Board and meetings of all committees on which such director served.

 

Corporate Governance

 

The Board of Directors has adopted Corporate Governance Guidelines that, among other matters, require that the non-employee members of the Board (the “outside” directors) meet at least twice a year without members of management present. The Lead Director presides at such meetings of the outside directors. The Corporate Governance Guidelines also describe procedures for stockholders and other interested parties who wish to contact the outside directors. The Corporate Governance Guidelines are available on our website at www.nscorp.com in the “Investors” section under “Corporate Governance.”

 

The Board of Directors has determined that having Mr. Moorman hold both the position of Chief Executive Officer and the position of Chairman is in the best interest of the Corporation and its stockholders. This structure allows for consistency of leadership of the Board of Directors and of management and reflects the depth of knowledge Mr. Moorman has regarding the business of the Corporation. The Board leadership structure also includes the position of “Lead Director.” The directors whom the Board has determined are independent directors vote at the Board’s organizational meeting following the Annual Meeting of Stockholders or at such other time as they deem appropriate to select an independent director to serve as “Lead Director” of the Board. The Lead Director presides at all meetings of the Board at which the Chairman is not present, including meetings of the non-management (“outside”) directors, which are generally scheduled for every Board meeting. The Lead Director serves as a liaison between the Chairman and the outside directors and reviews Board meeting agendas and meeting schedules and such other information to be sent to the Board as he or she determines is necessary or appropriate under the circumstances. The Lead Director may also call meetings of the outside directors. Mr. Correll has served as Lead Director of the Corporation since the date of the 2011 Annual Meeting. Prior to that date the Corporation’s Lead Director was Mr. Hilliard, who retired effective the date of the 2011 Annual Meeting.

 

14


The Corporate Governance Guidelines also describe the Board’s policy with respect to director attendance at the Annual Meeting of Stockholders, which is that, to the extent possible, each director is expected to attend the Annual Meeting of Stockholders. All of our then current directors attended the 2011 Annual Meeting of Stockholders.

 

The Board has approved and adopted The Thoroughbred Code of Ethics that applies to all directors, officers and employees of Norfolk Southern, and a Code of Ethical Conduct for Senior Financial Officers that applies to specified financial officers. These documents, as well as the Corporate Governance Guidelines, are available on our website at www.nscorp.com in the “Investors” section under “Corporate Governance.” Any stockholder may request printed copies of the Corporate Governance Guidelines, The Thoroughbred Code of Ethics or Code of Ethical Conduct for Senior Financial Officers by contacting: Howard D. McFadden, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, 13th Floor, Norfolk, Virginia 23510-9219 (telephone 757-823-5567).

 

The Corporation’s Bylaws require that in an uncontested election of directors, a director shall be elected by a majority of votes cast. Any incumbent director who is not reelected shall promptly tender his or her resignation to the Board of Directors for consideration by our Governance and Nominating Committee. The Governance and Nominating Committee of the Board of Directors will promptly consider the resignation and recommend to the Board of Directors whether to accept or reject the tendered resignation. The Board of Directors will act on the Committee’s recommendation within 90 days following certification of the election results. Any director who tenders his or her resignation pursuant to this provision will not participate in the Governance and Nominating Committee’s recommendation or Board of Directors’ consideration regarding whether or not to accept the tendered resignation. If the resignation is accepted, the Governance and Nominating Committee will recommend to the Board whether to fill the vacancy or reduce the size of the Board. We will publicly disclose the Board of Directors’ decision within four business days, including a full explanation of the process by which the decision was reached and, if applicable, the reasons why the Board rejected the director’s resignation.

 

Qualifications of Directors and Nominees

 

The directors of Norfolk Southern Corporation have diverse backgrounds and provide experience and expertise in a number of critical areas to the company. The Governance and Nominating Committee considers the particular experience, attributes and qualifications of directors standing for re-election and potential nominees for election as well as the needs of the Board of Directors as a whole and its individual committees.

 

The Governance and Nominating Committee has identified ten areas of expertise that are particularly relevant to the Corporation and has identified the directors whose key areas of expertise qualify them for each of the listed categories. The categories identified by the Governance and Nominating Committee are:

 

CEO/Senior Officer—Experience working as a CEO or Senior Officer of a major public or private company or non-profit entity.

 

Environmental and Safety—A thorough understanding of safety and environmental issues and transportation industry regulations.

 

Finance and Accounting—Senior executive level experience in financial accounting and reporting, auditing, corporate finance and/or internal controls.

 

Governance/Board—Prior or current experience as a board member of a major organization (private, public or non-profit).

 

Governmental Relations—Experience in or a strong understanding of the workings of government and public policy on a local, state and national level.

 

15


Human Resources and Compensation—Senior executive level experience or membership on a board compensation committee with an extensive understanding of compensation programs, particularly compensation programs for executive level employees and incentive based compensation programs.

 

Information Technology—Senior executive level or board experience with information technology issues for a major public, private or non-profit entity.

 

Marketing—Senior executive level experience in marketing combined with a strong working knowledge of Norfolk Southern’s markets, customers and strategy.

 

Strategic Planning—Senior executive level experience in strategic planning for a major public, private or non-profit entity.

 

Transportation—Extensive knowledge and experience in the transportation industry, either as a senior executive of a transportation or logistics company or as a senior executive of a customer of a transportation company.

 

Each director’s biography includes a listing of the areas of expertise where each director or nominee is most skilled. In addition, the table below summarizes the particular attributes that led the Governance and Nominating Committee to nominate each individual as a director of the Corporation.

 

    Baliles   Bell   Bowles   Bradway   Bush   Carp   Correll   Horn   Joyce   Leer   Lockhart   Moorman   Reason

CEO/Senior Officer

  X   X   X   X   X   X   X   X   X   X   X   X   X

Environmental and Safety

                          X           X       X    

Finance and Accounting

          X   X   X       X   X   X       X        

Governance/Board

  X   X   X   X   X   X   X   X   X   X   X   X   X

Governmental Relations

 

X
 

X
  X   X   X                           X   X

Human Resources and Compensation

  X   X   X           X   X   X   X   X           X

Information Technology

              X       X                       X   X

Marketing

      X                   X           X   X        

Strategic Planning

  X   X   X   X   X   X   X   X   X   X   X   X   X

Transportation

  X               X   X   X           X   X   X    

 

In addition to these specific categories, the Governance and Nominating Committee considers a number of other factors, including board dynamics, reputation of potential nominees, recommendations of director search firms, and how the nominee will contribute to the diversity of the Board in considering director candidates. More information on qualifications for potential directors is contained in Norfolk Southern’s Corporate Governance Guidelines posted under the Investors tab on our website. Norfolk Southern Corporation defines diversity as the collective mixture of similarities and differences that impact our workforce, workplace and marketplace. The Governance and Nominating Committee also views diversity broadly, seeking to nominate individuals from varied backgrounds, perspectives and experiences. The Governance and Nominating Committee does not have a specific written policy on the diversity of the Board of Directors at this time. More information on Norfolk Southern’s diversity principles and philosophy can be found on our website in the “Employees” section under “Diversity” at www.nscorp.com.

 

Governor Baliles previously served as a director of Shenandoah Life Insurance Company. During 2009, Shenandoah Life Insurance Company entered into a receivership pursuant to a Virginia statutory procedure due to a sharp decline in value in certain of the company’s holdings that resulted in the company falling below minimum capitalization requirements. As part of this receivership, the Circuit Court in Richmond, Virginia, entered an order which, in accordance with required statutory provisions

 

16


that apply to all such receiverships in Virginia, enjoins the directors from conducting any further business related to Shenandoah Life Insurance Company. The order contains no other findings or provisions related to the conduct of any directors of the entity. The Governance and Nominating Committee considered this order with regard to Governor Baliles’ qualification to serve as a director of Norfolk Southern and has determined that the order does not impact his ability or qualification to serve as a director.

 

Director Independence

 

As required by the New York Stock Exchange, the Board of Directors has considered whether individual directors are independent. A director is considered “independent” if the Board determines that the director has no material relationship with Norfolk Southern (directly or as a partner, stockholder or officer of an organization that has a relationship with Norfolk Southern). The Board makes these determinations after full deliberation, considering all relevant facts and circumstances. To aid in its evaluation of director independence, the Board has adopted categorical independence standards. Under the standards, an individual director is “independent,” unless the Board determines otherwise, if none of the following relationships exists between Norfolk Southern and the director:

 

  ·  

the director is, or has been within the last three years, an employee, or an immediate family member of the director is, or has been within the last three years, an Executive Officer, of Norfolk Southern or any of our consolidated subsidiaries;

 

  ·  

the director or an immediate family member of the director has received during any twelve-month period within the last three years more than $120,000 in direct compensation from Norfolk Southern or any of our consolidated subsidiaries, other than director and committee fees and deferred compensation for prior service (provided such deferred compensation is not contingent in any way on continued service);

 

  ·  

(a) the director is a current partner or employee of a present or former internal or external auditor of Norfolk Southern or any of our consolidated subsidiaries, (b) the director has an immediate family member who is a current partner of such a firm, (c) the director has an immediate family member who is a current employee of such a firm and personally works on Norfolk Southern’s audit, or (d) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on Norfolk Southern’s audit within that time;

 

  ·  

the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where one of our Executive Officers serves as a director and sits on that company’s compensation committee;

 

  ·  

the director is an executive officer or employee, or an immediate family member of the director is an executive officer, of a company that makes payments to, or receives payments from, Norfolk Southern or any of our consolidated subsidiaries for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; and

 

  ·  

the director is an executive officer or compensated employee, or an immediate family member of the director is an executive officer, of a charitable organization that receives donations from Norfolk Southern, any of our consolidated subsidiaries or the Norfolk Southern Foundation in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such charitable organization’s donations.

 

For purposes of these categorical standards, “immediate family member” has the definition set forth in the New York Stock Exchange’s Listing Standards, as amended from time to time. These standards, as set forth in this proxy statement, are available on our website at www.nscorp.com in the “Investors” section under “Corporate Governance.”

 

17


The Board has determined that all current directors (including nominees) other than Mr. Moorman satisfy the above categorical standards and qualify as independent directors of Norfolk Southern. In addition, the Board has determined that Dr. Carter and Mr. Hilliard, who served on the Board until their retirement effective the date of the 2011 Annual Meeting, qualified as independent directors of Norfolk Southern. Mr. Moorman serves as our Chairman, President and Chief Executive Officer and, therefore, is not an independent director. In making the foregoing independence determinations, our Board of Directors considered each of the following transactions, relationships and arrangements we had with members of our Board, none of which exceeded our categorical independence standards or were sufficiently material as to require disclosure under Item 404(a) of Regulation S-K:

 

  ·  

We provided transportation services to, received coal royalty, freight claims and rental payments from, and paid contract refunds to Arch Coal, Inc. in the ordinary course of business during fiscal 2011. Mr. Leer is Chairman of the Board and the Chief Executive Officer of Arch Coal.

 

  ·  

We subscribed to and are listed in a transportation manual provided by a subsidiary of Carousel Capital during 2011. Mr. Bowles is a Senior Advisor to Carousel Capital.

 

  ·  

We provided transportation services to Northrop Grumman in the ordinary course of business in 2011. Mr. Bush is Chairman of the Board and Chief Executive Officer of Northrop Grumman.

 

Retirement Policy

 

Under our Governance Guidelines, a director must retire effective as of the date of the annual meeting that falls on or next follows the date of that director’s 72nd birthday.

 

Compensation

 

2011 Non-Employee Director Compensation Table1

 

Name (a)


  

Fees

Earned or

Paid in

Cash2

($)

(b)


    

Stock

Awards3

($)

(c)


    

Option

Awards

($)

(d)


    

Non-Equity

Incentive

Plan

Compensa-

tion

($)

(e)


    

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings4

($)

(f)


    

All Other

Compensation

($)5

(g)


    

Total

($)

        (h)        


 

Gerald L. Baliles

     90,000         150,588         0         0         0         14,628         255,216   

Thomas D. Bell, Jr.

     90,000         150,588         0         0         0         5,783         246,371   

Erskine B. Bowles

     90,000         195,840         0         0         0         0         285,840   

Robert A. Bradway

     45,000         228,285         0         0         0         0         273,285   

Daniel A. Carp

     90,000         150,588         0         0         0         5,783         246,371   

Gene R. Carter6

     45,000         150,588         0         0         8,476         10,783         214,847   

Alston D. Correll

     90,000         150,588         0         0         2,117         30,783         273,488   

Landon Hilliard6

     45,000         150,588         0         0         93,416         37,783         326,787   

Karen N. Horn

     90,000         150,588         0         0         0         6,783         247,371   

Burton M. Joyce

     90,000         150,588         0         0         0         5,783         246,371   

Steven F. Leer

     90,000         150,588         0         0         6,872         39,948         287,408   

Michael D. Lockhart

     90,000         150,588         0         0         0         30,783         271,371   

J. Paul Reason

     90,000         150,588         0         0         0         8,283         248,871   

1Mr. Moorman received no compensation for Board or committee service in 2011 and will not receive compensation for Board or committee service in 2012. Therefore, neither this table nor the narrative which follows contain compensation information for Mr. Moorman. For compensation information for Mr. Moorman, see “Executive Compensation” on page 27 of this proxy statement. Mr. Bush joined the Board on February 27, 2012. Because Mr. Bush received no compensation for Board or Committee service in 2011, he is not included in this table.

 

18


2Includes amounts elected to be received on a deferred basis pursuant to the Directors’ Deferred Fee Plan. For a discussion of this plan, as well as our other director compensation plans, see the narrative discussion below.

 

3 For all directors other than Mr. Bowles and Mr. Bradway, represents the full grant date fair value computed in accordance with FASB ASC Topic 718 of the 2,400 restricted stock units granted on January 27, 2011 pursuant to our Long-Term Incentive Plan. For Mr. Bowles and Mr. Bradway, this amount represents the full grant date fair value of the 3,000 restricted shares granted to each of them upon joining the Board of Directors. As of December 31, 2011, each director held 3,000 restricted shares and the directors held restricted stock units in the following amounts: Gov. Baliles, 57,611; Mr. Bell, 5,609; Mr. Bowles 0; Mr. Bradway 0; Mr. Carp, 20,116; Dr. Carter, 58,385; Mr. Correll, 43,994; Mr. Hilliard, 58,385; Dr. Horn, 9,953; Mr. Joyce, 29,475; Mr. Leer, 50,528; Mr. Lockhart, 9,953; and Adm. Reason, 39,095. See below under “Narrative to Non-Employee Director Compensation Table—Long-Term Incentive Plan” for more information regarding these restricted stock units.

 

4 Represents the amounts by which 2011 interest accrued on fees deferred prior to 2001 by the non-employee directors under the Directors’ Deferred Fee Plan exceeded 120% of the applicable Federal long-term rate provided in Section 1274(d) of the Internal Revenue Code.

 

5Includes (i) each director’s proportional cost of NS-owned life insurance policies used to fund the Directors’ Charitable Award Program and (ii) the dollar amounts we contributed to charitable organizations on behalf of directors pursuant to our matching gifts program as follows: Gov. Baliles, $8,845; Dr. Carter, $5,000; Mr. Correll, $25,000; Mr. Hilliard, $32,000; Dr. Horn, $1,000; Mr. Leer, $34,165; Mr. Lockhart, $25,000; and Adm. Reason, $2,500. Because a director must serve on our Board for one year prior to becoming eligible for the Directors’ Charitable Award Program, no portion of this cost was allocated to Mr. Bowles or Mr. Bradway. For further discussion of the Directors’ Charitable Award Program, see the narrative discussion below.

 

6Dr. Carter and Mr. Hilliard retired from the Board of Directors effective the date of the last Annual Meeting.

 

Narrative to Non-Employee Director Compensation Table

 

Below is a discussion of the material factors necessary to an understanding of the compensation disclosed in the above table.

 

The Compensation Committee and the Board of Directors determine the annual compensation of non-employee directors each year. The Committee consults with its compensation consultant on the compensation program and reviews benchmarking and survey information to determine whether changes are advisable. The Committee reviews both a comparison to the market amount of compensation paid to directors serving on boards of similar companies and reviews the allocation of this compensation between cash retainer and equity grants. In general, the Compensation Committee and the Board seek to make any changes to non-employee director compensation in a gradual and incremental fashion.

 

Retainer and Fees.    In 2011, each member of the Board of Directors received a quarterly retainer for services of $12,500 and a quarterly fee of $10,000 for serving on at least two committees, plus expenses incurred in connection with attendance at such meetings. Beginning in 2012, directors who serve as committee chairpersons receive an additional quarterly fee of $5,000 for such service, and the Lead Director receives an additional quarterly fee of $12,500.

 

Directors’ Deferred Fee Plan.    A director may elect to defer receipt of all or a portion of the director’s compensation. Amounts deferred are credited to a separate memorandum account maintained in the name of each participating director. Amounts deferred before January 1, 2001, earn a fixed rate of interest, which is credited to the account at the beginning of each quarter. In general, the fixed interest rate is determined on the basis of the director’s age at the time of the deferral: under

 

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age 45, 7%; age 45-54, 10%; age 55-60, 11%; and over age 60, 12%. However, for amounts deferred on or after January 1, 1992 and prior to January 1, 1994, the fixed interest rate was as follows: under age 45, 13%; age 45-54, 14%; age 55-60, 15%; and over age 60, 16%. Amounts set forth in the table above represent the extent to which these rates exceed 120% of the applicable federal long-term rate. The total amount so credited for amounts deferred before January 1, 2001 (including interest earned thereon) is distributed in ten annual installments beginning in the year following the year in which the participant ceases to be a director.

 

Amounts deferred on or after January 1, 2001, are credited with variable earnings and/or losses based on the performance of hypothetical investment options selected by the director. The hypothetical investment options include NS stock units and various mutual funds as crediting indices. NS stock units are “phantom” units whose value is measured by the market value of shares of our common stock, but the units ultimately will be settled in cash, not in shares of our common stock. Amounts deferred on or after January 1, 2001, will be distributed in accordance with the director’s elected distribution option in one lump sum or a stream of annual cash payments over 5, 10 or 15 years. Seven directors elected to defer compensation that would have been payable in 2011 into the Directors’ Deferred Fee Plan.

 

Our commitment to accrue and pay interest and/or earnings on amounts deferred is facilitated by the purchase of corporate-owned life insurance with the directors as insureds under the policies. If the Board of Directors determines at any time that changes in the law affect our ability to recover the cost of providing the benefits payable under the Directors’ Deferred Fee Plan, the Board, in its discretion, may reduce the interest and/or earnings on deferrals to a rate not less than one half the rate otherwise provided for in the Directors’ Deferred Fee Plan.

 

Directors’ Restricted Stock Plan.    Each non-employee director receives a grant of 3,000 shares of restricted stock upon election to the Board. Restricted stock is registered in the name of the director, who has all rights of ownership (including the right to vote the shares and receive dividends); however, restricted stock may not be sold, pledged or otherwise encumbered during a restriction period which (a) begins when the restricted stock is granted and (b) ends on the earlier of (i) the date the director dies or (ii) six months after the director becomes disabled or retires. In the event a non-employee director does not retire in accordance with the terms of the plan, these shares will be forfeited.

 

Long-Term Incentive Plan.    Each of the Corporation’s then current non-employee directors was granted 2,400 restricted stock units effective January 27, 2011. Each restricted stock unit represents the economic equivalent of one share of our common stock, and will be settled in shares of our common stock rather than cash. These restricted stock units are credited to a separate memorandum account maintained for each director and are administered in accordance with the Long-Term Incentive Plan. Stock units in each director’s memorandum account are credited with dividend equivalents as dividends are paid on our common stock, and the amount credited is converted into additional restricted stock units, including fractions thereof, based on the mean of the high and low trading prices of our common stock on the dividend payment date. We anticipate that, from time to time, non-employee directors will be granted additional restricted stock units in an amount sufficient to assure that their total annual compensation for services is competitive.

 

Upon leaving the Board, a director will receive the value of the restricted stock units in this memorandum account in shares of our common stock either in a lump sum distribution or in ten annual distributions, in accordance with an election made by each director. Restricted stock unit awards made after 2010 are subject to retention until the director ceases to serve as a director, with a minimum three-year restriction period measured from the award date. If a director leaves while restricted stock unit awards are still subject to the restriction period, such restricted stock units will be distributed in accordance with the director’s prior distribution election as each restriction period expires.

 

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Directors’ Charitable Award Program.    Each director is entitled to nominate up to five tax-exempt institutions to receive, in the aggregate, up to $500,000 from Norfolk Southern following the director’s death. Directors are entitled to designate up to $100,000 per year of service until the $500,000 cap is reached. Following the director’s death, we will distribute the donations in five equal annual installments.

 

The Directors’ Charitable Award Program supports, in part, our long-standing commitment to contribute to educational, cultural and other appropriate charitable institutions and to encourage others to do the same. We fund the charitable contributions made under the Program with proceeds from life insurance policies we have purchased on the Board members’ lives. We are the owner and beneficiary of these policies, and the directors have no rights to any policy benefits. Upon Board members’ deaths, we receive life insurance death benefits free of income tax, which provide a source from which we can be reimbursed for donations made under the Program. Our cost of the life insurance premiums under the Program is partially offset by tax deductions we take from making the charitable contributions. Each director’s proportional share of the cost of maintaining these policies during 2011 is included in the above table under “All Other Compensation.”

 

Because we make the charitable contributions (and are entitled to the related deduction) and are the owner and the beneficiary of the life insurance policies, directors derive no direct financial benefit from this program. In the event the proceeds from any of these policies exceed the donations we are required to make under the Program, we contribute the excess proceeds to the Norfolk Southern Foundation. Amounts the Norfolk Southern Foundation receives under this program may reduce what we otherwise would contribute from general corporate resources to support the Foundation’s activities.

 

Directors’ Physical Examinations.    Each non-employee director is entitled to reimbursement for a physical examination, up to $10,000 per calendar year. Some of our directors were reimbursed for physical examinations during 2011, but because the cost of these physicals, together with other perquisites or other personal benefits, did not exceed $10,000 for any non-employee director, these amounts do not appear in the 2011 Non-Employee Director Compensation Table. The CEO and the Executive Vice Presidents also are eligible for such reimbursement. See pages 36 and 39 of the “Executive Compensation” section of this proxy statement.

 

Risk Oversight

 

The Board of Directors is responsible for the oversight of the Corporation’s risk management efforts. While the full Board of Directors is ultimately responsible for this oversight function, the Governance and Nominating Committee has been delegated authority to recommend procedures and processes for the Board’s risk oversight function. Currently the Governance and Nominating Committee considers a mapping of the Corporation’s risk and assigns oversight responsibilities for specific risks to the Board of Directors and the committees of the Board. In addition, in accordance with applicable regulations and its charter, the Audit Committee periodically considers major financial risks of the Corporation. Finally, the Compensation Committee considers major compensation related risks of the Corporation. Management in charge of particular areas of risk for the Corporation provides presentations, information and updates on risk management efforts as requested by the Board or a Board committee.

 

Committees

 

Each year, not later than at its organizational meeting that usually follows the Annual Meeting of Stockholders, the Board of Directors appoints members to its committees. In May 2011, the Board appointed members to the Executive Committee, the Governance and Nominating Committee, the Finance Committee, the Audit Committee and the Compensation Committee. The Performance-Based

 

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Compensation Committee was eliminated in May 2011. Prior to its elimination, the members of the Performance-Based Compensation Committee were Daniel A. Carp, Chair, Gerald L. Baliles, Karen N. Horn and Steven F. Leer. The charter of each of the committees, approved by the Board of Directors, requires that it evaluate its performance at least annually, considering such issues as its effectiveness, its size and composition, the quality of information and presentations given by management, the suitability of its duties and such other issues as the committee deems appropriate. Copies of these committee charters are available on our website in the “Investors” section under “Corporate Governance” at www.nscorp.com. Any stockholder may request printed copies of one or more of the committee charters by contacting: Howard D. McFadden, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, 13th Floor, Norfolk, Virginia 23510-9219 (telephone 757-823-5567). The Board of Directors also appointed members to one non-standing committee, the Special Litigation Committee, in March 2010. The members of the Special Litigation Committee were Gerald L. Baliles, Karen N. Horn and Michael D. Lockhart. The Special Litigation Committee was eliminated in November 2011.

 

The Executive Committee met two times in 2011; its current members are Charles W. Moorman, Chair, Gerald L. Baliles, Daniel A. Carp, Alston D. Correll and Burton M. Joyce. Mr. Carp and Mr. Joyce joined the Committee on May 12, 2011, and Dr. Carter and Mr. Hilliard served in the Committee until that date. When the Board is not in session, and except as otherwise provided by law, the Executive Committee has and may exercise all the authority of the Board, including the authority to declare a quarterly dividend on our common stock at the rate of the quarterly dividend most recently declared by the Board. All actions taken by the Executive Committee are reported to the Board at its meeting next following such action and are subject to revision or alteration by the Board. The Executive Committee is governed by a written charter last adopted by the Board effective January 1, 2005.

 

The Governance and Nominating Committee met seven times in 2011; its current members are Alston D. Correll, Chair, Daniel A. Carp, Karen N. Horn, Steven F. Leer and J. Paul Reason. Mr Carp and Mr. Reason joined the Committee on May 12, 2011, and Mr. Hilliard served as a member of the Committee until that date. All members of the Governance and Nominating Committee are independent (see information under “Director Independence” on page 17). The Governance and Nominating Committee is governed by a written charter last adopted by the Board effective November 24, 2009. This committee’s duties include:

 

  ·  

recommending to the Board qualified individuals to be nominated either as additional members of the Board or to fill any vacancy on the Board;

 

  ·  

recommending to the Board qualified individuals to be elected as our officers;

 

  ·  

recommending the adoption of and any amendments to our Corporate Governance Guidelines;

 

  ·  

monitoring legislative developments relevant to us and overseeing efforts to affect legislation and other public policy;

 

  ·  

overseeing our charitable giving;

 

  ·  

monitoring our relations with stockholders;

 

  ·  

monitoring corporate governance trends and practices and making recommendations to the Board of Directors concerning corporate governance issues; and

 

  ·  

recommending to the Board of Directors procedures and processes for the Board’s oversight of the Corporation’s risk management program.

 

As described in the Corporate Governance Guidelines, the Governance and Nominating Committee considers potential candidates to be nominated for election as directors, whether

 

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recommended by a stockholder, director, member of management or consultant retained for that purpose, and recommends nominees to the Board. The Governance and Nominating Committee reviews the current biography of the potential candidate and additional information provided by the individual or group that recommended the candidate for consideration. The Governance and Nominating Committee fully considers the qualifications of all candidates and recommends the nomination of individuals who, in the Governance and Nominating Committee’s judgment, will best serve the long-term interests of all stockholders. In the judgment of the Governance and Nominating Committee and the Board, all director nominees recommended by the Governance and Nominating Committee should, at a minimum:

 

  ·  

be of high ethical character and have personal and professional reputations consistent with our image and reputation;

 

  ·  

have experience as senior executives of public companies or leaders of large organizations, including charitable and governmental organizations, or have other experience at a strategy or policy setting level that would be beneficial to us;

 

  ·  

be able to represent all of our stockholders in an objective and impartial manner; and

 

  ·  

have time available to devote to Board activities.

 

It is the intent of the Governance and Nominating Committee and the Board that at least one director on the Board will qualify as an “audit committee financial expert,” as that term is defined in regulations of the SEC.

 

The Governance and Nominating Committee will consider director candidates recommended by stockholders. Any such recommendation should include:

 

  ·  

biographical information on the candidate, including all positions held as an employee, officer, partner, director or ten percent owner of all organizations, whether for profit or not-for-profit, and other relevant experience;

 

  ·  

a description of any relationship between the candidate and the recommending stockholder;

 

  ·  

a statement requesting that the Board consider nominating the individual for election as a director;

 

  ·  

written consent of the proposed candidate to being named as a nominee; and

 

  ·  

proof of the recommending stockholder’s stock ownership.

 

Recommendations by stockholders must be in writing and addressed to the Chair of the Governance and Nominating Committee, c/o Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, 13th Floor, Norfolk, Virginia 23510-9219. So that the Governance and Nominating Committee will have adequate time to consider all candidates, stockholder recommendations must be received no later than November 21, 2012, in order to be considered for nomination for election at the 2013 Annual Meeting of Stockholders.

 

A stockholder may directly nominate an individual for election as director instead of (or in addition to) recommending a candidate for the Governance and Nominating Committee’s consideration. Unless required by SEC regulations, stockholder nominees will not appear in our proxy statement or on the proxy card for the annual meeting. Stockholders wishing to nominate an individual for election as a director at an annual meeting must comply with specific Bylaw provisions, which are available on our website, www.nscorp.com, in the “Investors” section under “Corporate Governance.”

 

The Finance Committee met five times in 2011; its current members are Gerald L. Baliles, Chair, Thomas D. Bell, Jr., Erskine B. Bowles, Robert A. Bradway (who joined the Committee on July 25, 2011), Wesley G. Bush (who joined the Committee on February 27, 2012), Burton M. Joyce and

 

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Michael D. Lockhart. Adm. Reason and Dr. Carter served on the Committee until May 12, 2011. The Finance Committee is governed by a written charter last adopted by the Board effective November 23, 2010. This committee’s duties include:

 

  ·  

developing guidelines and overseeing implementation of policies concerning our capital structure; and

 

  ·  

reviewing and evaluating tax and treasury matters and financial returns of our transactions.

 

The Compensation Committee met five times in 2011; its current members are Daniel A. Carp, Chair, Gerald L. Baliles, Erskine B. Bowles (who joined the Committee on February 28, 2011), Wesley G. Bush (who joined the Committee on February 27, 2012), Alston D. Correll and Steven F. Leer. Mr. Hilliard and Dr. Horn served on the Committee until May 12, 2011. All members of the Compensation Committee are independent (see information under “Director Independence” on page 17). The Compensation Committee is governed by a written charter last adopted by the Board effective January 25, 2010. This committee’s duties include:

 

  ·  

considering and making recommendations to the Board concerning our executive compensation programs, including recommended compensation for directors and annual salaries for those officers whose salaries are fixed by the Board;

 

  ·  

reviewing and approving corporate goals and objectives relevant to the Chief Executive Officer’s compensation and considering and recommending to the independent members of the Board the compensation of the Chief Executive Officer based on an evaluation of the Chief Executive Officer’s performance relative to those corporate goals and objectives;

 

  ·  

considering and making recommendations to the Board concerning the adoption and administration of any management incentive bonus plan, deferred compensation plan, long-term incentive plan or other similar plan, including personnel eligible to participate and the method of calculating bonuses, deferred compensation amounts or awards under any such plan;

 

  ·  

overseeing the design of our employee retirement plans;

 

  ·  

making any other compensation decisions for which it is desirable to achieve the protections afforded by Section 162(m) of the Internal Revenue Code or by other laws or regulations that may be or become relevant in this area and in which only “disinterested” directors may participate; and

 

  ·  

overseeing disclosures under the Compensation Discussion and Analysis (“CD&A”) on executive compensation as required by the SEC to be included in the annual proxy statement or annual report on Form 10-K and producing a Compensation Committee Report indicating that it has reviewed and discussed the CD&A with management and whether the CD&A should be included in the annual proxy statement.

 

The Compensation Committee makes all salary recommendations to the independent members of the Board of Directors for the Chief Executive Officer and, based on the Chief Executive Officer’s individual performance evaluations, to the Board of Directors for all other Board-elected officers. The Compensation Committee also makes long-term incentive compensation awards to directors and makes recommendations to the full Board of Directors on all other elements of director compensation. In setting such compensation for the directors and the Chief Executive Officer, the Compensation Committee considers the recommendations of the compensation consultant.

 

The Compensation Committee has engaged Pay Governance to assist it in making compensation recommendations and decisions and otherwise fulfilling its duties under its charter. The Committee annually requests that Pay Governance assess our compensation and employee benefit arrangements, particularly those relevant to our directors and Executive Officers, and advise it

 

24


whether any changes would be recommended in order to ensure that our compensation arrangements with our directors and Executive Officers are appropriate. The Committee has directed that the assessment include comparisons of our existing compensation arrangements to those of the other Class I railroads and American corporations of comparable size. During the Committees’ 2011 review of the directors’, the Chief Executive Officer’s and other management’s compensation levels, the Committee and the Performance-Based Compensation Committee considered the advice they received from Pay Governance; however, the Committees were responsible for deciding or for making final recommendations to the Board as to the form and amount of our compensation programs.

 

The Audit Committee met eight times in 2011; its current members are Burton M. Joyce, Chair, Thomas D. Bell, Jr., Robert A. Bradway (who joined the Committee on July 25, 2011), Karen N. Horn (who joined the Committee on May 12, 2011), Michael D. Lockhart, and J. Paul Reason. Gene R. Carter served on the Committee until May 12, 2011. The Board has determined that all current members of the Audit Committee are independent (see information under “Director Independence” on page 17) and satisfy all additional requirements for service on an audit committee, as defined by the applicable rules of the New York Stock Exchange and the SEC, and no member of the Audit Committee serves on more than three public company audit committees. While other members of the Audit Committee may also qualify, the Board has determined that Burton M. Joyce, who is a member of the Audit Committee, qualifies as an “audit committee financial expert,” as that term is defined by SEC rules.

 

The Audit Committee is governed by a written charter last adopted by the Board effective November 24, 2009. This committee’s duties include:

 

  ·  

assisting Board oversight of the accuracy and integrity of our financial statements, financial reporting process and internal control systems;

 

  ·  

engaging an independent registered public accounting firm (subject to stockholder ratification) based on an assessment of their qualifications and independence, and pre-approving all fees associated with their engagement;

 

  ·  

evaluating the efforts and effectiveness of our independent registered public accounting firm and Audit and Compliance Department, including their independence and professionalism;

 

  ·  

facilitating communication among the Board, the independent registered public accounting firm, our financial and senior management and our Audit and Compliance Department;

 

  ·  

assisting Board oversight of our compliance with applicable legal and regulatory requirements; and

 

  ·  

preparing the “Audit Committee Report” that SEC rules require be included in our annual proxy statement.

 

AUDIT COMMITTEE REPORT

 

Before our Annual Report on Form 10-K for the year ended December 31, 2011 was filed with the SEC, the Audit Committee of the Board of Directors reviewed and discussed with management our audited financial statements for the year ended December 31, 2011.

 

The Audit Committee has discussed with KPMG LLP, our independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards 61, “Communications with Audit Committees,” as amended.

 

The Audit Committee also has received and reviewed the written disclosures and the letter from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP their independence.

 

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Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the financial statements referred to above be included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC.

 

2011 Members of the Audit Committee

 

Burton M. Joyce, Chair

Thomas D. Bell, Jr., Member

Robert A. Bradway, Member*

Karen N. Horn, Member**

Michael D. Lockhart, Member

J. Paul Reason, Member

*Joined the Committee effective July 25, 2011

**Joined the Committee effective May 12, 2011

 

TRANSACTIONS WITH RELATED PERSONS

 

We may occasionally participate in transactions with certain “related persons.” Related persons include our Executive Officers, directors, 5% or more beneficial owners of our common stock, immediate family members of these persons, and entities in which one of these persons has a direct or indirect material interest. We refer to transactions with these related persons as “related person transactions.” We have adopted a written policy to prohibit related person transactions unless they are determined to be in Norfolk Southern’s best interests. Under this policy, the Audit Committee is responsible for the review and approval of each related person transaction exceeding $120,000. In instances where it is not practicable or desirable to wait until the next meeting of the Audit Committee for review of a related person transaction, the Chair of the Audit Committee possesses delegated authority to act between Audit Committee meetings. The Audit Committee, or the Chair, considers all relevant factors when determining whether to approve a related person transaction including, without limitation, whether the proposed transaction is on terms and made under circumstances that are at least as favorable to Norfolk Southern as would be available in comparable transactions with or involving unaffiliated third parties. Among other relevant factors, they consider the following:

 

  ·  

the size of the transaction and the amount of consideration payable to the related person(s);

 

  ·  

the nature of the interest of the applicable director, director nominee, Executive Officer, or 5% stockholder, in the transaction; and

 

  ·  

whether we have developed an appropriate plan to monitor or otherwise manage the potential for a conflict of interest.

 

The Chair must report any action taken pursuant to this delegated authority to the Audit Committee at its next meeting. In addition, at the Audit Committee’s first meeting of each fiscal year, it reviews all previously approved related person transactions that remain ongoing and have a remaining term or remaining amounts payable to or receivable from us of more than $120,000. Based on all relevant facts and circumstances, taking into consideration our contractual obligations, the Audit Committee determines whether it is in our and our stockholders’ best interest to continue, modify or terminate the related person transaction.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

The members of the Compensation Committee during 2011 were Daniel A. Carp, Chair, Gerald L. Baliles, Erskine B. Bowles, Alston D. Correll, and Steven F. Leer. Mr. Hilliard and Dr. Horn served on the Committee until May 12, 2011. The members of the Performance-Based Compensation Committee during 2011 were Daniel A. Carp, Chair, Gerald L. Baliles, Karen N. Horn, and Steven F. Leer. The

 

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Performance-Based Compensation Committee was eliminated in May 2011. None of the foregoing members has ever been employed by Norfolk Southern, and no such member had, during our last fiscal year, any relationship with us requiring disclosure under Item 404 of Regulation S-K or under the Compensation Committee Interlocks disclosure requirements of Item 407(e)(4) of Regulation S-K.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Objectives of Compensation Program

 

Norfolk Southern’s primary objective with respect to executive compensation is to design compensation programs which will:

 

  ·  

Align executives’ compensation with overall business strategies;

 

  ·  

Attract and retain highly qualified executives; and

 

  ·  

Provide incentives that drive stockholder value.

 

The Compensation Committee of our Board of Directors is responsible for developing and maintaining appropriate compensation programs for our Executive Officers, including our Named Executive Officers. Until May 12, 2011, the Performance-Based Compensation Committee was responsible for considering and making certain awards under the Long-Term Incentive Plan and the Executive Management Incentive Plan of the Corporation. The Board of Directors eliminated the Performance-Based Compensation Committee in May 2011 and transferred that committee’s duties to the Compensation Committee. In this Compensation Discussion and Analysis we refer to the Compensation Committee and the Performance-Based Compensation Committee, whether acting together or independently, as the “Committees.”

 

In order to enhance the Committees’ ability to carry out these responsibilities effectively, as well as ensure that Norfolk Southern maintains strong links between executive pay and performance, the Committees:

 

  ·  

Review management recommendations with respect to compensation decisions.

 

  ·  

Review the Chief Executive Officer’s individual performance evaluations for Executive Officers and discuss such performance assessments with the Chief Executive Officer on an annual basis and recommend any compensation adjustments to the Board of Directors for approval.

 

  ·  

Have retained Pay Governance as an outside compensation consultant.

 

To show the compensation differentials between the Chief Executive Officer and our other executives, and among our executive vice presidents (collectively, the “Named Executive Officers”), Norfolk Southern has chosen to report compensation for all of its executive vice presidents in the compensation tables in this proxy statement and to discuss their compensation in this Compensation Discussion and Analysis section.

 

Management Recommendations

 

The Chief Executive Officer and the Executive Vice President-Administration provide recommendations to the Committees on any adjustments to compensation for the Named Executive Officers, other than the Chief Executive Officer. Such adjustments are based on each individual’s performance, level of responsibility, and time in position. In addition, the Chief Executive Officer and Executive Vice President-Administration provide recommendations to the Committees on adjustments

 

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to compensation to address retention needs, performance goals, internal pay equity, overall corporate performance, and general economic conditions. In 2011, Pay Governance made recommendations to the Committees on adjustments to compensation for the Chief Executive Officer. The Chief Executive Officer is not present when the Committees make decisions on his compensation package.

 

Use of Compensation Consultant

 

The Committees engaged Pay Governance to provide executive compensation consulting services to the Committees during 2011. Pay Governance does not provide services to Norfolk Southern other than services provided directly to the Committees. Pay Governance provides requested reports and information to the Committees and attends Committee meetings at the Committees’ request. For 2011, the Committees engaged Pay Governance to (1) conduct a market pay assessment of Norfolk Southern’s compensation levels relative to both the competitive market and Norfolk Southern’s compensation philosophy, including identifying and reviewing market benchmark positions and compensation comparison data, (2) assist Norfolk Southern with the development of long-term incentive grant guidelines for the officer and management groups, based on Pay Governance’s competitive pay assessment and long-term incentive competitive market data, (3) conduct an assessment of Norfolk Southern’s non-employee directors’ compensation package relative to competitive market practices, (4) review emerging trends and issues in executive compensation with the Committees and discuss the implications for Norfolk Southern, and (5) provide certain additional executive compensation consulting services as may be requested by the Committees. In conducting the market pay assessment, Pay Governance reviews with the Committees parameters for the selection of peer group companies and compiles compensation data for the peer group. The Committees use this information as a starting point for its compensation decisions.

 

Compensation Policies

 

In setting compensation for the Named Executive Officers, the Committees:

 

  ·  

Consider comparative market data, gathered by the compensation consultant, from other North American Class I railroads as a guideline (“Peer Group Companies”). In aggregate, the Committees target a range from the 50th to the 65th percentile for Named Executive Officers’ total direct compensation (i.e., total cash compensation plus the expected value of long-term incentive awards) compared to the Peer Group Companies.

 

  ·  

Consider prior salary levels, targeted bonus opportunities and the value of long-term incentive awards at the time the awards were made.

 

  ·  

Consider expected corporate performance and general economic conditions.

 

  ·  

Do not consider amounts realized from prior performance-based or stock-based compensation awards when setting the current year’s target total direct compensation, regardless of whether such amounts realized may have resulted in a higher payout than targeted or a lower payout than targeted in prior years. Since the nature and purpose of performance-based and stock-based compensation is to tie executives’ compensation to future performance, the Committees believe that considering amounts realized from prior compensation awards in making current compensation decisions is inconsistent with such purpose.

 

The Committees monitor the continuing appropriateness of the peer group. Beginning in 2011, the Committees selected a peer group for the Named Executive Officers consisting of the other North American Class I railroads. The Committees selected this peer group because Norfolk Southern is increasingly in competition with the other North American Class I railroads for key executive talent. As

 

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a result, the Committees determined that reference to the pay levels at the other North American Class I railroads was the most relevant comparator for the Named Executive Officers. The North American Class I railroads that make up the “Peer Group Companies” are:

 

BNSF Railway    Canadian Pacific Railway    Kansas City Southern
Canadian National Railway    CSX    Union Pacific

 

The Committees apply their executive compensation policies consistently to all Named Executive Officers, and the application of these policies produces differing amounts of compensation for executives at different management levels within the Corporation. In setting the Chief Executive Officer’s compensation, the Committees apply the policies described above and, in particular, strive to balance comparative market data for chief executive officers of Peer Group Companies with its goal to provide meaningful incentive opportunities earned on the basis of performance which contributes to delivering stockholder returns. In considering comparative market data for the Chief Executive Officer, the Committees also consider experience. For 2011, the Committees targeted between the 25th and 50th percentile as compared to the Peer Group Companies for Mr. Moorman’s base salary to reflect the Committees’ desire to provide adjustments in a gradual and incremental fashion. In addition, the Committees look at executives at the executive vice president level and consider the appropriate compensation differential between the Chief Executive Officer and the executive vice presidents. Because the Chief Executive Officer’s job carries the highest level of responsibility and has the greatest ability to drive shareholder value, his total compensation contains a higher variable or “at-risk” component than that of other executives.

 

Consideration of Stockholder Advisory Vote on Compensation

 

At Norfolk Southern’s 2011 Annual Meeting of Stockholders, the Corporation’s stockholders voted on a non-binding advisory resolution on the compensation provided to the Corporation’s Named Executive Officers, as reported in the Corporation’s 2011 Compensation Discussion and Analysis and executive compensation tables. Approximately 94% of voting stockholders approved that resolution. Given the results of the stockholder advisory vote, the Committee adopted compensation programs and practices generally consistent with those disclosed for 2011. While such votes are advisory in nature, the Board and Compensation Committee will carefully consider the results of any such vote in the future.

 

Compensation Components

 

Overview

 

Norfolk Southern’s executive compensation programs for 2011 are designed so that, at target levels of performance, total direct compensation for Named Executive Officers is in approximately the 50th to 65th percentile in aggregate as compared to the Peer Group Companies. Total direct compensation consists of salary, annual bonus, and long-term incentives. In establishing compensation for the different executive levels, the Committees strive to provide internal pay equity across each level so that executives occupying positions at a similar level and having a similar level of responsibility, such as executive vice presidents, receive similar total direct compensation.

 

The Committees consider what proportion of total direct compensation should be paid annually as base salary, as total cash compensation (salary plus bonus) and as long-term compensation. For 2011, the Committees targeted approximately the 50th percentile as compared to the Peer Group Companies as a guideline in establishing base salaries (see the discussion under “Salaries”) and the portion paid annually as total cash compensation. In 2011, the portion of total direct compensation awarded as cash compensation was approximately 28% for Mr. Moorman and 41% for the other Named Executive Officers, and the portion of total direct compensation awarded as long-term incentive compensation was approximately 72% for Mr. Moorman and 59% for the other Named Executive Officers.

 

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The Committees also consider where total direct compensation valued at the time of the award falls within the targeted 50th to 65th parameter. This comparison is based on salary for the upcoming year, an estimated 67% earn-out for the bonus, an estimated 50% earn-out for performance share units awarded for the upcoming year, a binomial model valuation for options, and an estimated fair market value for restricted stock units. The value of long-term incentive compensation is based on the estimated fair market value of Norfolk Southern’s stock at the time the award is approved by the Committees.

 

The Committees may adjust compensation for an individual executive based on individual performance. In particular, the Committees may reduce certain compensation that is performance-based (such as the annual bonus and performance shares), and may reduce or increase certain compensation that is not performance-based (such as for restricted stock units). The Committees determined in 2011 that the performance of all Named Executive Officers met or exceeded expectations and therefore did not make any adjustments to compensation on the basis of individual performance.

 

Base salaries, total cash compensation and total direct compensation awarded for 2011 for the Named Executive Officers was positioned at the following percentiles as compared to the aggregate for Peer Group Companies:

 

    

Base Salary


   

Total Cash Compensation


   

Total Direct Compensation


 

Mr. Moorman

     33     47     57

Mr. Squires

     59     56     52

Ms. Butler

     59     56     52

Mr. Hixon

     59     56     52

Mr. Manion

     59     56     52

Mr. Rathbone

     59     56     52

Mr. Seale

     59     56     52

 

Mr. Moorman’s base salary fell within the targeted 25th to 50th percentile range, and his total cash compensation fell below the targeted percentile because his total direct compensation consists of a higher proportion of compensation which is at risk (i.e., bonus, options and performance shares). Base salary and total cash compensation for Ms. Butler, Mr. Hixon, Mr. Manion, Mr. Rathbone, Mr. Seale, and Mr. Squires fell within a reasonable range of the targeted 50th percentile for base salary and total cash compensation.

 

In awarding long-term incentive compensation, the Committees consider the targeted total direct compensation and the prior year’s award to determine the total size of the long-term incentive award. Once the Committees establish salary and bonus (i.e., total cash compensation), the remaining portion of total direct compensation is awarded as long-term incentive compensation. For Mr. Moorman, his total direct compensation awarded for 2011 was within a reasonable range of the target. For Ms. Butler, Mr. Hixon, Mr. Manion, Mr. Rathbone, Mr. Seale, and Mr. Squires, the Committees considered their total direct compensation to be within a reasonable range of the target.

 

The greater the level of an executive’s responsibility, the higher the proportion of his or her compensation which is at risk. For 2011, the portion of total direct compensation that was at risk represented 77% of Mr. Moorman’s total direct compensation and 69% of the total direct compensation for the other Named Executive Officers, while the remaining 23% and 31% represented the portion of total direct compensation that was not at risk (base salary and restricted stock units). For the at-risk portion of total direct compensation, the Committees awarded approximately 21% as an annual incentive in the form of an annual bonus to Mr. Moorman and 27% to the other Named Executive Officers, and approximately 79% and 73% as long-term incentive compensation (options

 

30


and performance shares). Each of these components is described below. The establishment of short-term at-risk compensation (i.e., bonus) is based in part on the total cash compensation target, and the establishment of long-term at-risk compensation is based in part on the total direct compensation target; this allocation is not directly based on a target against comparative market data for the amount of short-term compensation and long-term compensation which is at risk. In addition, the Committees consider market practices, internal pay equity, and our objective to attract and retain highly qualified executives in establishing short-term at-risk and long-term at-risk compensation. This allocation is re-evaluated annually.

 

The Committees further consider the portion of total direct compensation which is to be awarded as long-term compensation (including both the fixed and the at-risk portions) and how the long-term piece of compensation should be allocated between options, performance shares, and restricted stock units. This allocation is based on general market practices, compensation trends, governance practices, and business issues facing Norfolk Southern. In making this determination, the Committees take into account the potential dilutive effect of stock-based awards and the burn rate of such awards, including guidance on these measures from proxy advisory services, and further consider the purpose behind each element of long-term compensation and how the allocation among these elements will contribute to its overall compensation policies. The Committees do not target comparative market data in making this allocation decision.

 

Salaries

 

Norfolk Southern targets approximately the 50th percentile as compared to Peer Group Companies as a guideline in establishing the Named Executive Officers’ base salaries. However, Norfolk Southern may provide for base salaries above the median if, in the Committees’ view, a particular executive’s performance exceeded expectations; if an executive takes on additional responsibilities; to provide internal pay equity; or under other special circumstances. Base salaries are reviewed annually and adjusted from time to time to realign salaries with market levels after taking into account individual performance and experience. For 2011, the Committees recommended no changes to base salaries for the Named Executive Officers.

 

Annual Bonus

 

Each of our Named Executive Officers participates in Norfolk Southern’s Executive Management Incentive Plan (“EMIP”), which is designed to compensate executives based on achievement of annual corporate performance goals. For 2011, Norfolk Southern targeted the 50th percentile as compared to the Peer Group Companies for Named Executive Officers’ base salaries plus bonuses.

 

Under EMIP, each participant has an opportunity to earn a bonus amount that is contingent upon achieving the relevant performance goals. The performance goals for 2011 were based 37.5% on pre-tax net income, 37.5% on operating ratio and 25% on a composite of three service measures, consisting of adherence to operating plan, connection performance, and train performance (which we will refer to as the “composite service measure”). Each metric is based on objective performance targets, and the composite service measure is based on goals for each of the three individual service measures. The composite service measure is comprised of 30% for adherence to operating plan, 30% for connection performance and 40% for train performance. The portions of the bonus based on pre-tax net income, operating ratio and the composite service measure each vest independently, so it is possible to earn a bonus by achieving the threshold on only one of these metrics. Norfolk Southern selected these metrics because it believes that use of such metrics promotes operating efficiency and thereby enhances stockholder value. In anticipation of significantly increased volume growth in 2011 and the resulting operating complexities, the Committees raised the performance standards for operating ratio and pre-tax net income and lowered the performance standard used for the composite service measure for 2011 as compared with performance goals established in 2010.

 

31


For 2011, the Committees set the following threshold, target and maximum payouts:

 

  ·  

if Norfolk Southern achieved only one of each target listed below, then a threshold payout of:

 

    0.02% at a pre-tax net income of $1.561 billion, or

 

    0.28% at an operating ratio of 77.9%, or

 

    7.5% at a composite service measure of 72%

 

  ·  

a targeted payout of 67% for a pre-tax net income of $2.799 billion, an operating ratio of 70.5% and a composite service measure of 78%, and

 

  ·  

a maximum payout of 100% if Norfolk Southern achieved a pre-tax net income equal to or in excess of $2.978 billion, an operating ratio equal to or lower than 69.5%, and a composite service measure equal to or in excess of 84.0%.

 

For each of the three performance goals, the Committees set targets and resulting payouts at regular intervals between the threshold, target and maximum. The final bonus percentage is calculated using a weighted average of the payouts for each performance measure as shown below:

 

Operating Ratio


   

Pre-Tax Net Income
(billions)


   

Composite Service
Measure


 

37.5%


   

37.5%


   

25%


 

OR


 

Payout


   

PTNI


   

Payout


   

CSM


   

Payout


 
69.5%     100     $2.978        100     84.0     100
69.7%     92     $2.933        92     80.0     95
70.0%     84     $2.888        84     79.3     86
70.2%     76     $2.843        76     78.6     77
70.5%     67     $2.799        67     78.0     67
71.2%     60     $2.680        60     76.8     60
71.9%     53     $2.561        53     75.6     52
72.6%     46     $2.442        46     74.4     45
73.3%     39     $2.323        39     73.2     37
74.0%     30     $2.205        30     72.0     30
78.0%     0     $1.560        0     <72.0     0

 

Actual results for the year were applied to each schedule to determine the earned 2011 award, as detailed below:

 

Performance Metric


  

Performance


   

% of
Award
Earned


   

Component
Weighting


   

Subtotal


 

Operating Ratio

     71.20     60.00     37.5     22.50

Pre-Tax Net Income (billions)

   $ 2.918        89.33     37.5     33.50

Composite Service Measure

     75.90     54.00     25.0     13.50

Total

                             69.5 % 

 

Long-Term Incentive Awards

 

Norfolk Southern believes that the most effective means to encourage long-term performance by our Named Executive Officers is to create an ownership culture. This philosophy is implemented through the granting of equity-based awards that vest based on continued employment and other long-term awards which vest on achievement of pre-determined performance goals. The Committees believe that the use of long-term incentive compensation for executives reinforces their focus on the importance of returns to stockholders, promotes achievement of long-term performance goals, and encourages executive retention.

 

For 2011, the Committees retained the same mix of long-term awards as were granted in 2010. Based on the value estimated at the time the Committees approved the award, both the 2011 and

 

32


2010 awards resulted in a long-term award allocation of approximately 35% as options, 15% as restricted stock units, and 50% as performance shares (assuming a 50% earn-out of performance share units granted).

 

For 2011 awards, Executive Officers are required by contract to reimburse Norfolk Southern for amounts distributed under these plans in the event of a restatement due to material noncompliance with the financial reporting requirements of the federal securities laws during the performance period. In addition, executives are required not to engage in competing employment as a condition to receiving the 2011 award.

 

Stock Options.    Norfolk Southern believes that use of options provides it with the ability to retain key employees and at the same time increase stockholder value since the value of the options is only realized if Norfolk Southern’s stock price increases from the date on which the options are granted. For 2011, the Committees maintained the option vesting period at four years to encourage retention of key employees and awarded dividend equivalents on options during the four-year vesting period.

 

Since 1989, Norfolk Southern has granted stock options annually at the regularly scheduled January meeting of the Committees, with the exception of employees hired in connection with the Conrail transaction in 1999. The Committees approve all options grants and set the option price based on a long-standing pricing practice. Under this long-standing practice, the Board of Directors approves year-end financial results at its January meeting, and Norfolk Southern typically releases such results the following day. Also at the January meeting, the Committees set the exercise price for the options as the fair market value of Norfolk Southern’s common stock on the first day of the upcoming window period during which executives are permitted to trade in Norfolk Southern’s securities and following the release of Norfolk Southern’s financial results (the “effective date”), thereby establishing a prospective effective date to price the options. Options are priced on the effective date of the grant at the higher of (i) the closing price or (ii) the average of the high and low price on the effective date of the grant. The Long-Term Incentive Plan prohibits repricing of outstanding stock options without the approval of stockholders.

 

Performance Shares.    Norfolk Southern uses performance shares to reward the achievement of performance goals over a three-year period. Performance goals are established at the time of grant for three equally weighted criteria: Return on Average Invested Capital, a total stockholder return measure, and operating ratio. For performance shares, vesting of 1/3 of the shares is based on Return on Average Invested Capital, which Norfolk Southern believes is an indicator important to stockholders of a capital-intensive company such as Norfolk Southern. Return on Average Invested Capital for this purpose is calculated by dividing Norfolk Southern’s pre-tax income (adjusted to exclude interest expense and bonus accruals) by the average of Norfolk Southern stockholders’ equity plus debt due after one year as measured at the end of each year in the three-year period. Vesting of an additional 1/3 of the shares is based on Norfolk Southern’s total stockholder return as compared with the stockholder return of the other publicly traded North American Class I railroads, with a threshold measure based on a comparison of Norfolk Southern’s stockholder return to the S&P 500. The Committees revised this Total Shareholder Return metric from that used in prior year’s awards since the Committees believed that the revised metric will incent greater management performance as compared with Norfolk Southern’s rail competitors. Another change that the Committees made in 2011 as compared with past awards was to measure the total shareholder return metric at the end of the three-year period, thereby reflecting the return over the entire three-year period, rather than using an average of each year’s result. Vesting of the remaining 1/3 of the shares is based on the average operating ratio over a three-year performance period. Each 1/3 of performance shares granted vests independently of the other 2/3 and their respective performance metrics. Norfolk Southern believes that the use of the three metrics described above promotes the enhancement of stockholder value and efficient utilization of corporate assets.

 

33


In setting the performance targets for the 2011-2013 cycle, the Committees considered the performance targets for the 2010-2012 and 2009-2011 cycles and the earn-out percentages for prior years’ performance share awards. For the 2011-2013 cycle, the Committees raised the performance targets for Operating Ratio to promote further improvement in operating efficiency. In addition, because the Committees revised the performance metric for Total Shareholder Return to compare performance more closely to the other North American Class I Railroads, the performance targets were substantially revised as compared with prior cycles. The Committees retained the same performance targets for Return on Average Invested Capital for the 2011-2013 cycle because they believe the targets continue to provide appropriate incentives. Before 2011, the Committees last raised the performance targets for Total Shareholder Return in 2009 and for Operating Ratio and Return on Average Invested Capital in 2007.

 

For the 2009-2011 and 2010-2012 performance cycles, the performance criteria and resulting earn-out percentages are as follows:

 

Performance Metric


  

Three Year
Average


  

% of PSUs
Earned

2009-2011


  

% of PSUs
Earned

2010-2012


Total Stockholder Return (“TSR”) vs. S&P 500

   ³90th    100%    100%
       80th    88%    88%
       70th    75%    75%
       60th    63%    63%
       50th    50%    50%
       40th    40%    40%
       30th    30%    30%
     £25th    0%    0%

Return on Average Invested Capital (“ROAIC”)

   ³20%    100%    100%
       19%    90%    90%
       18%    80%    80%
       17%    70%    70%
       16%    60%    60%
       15%    50%    50%
       14%    40%    40%
       13%    20%    20%
     <13%    0%    0%

Operating Ratio (“OR”)

   £68%    100%    100%
       73%    75%    75%
       78%    50%    50%
       83%    25%    25%
     >83%    0%    0%

 

34


For the 2011-2013 performance cycle, the performance criteria and resulting earn-out percentages are as follows:

 

Performance Metric


  

Three Year
Average


 

% of PSUs
Earned

2011-2013


 

Total Stockholder Return (“TSR”) vs. North American Class I RRs#

           1st     100
             2nd     75
             3rd     50
             4th     25 %* 
             5th     0 %* 

*Minimum 40% earnout if NS TSR > median S&P 500 TSR for 3-year period

            

#Ranking will disregard any Class I RR that is not publicly traded

            

Return on Average Invested Capital (“ROAIC”)

   ³20%     100
       19%     90
       18%     80
       17%     70
       16%     60
       15%     50
       14%     40
       13%     20
     <13%     0

Operating Ratio (“OR”)

   £67%     100
       70%     75
       74%     50
       78%     25
     >78%     0

 

The earned award for the 2009-2011 performance shares was determined as follows:

 

Performance Metric


  

Performance


   

% of Award
Earned


   

Component
Weighting


   

Subtotal


 

Total Stockholder Return (“TSR”) vs. S&P 500

     55.1     56.6     33.3     18.9

Return on Average Invested Capital (“ROAIC”)

     16.2     62.0     33.3     20.7

Operating Ratio (“OR”)

     72.8     76.0     33.3     25.3

Total

                             64.9 % 

 

For the 2011-2013 performance shares, Norfolk Southern used a 50% earn-out assumption to value the award for market comparison purposes. Over the past ten years, the earn-out has averaged 70%, ranging from 45% to 87% based on performance for the applicable performance cycle.

 

Restricted Stock Units.    Norfolk Southern believes that the use of time-based restricted stock units serves as a key retention tool for keeping valued members of management. For 2011, Norfolk Southern granted restricted stock units which vest on the fifth anniversary of the date of grant, which settle in whole shares of Norfolk Southern common stock and which units are not forfeited upon retirement, disability or death.

 

Retirement Plans and Programs

 

Norfolk Southern believes that its Retirement Plan and Supplemental Benefit Plan provide it with the ability to retain key employees over a longer period. Norfolk Southern sponsors a qualified defined benefit pension plan that provides a benefit based on age, service and a percentage of final average compensation. Norfolk Southern also sponsors a non-qualified supplemental benefit plan that provides a retirement benefit for salary or bonus that is deferred, restores the retirement benefit for amounts in excess of the Internal Revenue Code limitations for tax-qualified retirement plans and may be used to provide enhanced retirement benefits for certain executives. In addition to supporting the goal to retain key employees, Norfolk Southern believes that the supplemental benefit plan also

 

35


recognizes, rewards and encourages contributions by its key employees and maintains internal equity by ensuring that benefit levels are based on compensation levels that reflect the relative value of each participant. Further information on the Retirement Plan and Supplemental Benefit Plan may be found in the Narrative to Pension Benefits Table on page 46.

 

Norfolk Southern maintains the Executives’ Deferred Compensation Plan (the “EDCP”) for the benefit of the Named Executive Officers and certain other employees. The purpose of the EDCP is to provide executives with the opportunity to defer compensation and earnings until retirement or another specified date or event. The type of compensation eligible for deferral includes base salary and the annual bonus. Further information on the EDCP may be found in the Narrative to Nonqualified Deferred Compensation Table on page 48.

 

Other Benefits and Perquisites

 

Norfolk Southern provides the Named Executive Officers with certain health and welfare benefits, a tax-qualified 401(k) plan, and certain other perquisites which Norfolk Southern believes are necessary to retain Executive Officers and to enhance their productivity. The value of perquisites is considered as part of the total compensation package when other elements are evaluated.

 

Norfolk Southern’s Board of Directors has directed and requires each of the Chairman, President and Chief Executive Officer, his family and guests when appropriate, to use Norfolk Southern’s aircraft whenever reasonably possible for air travel. Norfolk Southern believes that such use of the corporate aircraft promotes its best interests by ensuring the immediate availability of this officer and by providing a prompt, efficient means of travel and in view of the need for security in such travel. For the same reasons, Norfolk Southern’s Board of Directors has determined that the Chairman, President and Chief Executive Officer may authorize employees and their guests to use the corporate aircraft for purposes which further the business interests of Norfolk Southern and when the aircraft is not otherwise needed for business use. Such use by other employees and their guests is infrequent. Other perquisites include executive physicals, personal use of company facilities, certain approved spousal travel, and tax preparation services. Norfolk Southern discontinued tax gross-up payments on all perquisites for Executive Officers in 2009, and the provision of company cars and club dues for the Chairman, President and Chief Executive Officer and the Executive Vice Presidents was discontinued in 2008 (except for the chief marketing officer, who is reimbursed for club dues on memberships which further the business interests of Norfolk Southern).

 

Norfolk Southern believes that the benefits and perquisites described above are appropriate to remain competitive compared to other companies and to promote retention of these officers.

 

Impact of the Tax Treatment of Awards on Norfolk Southern’s Compensation Policies

 

Norfolk Southern’s executive compensation program has been carefully considered in light of the applicable tax rules. Section 162(m) of the Internal Revenue Code generally provides that a publicly-held company may not deduct compensation paid to certain of its top executive officers to the extent such compensation exceeds $1 million per executive officer in any year. However, limited exceptions to Section 162(m) apply with respect to performance-based compensation. In order to allow deductibility of the annual bonus and certain long-term incentive awards, Norfolk Southern amended the Long-Term Incentive Plan and Executive Management Incentive Plan in 2010 with stockholder approval to permit the continued grant of performance-based compensation that meets the requirements of Section 162(m) under those plans. However, Norfolk Southern believes that tax-deductibility is but one factor to be considered in fashioning an appropriate compensation package for executives. Norfolk Southern reserves and will continue to exercise its discretion in this area so as to serve the best interests of Norfolk Southern and its stockholders.

 

36


Change-in-Control Agreements

 

Norfolk Southern entered into change-in-control agreements during 1996 at a time of consolidation in the rail industry. The agreements were intended to provide certain economic protections to executives in the event of a termination of employment following a change-in-control of Norfolk Southern and to keep management intact and focused on the best interests of Norfolk Southern and its shareholders without the distraction of possible job and income loss. The Committees continue to believe that the agreements are reasonable and appropriate. Benefits will not be paid under the agreements unless both a change in control occurs and the executive’s employment is terminated or constructively terminated following the change in control. We believe this “double trigger” maximizes stockholder value because this structure would prevent an unintended windfall to management in the event of a change in control that does not result in the termination (or constructive termination) of employment of management. In 2002, the Board of Directors agreed to abide by a stockholder approved proposal that future severance agreements with senior executives that exceed 2.99 times the sum of the executive’s base salary plus bonus require stockholder approval. The change-in-control agreements were revised in 2008 to comply with Section 409A of the Internal Revenue Code but did not enhance or increase benefits provided under the agreements as they existed prior to the revisions. A detailed description of the benefits provided under the change-in-control agreements may be found under the section Change-in-Control Agreements on page 48.

 

Share Ownership Guidelines

 

Norfolk Southern’s Board of Directors has established as part of its Corporate Governance Guidelines the following ownership guidelines for shares of Norfolk Southern stock for its directors and Executive Officers:

 

Position


  

Minimum Value


Director

  

        5 times annual retainer

Chairman, President and Chief Executive Officer

  

        5 times annual salary

Executive Vice Presidents

  

        3 times annual salary

Senior Vice Presidents and Vice Presidents

  

        1 times annual salary

 

For directors, Norfolk Southern common stock, restricted stock, stock equivalents held in Norfolk Southern’s dividend reinvestment plan, and deferred and restricted stock units held in Norfolk Southern’s Long-Term Incentive Plan or under the Directors’ Deferred Fee Plan count toward this requirement. For Executive Officers, Norfolk Southern common stock and stock equivalents held in Norfolk Southern’s 401(k) plan, dividend reinvestment plan and through share retention agreements are counted toward these requirements, but unexercised stock options or unvested equity awards do not count. Directors and officers may acquire such holdings over a five-year period. These ownership guidelines were increased in 2007, and all directors and officers currently meet this guideline or are expected to meet the guideline within the five-year grace period.

 

Pledging; Hedging

 

All Executive Officers of Norfolk Southern are required to clear any transaction involving its common stock with Norfolk Southern’s Corporate Secretary prior to engaging in the transaction. Certain Executive Officers maintain securities accounts at brokerage firms, and the positions held in such accounts, which may from time to time include shares of Norfolk Southern common stock, may be pledged as collateral security for the repayment of any debit balances in the accounts. None of Norfolk Southern’s Executive Officers have otherwise pledged or hedged Norfolk Southern’s securities.

 

37


Policies and Decisions Regarding the Adjustment or Recovery of Awards

 

While Norfolk Southern does not anticipate there would ever be circumstances where a restatement of earnings upon which incentive plan award decisions were based would occur, should such an unlikely event take place, Norfolk Southern, in evaluating such circumstances, would have discretion to take all actions necessary to protect the interests of stockholders up to and including actions to recover such incentive awards. The Committees added a clawback provision to the 2011 performance share awards to permit the recovery of performance share awards following a material restatement of Norfolk Southern’s financial results. Similarly, the Executive Management Incentive Plan includes a clawback provision to permit recovery of bonuses as a result of any material noncompliance with any financial reporting requirement under the securities laws. Both the Long-Term Incentive Plan and the Executive Management Incentive Plan further allow for the reduction, forfeiture or recoupment of any award as may be required by law.

 

Compensation Tables

 

Summary Compensation Table

 

The following table shows the total compensation awarded to, earned by or paid to each Named Executive Officer during 2011 for service in all capacities to Norfolk Southern and our subsidiaries for the fiscal year ended December 31, 2011. The table also sets forth information regarding the fiscal 2010 and 2009 compensation. As described in the Compensation Discussion and Analysis section of this proxy statement, we are reporting compensation during 2011 for all our officers with positions at or above the level of executive vice president.

 

Name and
Principal Position
                (a)                


 

Year
(b)


   

Salary1
($)
(c)


   

Bonus
($)
(d)


   

Stock
Awards2
($)
(e)


   

Option
Awards2
($)
(f)


   

Non-
Equity
Incentive
Plan
Compen-
sation1
($)
(g)


   

Change in
Pension Value
and Nonquali-
fied Deferred
Compensation
Earnings3
($)
(h)


   

All Other
Compen-
sation4
($)
(i)


    Total
($)
(j)


 

Charles W. Moorman, IV

    2011        950,000        0        5,334,831        1,847,580        1,320,500        3,340,021        123,834        12,916,766   

Chairman, President and
Chief Executive Officer

    2010        950,000        0        3,914,529        2,085,750        1,181,800        2,705,649        124,818        10,962,546   
    2009        950,000        0        4,870,540        2,499,750        613,700        3,677,575        144,611        12,756,176   

James A. Squires

    2011        500,000        0        1,253,896        422,940        434,400        627,771        63,676        3,302,683   

Executive Vice President-
Finance and Chief
Financial Officer

    2010        500,000        0        916,252        491,310        388,750        399,285        52,854        2,748,451   
    2009        465,000        0        1,327,930        672,660        187,767        366,028        67,188        3,086,573   
                                                                       

Deborah H. Butler

    2011        500,000        0        1,253,896        422,940        434,400        1,268,173        83,309        3,962,718   

Executive Vice President-
Planning and Chief
Information Officer

    2010        500,000        0        916,252        491,310        388,750        809,441        57,384        3,163,137   
    2009        465,000        0        1,327,930        672,660        187,767        854,407        49,778        3,557,542   
                                                                       

James A. Hixon

    2011        500,000        0        1,253,896        422,940        434,400        935,128        72,072        3,618,436   

Executive Vice
President-Law and
Corporate Relations

    2010        500,000        0        916,252        491,310        388,750        637,630        63,054        2,996,996   
    2009        500,000        0        1,327,930        672,660        201,900        742,913        66,188        3,511,591   
                                                                       

Mark D. Manion

    2011        500,000        0        1,253,896        422,940        434,400        1,259,920        41,329        3,912,485   

Executive Vice President
and Chief Operating Officer

    2010        500,000        0        916,252        491,310        388,750        877,134        35,306        3,208,752   
    2009        500,000        0        1,327,930        672,660        201,900        1,163,210        37,420        3,903,120   

John P. Rathbone

    2011        500,000        0        1,253,896        422,940        434,400        945,062        88,167        3,644,465   

Executive Vice President-

Administration

    2010        500,000        0        916,252        491,310        388,750        755,209        60,325        3,111,846   
    2009        500,000        0        1,327,930        672,660        201,900        958,491        56,847        3,717,828   

Donald W. Seale

    2011        500,000        0        1,253,896        422,940        434,400        1,256,085        46,867        3,914,188   

Executive Vice President
and Chief Marketing Officer

    2010        500,000        0        916,252        491,310        388,750        859,680        42,317        3,198,309   
    2009        500,000        0        1,327,930        672,660        201,900        1,056,433        41,739        3,800,662   

1Represents salary and non-equity incentive plan compensation earned during 2009, 2010 and 2011 received on a current or deferred basis.

 

2Represents the full grant date fair value computed in accordance with FASB ASC Topic 718. For Performance Share Units, the full grant date fair value is determined consistent with the estimated full

 

38


cost to be recognized over the three-year performance period, determined as of January 31 following the grant date under FASB ASC Topic 718. For discussions of the relevant assumptions made in calculating these amounts, see note 12 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For the grant date fair value of only those awards granted to the Named Executive Officers in 2011, see the Grants of Plan-Based Awards Table on page 40. The value of the Stock Awards reported in column (e), assuming the highest level of performance would be achieved, is as follows:

 

Year


 

C. W. Moorman


   

J. A. Squires


   

D. H. Butler


   

J. A. Hixon


   

M. D. Manion


   

J. P. Rathbone


   

D. W. Seale


 

2011

  $ 6,650,970      $ 1,568,625      $ 1,568,625      $ 1,568,625      $ 1,568,625      $ 1,568,625      $ 1,568,625   

2010

  $ 6,208,800      $ 1,456,680      $ 1,456,680      $ 1,456,680      $ 1,456,680      $ 1,456,680      $ 1,456,680   

2009

  $ 6,695,965      $ 1,819,135      $ 1,819,135      $ 1,819,135      $ 1,819,135      $ 1,819,135      $ 1,819,135   

 

3Of these amounts for 2011, the following represent the aggregate change in the actuarial present value of the Named Executive Officer’s accumulated benefits under our Retirement Plan and Supplemental Benefit Plan during 2011: Mr. Moorman, $3,329,503, Mr. Squires, $627,771, Ms. Butler, $1,261,089, Mr. Hixon, $926,215, Mr. Manion, $1,221,270, Mr. Rathbone, $905,839, and Mr. Seale, $1,203,317. The remainder of the amounts shown in this column for 2011 represent the amounts by which 2011 interest accrued on salary and bonuses deferred by them under the Officers’ Deferred Compensation Plan exceeded 120% of the applicable Federal long-term rate provided in Section 1274(d) of the Internal Revenue Code.

 

4For each Named Executive Officer, the amount for 2011 includes (i) perquisites as set forth in the table below, (ii) matching contributions to our Thrift and Investment Plan of $8,575 for all Named Executive Officers, and (iii) premiums paid on individually owned executive life insurance policies as follows: for Mr. Moorman, $20,231, Mr. Squires, $10,186, Ms. Butler, $13,302, Mr. Hixon, $12,331, Mr. Manion, $12,621, Mr. Rathbone, $12,587, and Mr. Seale, $11,534. For the following Named Executive Officers, the figure also includes amounts we contributed to charitable organizations on their behalf pursuant to our matching gifts programs: for Mr. Moorman, $39,742, Mr. Squires, $44,488, Ms. Butler, $55,089, Mr. Hixon, $40,000, Mr. Manion, $5,000, Mr. Rathbone, $50,000, and Mr. Seale, $17,764. For Mr. Moorman, the amount also includes his proportional cost of NS-owned life insurance policies used to fund the Directors’ Charitable Award Program.

 

Perquisites for our Named Executive Officers during 2011 consisted of the following:

 

   

Use of

Corporate

Aircraft

($)


   

Tax

Preparation

and

Financial

Planning

($)


   

Use of

Corporate

Auto

($)


   

Use of

Corporate

Facilities

($)


   

Annual

Physicals

($)


   

Club Dues

and

Membership

($)


   

Spousal/

Guest
Meals &
Travel

($)


   

Gifts

($)


   

Total

($)


 

C. W. Moorman

    44,953        0        0        0        3,800        0        213        537        49,503   

J. A. Squires

    0        0        0        0        0        0        213        214        427   

D. H. Butler

    0        0        0        975        5,000        0        154        214        6,343   

J. A. Hixon

    4,874        0        0        2,340        3,800        0        0        152        11,166   

M. D. Manion

    8,395        2,000        0        390        3,800        0        59        489        15,133   

J. P. Rathbone

    10,290        1,604        0        159        4,800        0        0        152        17,005   

D. W. Seale

    0        2,000        0        0        4,800        0        1,657        537        8,994   

 

Perquisites also included participation in the Executive Accident Plan, for which there was no aggregate incremental cost. All perquisites are valued on the basis of aggregate incremental cost to us. With regard to personal use of company aircraft, aggregate incremental cost is calculated as the weighted-average cost of fuel, crew hotels and meals, aircraft maintenance and other variable costs. Use of corporate aircraft includes use by the Named Executive Officers and their spouses and other family members, as permitted by resolution of the Board of Directors.

 

39


2011 Grants of Plan-Based Awards

 

Name

    (a)    


 

Grant

Date

(b)


   

Committee
Action
Date1


   

 

 

 

Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards2


   

 

 

 

Estimated Future Payouts
Under Equity Incentive
Plan Awards3


   

All
Other
Stock
Awards:
Number
of
Shares
of Stock
or
Units4

(#)

(i)


   

All Other
Option
Awards:
Number of
Securities
Underlying
Options5

(#)

(j)


   

Exercise
or Base
Price of
Option
Awards6
($/Sh)

(k)


   

Grant
Date Fair
Value of
Stock

and

Option
Awards7

($)

(l)


 
     

Threshold

($)

(c)


   

Target

($)

(d)


   

Maximum
($)

(e)


   

Threshold

(#)

(f)


   

Target

(#)

(g)


   

Maximum

(#)

(h)


         

Charles W.
Moorman, IV

    01/25/11        01/25/11        380        1,273,000        1,900,000                                                           
      01/27/11        01/25/11                                6,133        46,000        92,000                                4,456,401   
      01/27/11        01/25/11                                                        14,000                        878,430   
      01/27/11        01/25/11                                                                83,000        62.745        1,847,580   
     

James A.
Squires

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   
     

Deborah H.
Butler

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   
     

James A. Hixon

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   
     

Mark D. Manion

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   
     

John P.
Rathbone

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   
     

Donald W. Seale

    01/25/11        01/25/11        150        418,750        625,000                                                           
      01/27/11        01/25/11                                1,467        11,000        22,000                                1,065,661   
      01/27/11        01/25/11                                                        3,000                        188,235   
      01/27/11        01/25/11                                                                19,000        62.745        422,940   

1Consistent with past practice, the Committees made all equity awards to directors and executive officers effective on the day after a full trading day has elapsed following the release of our fiscal year financial results. Because the meeting at which these awards were made occurred prior to the effective date of the awards, we have provided both dates in accordance with SEC rules. See page 32 of our Compensation Discussion and Analysis section for further discussion of our equity award grant practices.

 

2These awards were made pursuant to our Executive Management Incentive Plan (“EMIP”) and were earned upon the achievement of certain performance goals established by the Committees for the fiscal year ended December 31, 2011. For a discussion of these performance goals, see page 31 of our Compensation Discussion and Analysis section included in this proxy statement. The Committee targeted a payout of 67% in 2011 in setting the annual performance goals for EMIP incentive awards. Consequently, the target amounts in this column assume that the Named Executive Officers earned 67% of the maximum potential EMIP awards that they could have earned. The threshold amounts assume that the Named Executive Officers earned the minimum EMIP awards based on performance required to trigger any level of payment; if company performance fell below performance goals required to earn the threshold amount, they would not have been entitled to any EMIP awards. Our Named Executive Officers actually earned 69.5% of their maximum potential EMIP awards based on our performance during 2011, which amounts are included under “Non-Equity Incentive Compensation” in the Summary Compensation Table.

 

40


3These amounts represent grants of performance share units made pursuant to our Long-Term Incentive Plan (“LTIP”). These performance share units will be earned over the performance cycle ending December 31, 2013. For a discussion of the other material terms of these awards, see the narrative discussion which follows this table. LTIP does not provide a performance target for earning performance share units under this feature of the plan; however, the Committees target a payout of 50% in setting the performance goals for performance share unit awards. Consequently, the target amounts assume that the Named Executive Officers will earn 50% of the maximum potential number of performance share units that can be earned under the awards. The threshold amounts assume that the Named Executive Officers will earn the minimum number of performance share units based on performance required to trigger any level of payment; if company performance fell below performance goals required to earn the threshold amount, they would not receive any performance share units. Our Named Executive Officers actually earned 64.9% of their maximum potential performance share unit awards for the performance cycle ended December 31, 2011, based on our performance during the three-year period ended December 31, 2011.

 

4These amounts represent grants of restricted stock units made under LTIP. For a discussion of the material terms of these awards, see the narrative discussion which follows this table.

 

5These options (of which the first 1,593 granted to each Named Executive Officer are incentive stock options and the remainder are non-qualified stock options) were granted as of January 27, 2011, and are exercisable as of January 27, 2015. Dividend equivalents are paid in cash to active employees on unexercised options for four years in an amount equal to, and commensurate with, regular quarterly dividends paid on our common stock.

 

6The Committees granted these options at an exercise price equal to the higher of the closing market price or the average of the high and low prices of our common stock on the effective date of the grant. The closing price was lower than the average price on the date of grant, so the exercise price shown is the average price on the date of grant. The exercise price may be paid in cash or in shares of our common stock (previously owned by the optionee for at least one year preceding the date of exercise) valued on the date of exercise.

 

7Amounts represent the full grant date fair value of each equity award computed in accordance with FASB ASC Topic 718. For awards that entitle the Named Executive Officers to dividends or dividend equivalents, those amounts are computed in accordance with FASB ASC Topic 718.

 

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

 

Awards

 

Our Long-Term Incentive Plan (“LTIP”), as last approved by stockholders in 2010, provides for the award of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, restricted stock units and performance share units to directors, officers and other key employees of Norfolk Southern and its subsidiaries. The Compensation Committee or any other Committee of the Corporation’s Board of Directors that is authorized to grant awards under LTIP has sole discretion (except as the Committee may have delegated to the Chief Executive Officer) to:

 

  ·  

interpret LTIP;

 

  ·  

select LTIP participants;

 

  ·  

determine the type, size, terms and conditions of awards under LTIP;

 

  ·  

authorize the grant of such awards; and

 

  ·  

adopt, amend and rescind rules relating to LTIP.

 

Except for capital adjustments such as stock splits, the exercise price of a stock option granted under LTIP may not be decreased after the option is granted, nor may any outstanding option be

 

41


modified or replaced through cancellation if the effect would be to reduce the price of the option, unless the repricing, modification or replacement is approved by our stockholders. Receipt of an award under LTIP in 2011 was made contingent upon the participant’s execution of a non-competition agreement, and all awards are subject to forfeiture in the event the participant “engages in competing employment” for a period of time following retirement.

 

The Committees met to approve the 2011 option grants on January 25, 2011. In order to permit thorough dissemination of our financial results for the fiscal year ended December 31, 2010, the Committees made these grants effective January 27, 2011. See page 32 of our Compensation Discussion and Analysis section for further discussion of our equity award grant practices. These options become exercisable as of January 27, 2015, or if the Named Executive Officer retires or dies before that date, the later of one year after the grant date or the participant’s retirement or death. Dividend equivalents are paid in cash to active employees on unexercised options for four years in an amount equal to, and commensurate with, regular quarterly dividends paid on our common stock. The exercise price may be paid in cash or in shares of our common stock valued at fair market value on the date of exercise.

 

The restricted stock units awarded in 2011 are subject to a five-year restriction period and will be settled in shares of our common stock. Dividend equivalents are paid in cash on restricted stock units in an amount equal to, and commensurate with, regular quarterly dividends paid on our common stock. During the restriction period, the holder of restricted stock units has no voting or investment power over the underlying common stock.

 

Performance share units entitle a recipient to receive performance-based compensation at the end of a three-year performance cycle based on our performance during that three-year period. For awards made in 2011, the award cycle began on January 1, 2011 and ends December 31, 2013. Under the 2011 performance share unit awards, corporate performance will be measured using three predetermined and equally weighted standards; that is, each of the following performance areas will serve as the basis for earning up to one-third of the total number of performance share units granted (with each one-third portion vesting independent of the other portions): (1) three-year average return on average invested capital, (2) three-year average operating ratio, and (3) total return to stockholders measured at the end of the three-year period. A more detailed discussion of these performance criteria can be found beginning on page 33 of our Compensation Discussion and Analysis section included in this proxy statement. Performance share units that are earned will be distributed in whole shares of our common stock.

 

For 2011, awards to our Named Executive Officers under the Executive Management Incentive Plan (“EMIP”) were paid based on our performance relative to the following pre-determined criteria: operating ratio, pre-tax net income, and a composite of three service measures, consisting of adherence to operating plan, connection performance and train performance. The performance standards relative to these criteria were established by the Committees in January 2011. A more detailed discussion of these performance criteria can be found on page 31 of our Compensation Discussion and Analysis included in this proxy statement.

 

The Committees set Mr. Moorman’s 2011 incentive opportunity at 200% of his 2011 base salary, and the remaining Named Executive Officers’ at 125% of their 2011 base salaries. For 2011, all Named Executive Officers earned 69.5% of their individual incentive opportunity EMIP awards. These amounts are reported as “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table.

 

For further discussion of our plans and how these LTIP and EMIP awards fit into our executive compensation program, see the Compensation Discussion and Analysis section beginning on page 27 of this proxy statement.

 

42


Outstanding Equity Awards at Fiscal Year-End 2011

 

Name

    (a)    


  Option Awards

    Stock Awards

 
 

Number

of
Securities
Underlying
Unexercised
Options

(#)
Exercisable
(b)


   

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)


   

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

(d)


 

Option
Exercise
Price

($)

(e)


   

Option
Expiration
Date

(f)


   

Number
of
Shares
or
Units
of

Stock
That
Have

Not
Vested
(#)4

(g)


   

Market
Value of
Shares
or Units

of Stock
That
Have Not
Vested

($)5

(h)


   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)6

(i)


   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other

Rights

That
Have Not
Vested

($)5

(j)


 

C. W. Moorman

    25,459                    22.020        01/29/2014        122,000        8,888,920        184,324        13,429,810   
      45,000                    34.100        01/27/2015                                   
      75,000                    49.425        01/26/2016                                   
      125,000                    49.555        01/24/2017                                   
      125,000                    50.740        01/23/2018                                   
              137,500 1          38.705        01/28/2019                                   
              112,500 2          47.760        01/28/2020                                   
              83,000 3          62.745        01/26/2021                                   
   

J. A. Squires

    3,095                    19.625        02/02/2013        26,750        1,949,005        43,734        3,186,459   
      4,541                    22.020        01/29/2014                                   
      9,000                    34.100        01/27/2015                                   
      6,800                    49.425        01/26/2016                                   
      11,000                    49.555        01/24/2017                                   
      34,000                    50.740        01/23/2018                                   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   
   

D. H. Butler

    34,000                    50.740        01/23/2018        25,750        1,876,145        43,734        3,186,459   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   
   

J. A. Hixon

    30,000                    22.020        01/29/2014        31,000        2,258,660        43,734        3,186,459   
      16,000                    34.100        01/27/2015                                   
      20,000                    49.425        01/26/2016                                   
      34,000                    49.555        01/24/2017                                   
      34,000                    50.740        01/23/2018                                   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   
   

M. D. Manion

    16,000                    34.100        01/27/2015        31,000        2,258,660        43,734        3,186,459   
      20,000                    49.425        01/26/2016                                   
      34,000                    49.555        01/24/2017                                   
      34,000                    50.740        01/23/2018                                   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   
   

J. P. Rathbone

    10,000                    19.625        02/02/2013        31,000        2,258,660        43,734        3,186,459   
      30,000                    22.020        01/29/2014                                   
      16,000                    34.100        01/27/2015                                   
      20,000                    49.425        01/26/2016                                   
      34,000                    49.555        01/24/2017                                   
      34,000                    50.740        01/23/2018                                   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   

 

43


Name

    (a)    


  Option Awards

    Stock Awards

 
 

Number

of
Securities
Underlying
Unexercised
Options

(#)
Exercisable
(b)


   

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c)


   

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

(d)


 

Option
Exercise
Price

($)

(e)


   

Option
Expiration
Date

(f)


   

Number
of
Shares
or
Units
of

Stock
That
Have

Not
Vested
(#)4

(g)


   

Market
Value of
Shares
or Units

of Stock
That
Have Not
Vested

($)5

(h)


   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)6

(i)


   

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other

Rights

That
Have Not
Vested

($)5

(j)


 
   

D. W. Seale

    30,000                    22.020        01/29/2014        31,000        2,258,660        43,734        3,186,459   
      16,000                    34.100        01/27/2015                                   
      20,000                    49.425        01/26/2016                                   
      34,000                    49.555        01/24/2017                                   
      34,000                    50.740        01/23/2018                                   
              37,000 1          38.705        01/28/2019                                   
              26,500 2          47.760        01/28/2020                                   
              19,000 3          62.745        01/26/2021                                   

1These options vest on January 28, 2013 or, if the Named Executive Officer retires or dies before that date, the later of one year after the grant date or the date of retirement or death.

 

2 These options vest on January 29, 2014 or, if the Named Executive Officer retires or dies before that date, the later of one year after the grant date or the date of retirement or death.

 

3These options vest on January 27, 2015 or, if the Named Executive Officer retires or dies before that date, the later of one year after the grant date or the date of retirement or death.

 

4The following table provides information with respect to the vesting of each Named Executive Officer’s restricted stock units:

 

Name


  

1/25/12


    

1/24/13


    

1/29/14


    

1/29/15


    

1/27/16


 

C. W. Moorman

     25,000         30,000         35,500         17,500         14,000   

J. A. Squires

     2,750         7,000         10,000         4,000         3,000   

D. H. Butler

     1,750         7,000         10,000         4,000         3,000   

J. A. Hixon

     7,000         7,000         10,000         4,000         3,000   

M. D. Manion

     7,000         7,000         10,000         4,000         3,000   

J. P. Rathbone

     7,000         7,000         10,000         4,000         3,000   

D. W. Seale

     7,000         7,000         10,000         4,000         3,000   

 

5These values are based on the $72.86 closing market price of our common stock on December 31, 2011.

 

6These amounts represent (i) grants of performance share units made in 2010 pursuant to the Long-Term Incentive Plan (“LTIP”) that will be earned out over the three-year period ending December 31, 2012, and (ii) grants of performance share units made in 2011 pursuant to LTIP that will be earned out over the three-year period ending December 31, 2013. Because the number of performance share units earned is determined based on a three-year performance period for each cycle, the number of performance share units that may be earned by each Named Executive Officer for these grants is 85.5% for the grants of performance share units made in 2010, and 95.8% for the grants of performance share units made in 2011, which represents the actual percentage achieved for each completed year in the performance period and assuming the specified maximum goal for each cycle is attained for each year in the performance period which is not yet completed. Grants of performance share units will be distributed in whole shares of common stock.

 

44


Option Exercises and Stock Vested in 2011

 

   Name

      (a)        


   Option Awards

     Stock Awards

 
  

Number of

Shares Acquired

on Exercise

(#)

(b)


    

Value Realized  

on Exercise  

($)1  

(c)  


    

Number of

Shares Acquired

on Vesting

(#)2

(d)


    

Value Realized

on Vesting

($)2

(e)


 

C. W. Moorman

     24,905         1,130,064         89,237         6,501,808   
       4,541         231,981                     
 

J. A. Squires

     8,459         416,774         24,013         1,749,587   
       4,446         220,135                     
       2,000         104,703                     
 

D. H. Butler

     2,368         94,483         24,013         1,749,587   
       2,932         116,987                     
       2,077         51,042                     
       2,023         49,715                     
       4,483         109,587                     
       2,017         49,306                     
 

J. A. Hixon

     10,000         430,100         24,013         1,749,587   
       4,446         183,064                     
       10,000         525,445                     
       5,000         281,375                     
       4,905         277,991                     
       5,000         282,875                     
       5,000         282,375                     
       5,000         281,875                     
       5,095         274,289                     
 

M. D. Manion

     20,459         1,083,918         24,013         1,749,587   
 

J. P. Rathbone

     5,095         265,309         24,013         1,749,587   
       1,511         81,405                     
       13,394         741,588                     
 

D. W. Seale

     30,554         1,300,473         24,013         1,749,587   
       13,089         737,892                     
       11,816         666,127                     

1Represents the difference between the average of the high and low of the market price(s) of the underlying common stock on the day of exercise and the exercise price of the option(s).

 

2 Represents the aggregate number of performance share units that vested during fiscal 2011, multiplied by the $72.86 closing market price of our common stock on December 31, 2011. The shares were distributed on January 26, 2012.

 

45


Retirement Benefits

 

2011 Pension Benefits Table

 

The following table shows, as of December 31, 2011, each Named Executive Officer’s years of credited service, present value of accumulated benefit and benefits received, if any, under each of (i) the tax-qualified Retirement Plan of Norfolk Southern Corporation and Participating Subsidiary Companies (the “Retirement Plan”) and (ii) the non-qualified Supplemental Benefit Plan of Norfolk Southern Corporation and Participating Subsidiary Companies (the “SERP”).

 

Name

    (a)    


  

Plan Name
(b)


  

Number of
Years Credited
Service
(#)
(c)


  

Present Value of
Accumulated
Benefit
($)
(d)


    

Payments During
Last Fiscal Year
($)
(e)


Charles W. Moorman, IV

   Retirement Plan    39      2,136,384       0
     SERP    39      15,377,599       0

James A. Squires

   Retirement Plan    20      542,497       0
     SERP    20      1,527,213       0

Deborah H. Butler

   Retirement Plan    34      1,151,295       0
     SERP    34      3,267,711       0

James A. Hixon

   Retirement Plan    27      1,132,880       0
     SERP    27      3,502,389       0

Mark D. Manion

   Retirement Plan    37      1,434,245       0
     SERP    37      5,057,289       0

John P. Rathbone

   Retirement Plan    31      1,361,417       0
     SERP    31      4,230,074       0

Donald W. Seale

   Retirement Plan    36      1,562,206       0
     SERP    36      4,835,950       0

 

Narrative to Pension Benefits Table

 

The above table shows the number of years of credited service and the actuarial present value of each Named Executive Officer’s accumulated benefits under our defined benefit plans as of December 31, 2011, which is the pension plan measurement date we use for financial reporting purposes. A retirement age of 60 is assumed for purposes of the table, the earliest time at which a participant may retire under the plans without any benefit reduction due to age. For a discussion of the other material assumptions applied in quantifying the present values of the above accrued benefits, see note 11 to our financial statements included with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The benefits shown are in addition to amounts payable under the U.S. Railroad Retirement Act.

 

Under the Retirement Plan and the SERP, except as noted above or in the event of a change in control (see below), each Named Executive Officer can expect to receive an annual retirement benefit equal to average annual compensation for the five most highly compensated years out of the last ten years of creditable service multiplied by a percentage equal to 1.5% times total years of creditable service, but not in excess of 40 years of creditable service (which would be equivalent to a maximum of 60% of such average compensation), less an offset for the annual Railroad Retirement Act annuity. Average compensation includes salary (including any pre-tax contributions the Named Executive Officer makes to our: (i) 401(k) plan; (ii) ChoicePlus Benefits Plan (for medical, dental and similar coverages); and (iii) pre-tax transportation plan), awards under the Executive Management Incentive Plan and unused vacation amounts paid upon severance from employment. Under the Retirement Plan and the SERP, annual retirement benefits will be payable to each Named Executive Officer upon retirement (although there may be a six-month delay in payment of benefits that accrued under the SERP after January 1, 2005 if required by Section 409A of the Internal Revenue Code) and, upon the Named Executive Officer’s death, to his or her spouse on a joint-and-survivor-annuity basis.

 

46


Ms. Butler and Messrs. Moorman, Hixon, Manion, Rathbone, and Seale are eligible for early retirement since they have reached age 55 and have 10 years of creditable service. If Ms. Butler and Messrs. Moorman, Hixon, Manion, Rathbone, and Seale choose to retire prior to age 60, their benefits will be reduced by 1/360th for each month they are under age 60 at the time of retirement.

 

We have no policy with regard to granting extra years of credited service. However, our Board has in certain circumstances credited executives with additional years of service. In addition, as described below, our change-in-control agreements provide for additional years of credited service in limited circumstances.

 

Deferred Compensation

 

Our Named Executive Officers may have deferred the receipt of portions of their compensation under two separate deferred compensation plans: the Officers’ Deferred Compensation Plan (“ODCP”) and the Executives’ Deferred Compensation Plan (“EDCP”). The table and narrative below describe the material elements of these plans.

 

2011 Nonqualified Deferred Compensation Table

 

Name

    (a)    


  

Plan


    

Executive

Contributions in

Last FY

($)1

(b)


    

Registrant

Contributions in

Last FY

($)

(c)


    

Aggregate

Earnings

in Last FY

($)2

(d)


   

Aggregate

Withdrawals/

Distributions

($)

(e)


    

Aggregate
Balance

at Last FYE

($)3

(f)


 

Charles W. Moorman, IV

     ODCP         0         0         49,949        0         578,762   
       EDCP         0         0         (8,755     0         228,767   

James A. Squires

     ODCP         0         0         0        0         0   
       EDCP         147,180         0         (29,455     0         934,501   

Deborah H. Butler

     ODCP         0         0         37,862        0         454,329   
       EDCP         0         0         18,409        0         1,349,337   

James A. Hixon

     ODCP         0         0         53,261        0         639,696   
       EDCP        0         0         (27,888     0         749,184   

Mark D. Manion

     ODCP         0         0         172,187        0         1,733,499   
       EDCP        0         0         (70,312     0         1,169,400   

John P. Rathbone

     ODCP         0         0         182,621        0         1,829,740   
       EDCP         0         0         0        0         0   

Donald W. Seale

     ODCP         0         0         271,034        0         3,058,532   
       EDCP         294,383         0         (65,646     0         1,783,421   

1Amounts in this column are included in the “Salary” and/or “Non-Equity Incentive Plan Compensation” column(s) of the Summary Compensation Table.

 

2Of these amounts, the following amounts are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table and represent the extent to which 2011 interest accrued on salary and bonuses deferred under the Officers’ Deferred Compensation Plan exceeded 120% of the applicable Federal long-term rate provided in Section 1274(d) of the Internal Revenue Code: Mr. Moorman, $10,518; Mr. Squires, $0; Ms. Butler, $7,084; Mr. Hixon, $8,913; Mr. Manion, $38,650; Mr. Rathbone, $39,223; and Mr. Seale, $52,768.

 

3 Of these amounts, the following amounts have been previously reported as compensation to the Named Executive Officer in our Summary Compensation Tables beginning with the fiscal year ended December 31, 2000 and ending with the fiscal year ended December 31, 2010: Mr. Moorman, $318,067; Mr. Squires, $492,184; Ms. Butler, $17,616; Mr. Hixon, $205,381; Mr. Manion, $1,051,254; Mr. Rathbone, $94,378; and Mr. Seale, $1,087,452.

 

47


Narrative to Nonqualified Deferred Compensation Table

 

The 2011 Nonqualified Deferred Compensation table presents amounts deferred under (i) the Officers’ Deferred Compensation Plan and (ii) the Executives’ Deferred Compensation Plan. Amounts deferred are credited to a separate memorandum account maintained in the name of each participant. We do not make contributions to participants’ accounts.

 

Amounts deferred before January 1, 2001, were deferred under the Officers’ Deferred Compensation Plan and earn a fixed rate of interest, which is credited to the account at the beginning of each quarter. In general, the fixed interest rate is determined on the basis of the participant’s age at the time of the deferral. The total amount so credited for amounts deferred before January 1, 2001 (including interest earned thereon) is distributed in five or ten annual installments, determined on the basis of the participant’s age at the time of deferral, beginning in the year following the year in which the participant retires.

 

Amounts deferred on or after January 1, 2001, have been deferred under the Executives’ Deferred Compensation Plan. Participants may defer up to 50% of base salary and 100% of EMIP bonus payments and are credited with variable earnings and/or losses based on the performance of hypothetical investment options selected by the participant. The hypothetical investment options include various mutual funds as crediting indices. With respect to each deferral, participants may choose to receive a distribution at the earliest of separation from service, disability, or a date that is at least five years but not more than 15 years after the deferral year has ended. The total amount credited to a participant will be distributed, in accordance with the participant’s elected distribution option, in one lump sum or a stream of annual cash payments.

 

Our commitment to accrue and pay interest and/or earnings on amounts deferred is facilitated by the purchase of corporate-owned life insurance with executive officers as insureds under the policies. If the Board of Directors determines at any time that changes in the law affect our ability to recover the cost of providing the benefits payable under the Executives’ Deferred Compensation Plan and the Officers’ Deferred Compensation Plan, the Board, in its discretion, may reduce the interest and/or earnings on deferrals. With respect to the Officers’ Deferred Compensation Plan, the adjusted rate of interest may not be less than one-half the rate otherwise provided for in the plan. For the Executives’ Deferred Compensation Plan, the adjusted rate may not be less than the lesser of (a) one-half the rate of earnings otherwise provided for in the Executives’ Deferred Compensation Plan or (b) 7%.

 

Potential Payments Upon a Change in Control or Other Termination of Employment

 

We have entered into certain agreements and maintain certain plans that will require us to provide compensation to our Named Executive Officers in the event of a termination of their employment with our company. Each of the circumstances that would require us to pay post-employment benefits is discussed below.

 

Change-in-Control Agreements

 

Generally

 

We have entered into change-in-control agreements with a number of key executives, including our Named Executive Officers. A Named Executive Officer will only receive the benefits provided under these agreements if:

 

  ·  

a change in control of Norfolk Southern occurs, and

 

  ·  

within two years of the change in control, we terminate the Named Executive Officer’s employment for any reason other than for “cause,” death, total disability or mandatory retirement, or the Named Executive Officer terminates his or her employment with us for “good reason.”

 

48


Definition of Change in Control

 

Generally, under these agreements, a change in control is defined as:

 

  ·  

a merger, sale of all or substantially all of our assets or similar fundamental transaction which results in our stockholders holding less than 80% of the voting power of the combined company;

 

  ·  

a stockholder-approved consolidation or dissolution pursuant to a recommendation of our Board of Directors;

 

  ·  

a change in the composition of the Board of Directors that results in less than a majority of Board members having either (i) served on the Board for at least two years or (ii) been nominated or elected to be a director by at least two-thirds of directors who had at least two years of service at the time of the director’s nomination or election;

 

  ·  

any person or organization acquires more than 20% of our voting stock; or

 

  ·  

a determination by the Board that an event similar to those listed above has occurred or is imminent.

 

As noted below, the Named Executive Officers are entitled to accelerated payouts of amounts deferred under the Officers’ Deferred Compensation Plan and the Executives’ Deferred Compensation Plan (“EDCP”) upon a change in control. For amounts deferred after 2004 under the EDCP, only events described above that also constitute a change in control as defined in the regulations to Section 409A of the Internal Revenue Code will result in accelerated distribution of those amounts.

 

Benefits Payable Upon Termination Following a Change in Control

 

Under our change-in-control agreements, the Named Executive Officers who become entitled to the benefits under those agreements are generally entitled to receive:

 

  ·  

three times their annual base salary plus incentive pay;

 

  ·  

accrued but unpaid compensation;

 

  ·  

a cash payment for unearned performance share units awarded and as to which the performance cycle has not been completed;

 

  ·  

all dividend equivalents to which they would have been entitled had their employment not been terminated;

 

  ·  

early payout of compensation that was deferred under our non-qualified deferred compensation plans and a cash payment equal to the present value of the deferred compensation that would have been payable if the participant retired at age 65, as provided by the change in control agreements;

 

  ·  

accrued pension benefits, as modified by years of service and average final compensation enhancements provided by the change-in-control agreements;

 

  ·  

unused vacation for the year of termination, plus vacation for the following year;

 

  ·  

continued payment of premiums on the Named Executive Officer’s life insurance policy under our Executive Life Insurance Plan; and

 

  ·  

continued medical and dental benefits, and $50,000 in group-term life insurance coverage, for a specified number of years but subject to termination if the Named Executive Officer receives substantially similar benefits from another employer after the termination of employment.

 

49


In addition, the Named Executive Officers are generally entitled to receive a payment in an amount sufficient to make them whole for any Federal excise tax on excess parachute payments.

 

The benefits to be provided to our Named Executive Officers under the change-in-control agreements are quantified in the table below. If we had terminated the Named Executive Officer’s employment for reasons described below under “Events Triggering Change in Control Payments,” these benefits would generally have been payable in a lump sum within ten business days of termination. However, any Severance Pay, Performance Share Unit equivalent, Accelerated Dividend equivalent, Vacation Pay and Prorata Incentive Pay would have been payable no earlier than six months after the Named Executive Officer’s termination date if the Named Executive Officer was a “Specified Employee” on his or her termination date and if the change in control was not a change in control as defined in the regulations to Section 409A of the Internal Revenue Code. A “Specified Employee” is, generally speaking, one of the 50 most highly compensated employees, and the term is defined within the change in control agreement. If payment of any amounts were delayed because the Named Executive Officer was a Specified Employee, the delayed payment would have been credited with interest during the period from the termination date until the benefit was distributed at 120% of the short term Applicable Federal Rate determined under section 1274(d) of the Internal Revenue Code that was in effect on the Named Executive Officer’s termination date.

 

Executive Benefits and Payments Upon
Change in Control

   

 

Charles W.

Moorman, IV1

  

  

   

 

James A.

Squires1

  

  

   

 

Deborah H.

Butler1

  

  

   

 

James A.

Hixon1

  

  

   

 

Mark D.

Manion1

  

  

   

 

John P.

Rathbone1

  

  

   

 

Donald W.

Seale1

  

  

Compensation

                                                       

Severance Pay2

  $ 8,550,000      $ 3,375,000      $ 3,375,000      $ 3,375,000      $ 3,375,000      $ 3,375,000      $ 3,375,000   

Long Term Compensation