DEF 14A 1 e20158_nsc-def14a.htm

 

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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o Preliminary Proxy Statement  
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x Definitive Proxy Statement  
o Definitive Additional Materials  
o Soliciting Material Pursuant to §240.14a-12

 

Norfolk Southern Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

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Table of Contents
 

 

(LOGO) 

 

Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510

 

Notice of 2020 Annual Meeting of Shareholders

     
AGENDA
At the Annual Meeting of Norfolk Southern Corporation (“Norfolk Southern” or the “Corporation”), shareholders will vote on the following items:
ITEM 1 Election of the 13 directors named in the proxy statement for a one-year term
ITEM 2

Approval of proposed amendments to the Corporation’s Amended and Restated Articles of Incorporation (“Articles”):

2a.    Amendment of voting standard to amend the Articles

2b.    Approval of simple majority voting standard to approve a merger, share exchange, conversion, sale, or dissolution of the Corporation

2c.    Approval of majority voting standard to approve re-domestication of the Corporation and affiliated transactions

ITEM 3 Ratification of the appointment of KPMG LLP, independent registered public accounting firm, as our independent auditors for 2020
ITEM 4 Approval of advisory resolution on executive compensation
ITEM 5 A shareholder proposal regarding the right to act by written consent, if properly presented at the meeting
     

Such other business as properly may come before the meeting and any adjournments or postponements.

VOTING

Each share of common stock is entitled to one vote on each of the items to be voted on at the Annual Meeting.

YOUR VOTE IS VERY IMPORTANT

If you do not expect to attend the virtual Annual Meeting, we urge you to vote by telephone or Internet as described below, or, if you received your materials by mail, by completing, dating, and signing the proxy card/voting instruction

form, and returning it in the accompanying envelope. You may revoke your proxy or instructions at any time before your shares are voted by following the procedures described in “Voting and Proxies” beginning on page 72.

PROXY VOTING METHODS

Even if you plan to attend the virtual Annual Meeting, please vote right away by using one of the following advance voting methods (see “Voting and Proxies” beginning on page 72 for additional details). Make sure to have the proxy card/voting instruction form or Notice of Internet Availability in hand, and follow the instructions. You can vote in advance in one of three ways:

     
VIA THE INTERNET BY TELEPHONE BY MAIL
     
(Image) (Image) (Image)
Visit the website
listed on the proxy
card/voting
instruction form or
Notice of Internet
Availability to vote
Call the telephone
number on the proxy
card/voting
instruction form or
Notice of Internet
Availability to vote
Complete, sign, and
date, and then return
the proxy card/
voting instruction
form in the enclosed
envelope to vote

 

     
  Date and Time (Image)  
  (Image)  
           
  Thursday, May 14, 2020, 8:30 A.M.,
Eastern Daylight Time
 
     
  Virtual Meeting (Image)  
  (Image)  
     
  This year’s meeting is a virtual
shareholders meeting at:
www.virtualshareholdermeeting.com/NSC2020
 
     
  Record Date (Image)  
  (Image)  
     
  Only shareholders of record as of
the close of business on March 6,
2020, will be entitled to notice
of and to vote at the Annual
Meeting.
 
     
  Attendance (Image)  
  (Image)  
     
  Only shareholders or their legal
proxies may attend the virtual
Annual Meeting. Please refer to
page 74 for more information
about attending the virtual
Annual Meeting.
 


By order of the Board of Directors,

DENISE W. HUTSON

Corporate Secretary

Dated: March 27, 2020

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 14, 2020

 

Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials by notifying you of the availability of our proxy materials on the Internet. On or about March 27, 2020, we are sending an Important Notice Regarding the Availability of Proxy Materials (the “Notice of Internet Availability”) to certain of our shareholders of record, and we are sending a paper copy of the proxy materials to employee plan participants and those shareholders of record who have requested a paper copy. Brokers and other nominees who hold shares on behalf of beneficial owners may be sending their own similar notice.

 

In accordance with SEC rules, you may access our Notice and Proxy Statement, our Annual Report, and our form of proxy at http://www.proxyvote.com, which does not have “cookies” that identify visitors to the site. The Notice of Internet Availability also includes instructions for shareholders to request, at no charge, a printed copy of these materials. In addition, our Notice and Proxy Statement and Annual Report are available on our website at www.norfolksouthern.com.

 
 

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Notice of 2020 Annual Meeting of Shareholders | 2020 Annual Meeting and Proxy Statement

 

 

(Photo)      

March 27, 2020

 

Fellow Shareholder,

 

On behalf of your Board of Directors, I invite you to join our 2020 Annual Meeting of Shareholders on Thursday, May 14, 2020, in Atlanta, Georgia.

This year, in light of the public health and travel concerns arising in connection with the evolving coronavirus (COVID-19) situation, your Board has decided to hold the Annual Meeting as a virtual-only meeting. Please refer to the Notice of Meeting page for instructions on how to access the virtual Annual Meeting.

 

I encourage you to review the proxy materials and vote as soon as possible even if you are planning to join the virtual Annual Meeting on May 14. You may vote by telephone or over the Internet, or, if you receive these materials by mail, by completing, signing, dating, and returning the enclosed proxy card/voting instruction form. Your vote is important to us.

 

Strategic Plan and 2019 Performance. Over the past year, the Board focused on overseeing the successful implementation of Norfolk Southern’s three-year strategic plan to reimagine Norfolk Southern, which we launched in early 2019. The Board strongly supports Norfolk Southern’s senior management team and is confident that this team provides the right leadership to achieve our strategic plan goals and continue to drive shareholder value.

 

I am pleased to report that the management team achieved record results in 2019 in spite of the challenging economic conditions. For the fourth consecutive year, Norfolk Southern achieved an all-time record full-year operating ratio, and through the team’s efforts, we believe we have the momentum needed to achieve our 2021 operating ratio goal. The team also achieved record income from railway operations in 2019, which reflects the operational improvements made over the past year. Many of these improvements stem from our adoption of a tailored model of precision scheduled railroading, which incorporates thoughtful planning and customer collaboration and diligent execution of our TOP21 operating plan.

 

Balancing our capital deployment remained a key focus. Your Board approved $949 million in total cash dividend payments and just over $2 billion in share repurchases, while continuing to ensure proper investment in our rail network.

 

New Corporate Headquarters. Significant progress was made on our plan to consolidate our corporate headquarters in a new building in Atlanta. Construction is on schedule, and transition of employees to Atlanta is ongoing. The Board continues to believe that bringing our headquarters functions together in a single, integrated team will promote greater alignment and collaboration.

 

Corporate Governance. The Board has maintained its commitment to effective corporate governance practices, including soliciting and taking action on input from you, our shareholders. Our shareholder engagements this past year provided us with valuable feedback on issues of importance to you, including implementation of the 2019 shareholder proposal on majority vote. The Board’s recommended amendments to our Articles of Incorporation are described in the proxy materials and included as voting items on the enclosed proxy card.

 

We remained focused on maintaining an appropriate balance of new perspectives and ideas with longer-term expertise. We have nominated for election three new director candidates—John C. Huffard, Jr., Christopher T. Jones, and Claude Mongeau—each of whom bring valuable skills and expertise to your Board. Our board refreshment process is important to the Board, and these new nominees demonstrate its effectiveness. I encourage you to review the qualifications, skills, and experience of each of our 13 director nominees as presented in this Proxy Statement.

 

We also remained focused on executive succession planning, ensuring the Corporation has highly qualified executives that will successfully execute our strategic plan. During 2019, we welcomed Mark George as our new chief financial officer. Mark joins us from outside Norfolk Southern with more than 30 years of experience in financial management, strategy, and business development.

 

Thank you for your continued confidence and investment in Norfolk Southern Corporation.

 

I am proud to serve as your Lead Independent Director and look forward to the continued achievement of our strategic plan goals that will drive long-term shareholder value.

 

Sincerely,

 

-s- Steven F. Leer

 

Steven F. Leer

Lead Director

 
 

Table of Contents

 

     
2020 PROXY SUMMARY 4
Voting Matters 4
Director Nominees 5
   
BUSINESS HIGHLIGHTS 6
Delivering on our Strategic Plan 6
2019 Business Highlights 7
   
CORPORATE GOVERNANCE AND THE BOARD 8
ITEM 1:  Election of the 13 Directors Named in the  
  Proxy Statement for a One-Year Term. 8
Nominees—For Terms Expiring in 2021 8
Qualifications of Directors and Nominees 13
Director Independence 15
ITEM 2: Approval of Proposed Amendments to Our
Amended and Restated Articles of
 
  Incorporation 16
Governance Framework and Practices 17
Board Leadership Structure 17
Lead Independent Director 17
Board Self-Evaluation Process 18
Board Refreshment and Succession Planning Policy 18
Retirement Policy 18
Director Education 18
Director Elections Majority Voting Policy and
Resignation Requirement
18
Proxy Access 19
Special Meetings 19
Shareholder Engagement 19
Corporate Sustainability and Responsibility 19
Risk Oversight 20
Related Persons Transactions 21
Anti-Hedging and Anti-Pledging Policies 21
The Thoroughbred Code of Ethics 21
Board Composition and Attendance 22
Committees of the Board 22
Compensation Committee Interlocks and Insider
Participation
24
Compensation of Directors 25
   
AUDIT COMMITTEE MATTERS 28
ITEM 3: Ratification of Appointment of Independent
Registered Public Accounting Firm
28
Audit Committee Report 29
   
EXECUTIVE COMPENSATION 30
ITEM 4: Approval of Advisory Resolution on  
  Executive Compensation 30
Compensation Committee Report 32
Compensation Discussion and Analysis 33
     
Executive Summary 33
Leading Compensation Governance Practices 34
Key 2019 Compensation Decisions 35
Our 2019 Named Executive Officers 35
Objectives of Compensation Program 36
Compensation Governance 36
Compensation Policies 37
Compensation Components 38
Impact of the Tax Treatment of Awards on Norfolk
Southern’s Compensation Policies
45
Change-in-Control Agreements 45
Individual Agreement for Payment in Connection  
with Termination 46
Share Ownership Guidelines for Officers 46
Policies and Decisions Regarding the Adjustment  
or Recovery of Awards 46
Executive Compensation Tables 47
Summary Compensation Table 47
2019 Grants of Plan-Based Awards 49
Outstanding Equity Awards at Fiscal  
Year-End 2019 52
Option Exercises and Stock Vested in 2019 54
Retirement Benefits 55
Deferred Compensation 56
Potential Payments Upon a Change in Control or  
Other Termination of Employment 57
Compensation Policy Risk Assessment 64
Pay Ratio Disclosure 64
   
SHAREHOLDER PROPOSALS 65
ITEM 5:  Shareholder Proposal Regarding Right  
  to Act by Written Consent 65
Shareholder Proposal Deadlines 67
Shareholder Recommendations and Nominations 67
Other Matters 68
   
STOCK OWNERSHIP INFORMATION 69
Beneficial Ownership of Stock 69
Delinquent Section 16(a) Reports 71
   
VOTING AND PROXIES 72
Q&A 72
Exhibit A 75


          Norfolk Southern Corporation         Page 3         www.norfolksouthern.com          
   
 
 

Table of Contents
 

2020 Proxy Summary

 

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information you should consider, and you should read the entire Proxy Statement before voting.

 

Voting Matters

 

ITEM DESCRIPTION BOARD RECOMMENDATION PAGE
1 Election of the 13 directors named in the proxy statement for a one-year term (Image) FOR EACH NOMINEE 8
2

Approval of proposed amendments to the Corporation’s Amended and Restated Articles of Incorporation (“Articles”):

2a.    Amendment of voting standard to amend the Articles

2b.    Approval of simple majority voting standard to approve a merger, share exchange, conversion, sale, or dissolution of the Corporation

2c.    Approval of majority voting standard to approve re-domestication of the Corporation and affiliated transactions

(Image) FOR ALL AMENDMENTS 16
3 Ratification of appointment of independent registered public accounting firm (Image) FOR 28
4 Approval of advisory resolution on executive compensation (Image) FOR 30
5 Shareholder proposal regarding right to act by written consent (Image) AGAINST 65

 

          Norfolk Southern Corporation         Page 4         www.norfolksouthern.com          
   
 
 

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2020 Proxy Summary | 2020 Annual Meeting and Proxy Statement

 

 

Director Nominees

 

·12 of 13 director nominees are independent
·Highly-qualified directors with diversity of skills, background, and experience
·Average director tenure is 5.7 years

 

 

Name

 

Age

Director
Since

 

Principal Occupation

 

Independent

 

Committee Memberships

Thomas D. Bell, Jr. 70 2010

Chairman

Mesa Capital Partners, LLC

ü

Compensation Executive

Finance and Risk Management (Chair)

Mitchell E. Daniels, Jr. 71 2016

President

Purdue University

ü

Compensation

Governance and Nominating

Marcela E. Donadio 65 2016 Former Partner and Americas Oil & Gas Sector Leader  
Ernst & Young LLP
ü

Audit

Finance and Risk Management

John C. Huffard, Jr. 52 2020

Co-Founder

Tenable Network Security, Inc.
Tenable Holdings, Inc.

ü

Compensation

Finance and Risk Management

Christopher T. Jones 56 2020

Former Corporate Vice President and President

Technology Services Sector Northrop Grumman Corporation

ü

Audit

Governance and Nominating

Thomas C. Kelleher 62 2019 Former President Morgan Stanley ü

Audit

Finance and Risk Management

Steven F. Leer
(Lead Director) 
67 1999 Former CEO and Chairman
Arch Coal, Inc.
ü

Compensation Executive

Governance and Nominating (Chair)

Michael D. Lockhart 71 2008

Former Chairman, President and CEO

Armstrong World Industries, Inc.

ü

Audit

Finance and Risk Management

Amy E. Miles 53 2014

Former Chair and CEO

Regal Entertainment Group, Inc.

ü

Audit (Chair) Executive

Governance and Nominating

Claude Mongeau 58 2019 Former President and CEO
Canadian National Railway
ü

Compensation

Finance and Risk Management

Jennifer F. Scanlon 53 2018 President and CEO and Director
UL
ü

Compensation

Finance and Risk Management

James A. Squires 58 2014 Chairman, President and CEO
Norfolk Southern Corporation
  Executive (Chair)
John R. Thompson 68 2013 Former Senior Vice President and General Manager
BestBuy.com LLC
ü

Audit

Governance and Nominating

 

(PIe Chart)

 

          Norfolk Southern Corporation         Page 5         www.norfolksouthern.com          
   
 
 

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Business Highlights

 

This summary provides highlights from our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on February 6, 2020 (the “2019 Form 10-K”), and from our Fourth-Quarter Earnings Presentation, filed with the SEC on Form 8-K on January 29, 2020, to assist you in reviewing Norfolk Southern’s 2019 performance. The information contained below is only a summary, and you should refer to the more comprehensive discussions contained in our 2019 Form 10-K, as supplemented by our Form 8-Ks filed during 2020, for additional information about these highlights.

 

Delivering On Our Strategic Plan

 

In 2019, we unveiled our new three-year strategic plan, announcing productivity and growth initiatives. Our achievements in 2019, driven by a focus on improving the efficiency of our operations and the utilization of our assets, drove increased shareholder value.

 

Strategic Plan Targets 2019 Progress
Full year Operating Ratio of
60% by 2021
(PIe Chart) Achieved 64.7% Operating Ratio in 2019,
a 70 basis point improvement over 2018
     
Annual average headcount reduction
of 3,000 by 2021
(PIe Chart)

Annual average headcount is down

~2,100 in 2019 compared to 2018

     
Reduce number of active locomotives (PIe Chart) 20% lower than 2018
     
CapEx between 16% – 18% of revenues (PIe Chart) CapEx ~17.9% of 2019 revenues
     
Dividend payout of ~33% of net income (PIe Chart) Achieved dividend payout of ~35%
for 2019
     
Continuation of share repurchases using
remaining free cash flow and borrowing
capacity
(PIe Chart) ~2.1 billion in share repurchases in 2019

 

During the first year of our strategic plan, we reduced our Operating Ratio to a record low, making progress toward our target of a 60% Operating Ratio by 2021. This progress was achieved through a focus on productivity initiatives, including workforce reductions and reducing the number of active locomotives. Our strategic plan reflects our continued commitment to our top priorities of running the most efficient railroad possible, meeting customer expectations, supporting long-term growth, and increasing shareholder value.

 

          Norfolk Southern Corporation         Page 6         www.norfolksouthern.com          
   
 
 

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Business Highlights | 2020 Annual Meeting and Proxy Statement

 

 

2019 Business Highlights

 

Norfolk Southern achieved strong results in 2019, including:

 

·earnings per share of $10.25;
·record income from railway operations of $4 billion; and
·record operating ratio of 64.7 percent.

 

Our 2019 railway operating revenues declined 1 percent compared to 2018 as overall volumes were down 5 percent, and railway operating expenses decreased 3 percent, resulting in a 1 percent increase in income from railway operations as compared to 2018. These strong financial results were the outcome of the successful execution of the initial two phases of our Precision Scheduled Railroading, or PSR, based operating plan, TOP21, in the second half of 2019 and were achieved despite lower 2019 revenues resulting from decreased volumes.

 

Improvements driven by TOP21 were reflected in annual records for network performance and customer service metrics in 2019, including record train performance, record terminal dwell, record level network velocity, and record shipment consistency.

 

We remained committed in 2019 to a balanced deployment of capital, investing over $2 billion in our business in capital expenditures and also returning over $3 billion to shareholders through dividends and share repurchases. We repurchased approximately $2.1 billion of Norfolk Southern stock, and we paid $949 million in dividends during the year. We raised the quarterly dividend twice in 2019, for an overall increase of 18%.

 

Total Shareholder Returns*

 

 (PIe Chart)

 

*Assumes that the value of the investment in Norfolk Southern Corporation common stock and each index was $100 on Dec. 31, 2014, and that all dividends were reinvested. Data furnished by Bloomberg Financial Markets.

 

          Norfolk Southern Corporation         Page 7         www.norfolksouthern.com          
   
 
 

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Corporate Governance and the Board

 

ITEM
1

Election of the 13 Directors Named in The Proxy Statement for a One-Year Term

 

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

 

 

The following individuals have been nominated for election as directors for a one-year term expiring at the 2021 Annual Meeting: Thomas D. Bell, Jr., Mitchell E. Daniels, Jr., Marcela E. Donadio, John C. Huffard, Jr., Christopher T. Jones, Thomas C. Kelleher, Steven F. Leer, Michael D. Lockhart, Amy E. Miles, Claude Mongeau, Jennifer F. Scanlon, James A. Squires, and John R. Thompson.

 

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 size of the Board.

 

So that you have information concerning the independence of the process by which our Board of Directors selected the nominees, we confirm, as required by the SEC, that (1) there are no family relationships among any of the nominees or among any of the nominees 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 age listed for each director nominee is as of May 14, 2020. Additional information on the experience and expertise of the director nominees can be found on the following pages.

 

Nominees

 

(Photo)

Thomas D. Bell, Jr.

Compensation, Executive, Finance and
Risk Management (Chair)

Director since 2010

Independent

Age 70

 

Career Highlights

 

Mr. Bell is the Chairman of Mesa Capital Partners, LLC, a real estate investment company. Mr. Bell previously served as Chairman and CEO of Cousins Properties, a publicly-traded real estate investment trust that invests in office buildings throughout the South, from 2002 to 2009. He is also a director of Southern Company Gas (formerly AGL Resources) and was a director of Regal Entertainment Group, Inc. until its acquisition in March 2018.

 

Areas of Expertise

 

CEO/Senior Officer; Environmental and Safety; Governance/Board; Governmental and Stakeholder Relations; Human Resources and Compensation; Marketing; Strategic Planning

 

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Corporate Governance | 2020 Annual Meeting and Proxy Statement

 

 

(Photo)

 

Mitchell E. Daniels, Jr.

Compensation, Governance and Nominating

Director since 2016

Independent

Age 71

 

Career Highlights

 

Mr. Daniels has been President of Purdue University since 2013 and served as Governor of Indiana from 2005 to 2013. From 1990 to 2000, Mr. Daniels worked for Eli Lilly and Company, holding the executive positions of President of North American Pharmaceutical Operations and Senior Vice President of Corporate Strategy and Policy. Mr. Daniels is also a director of Cerner Corporation.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Governmental and Stakeholder Relations; Strategic Planning

 

(Photo) 

Marcela E. Donadio

Audit, Finance and Risk Management

Director since 2016

Independent

Age 65

 

Career Highlights

 

Ms. Donadio retired as a partner of Ernst & Young LLP, a multinational professional services firm, in 2014. From 2007 until her retirement, Ms. Donadio was Americas Oil & Gas Sector Leader, with responsibility for one of Ernst & Young’s significant industry groups helping set firm strategy for oil and gas industry clients in the United States and throughout the Americas. Ms. Donadio is also a director of Marathon Oil Corporation and National Oilwell Varco, Inc.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Human Resources and Compensation; Strategic Planning

 

(Photo)

 

John C. Huffard, Jr.

Compensation, Finance and Risk Management

Director since 2020

Independent

Age 52

 

Career Highlights

 

Mr. Huffard is a co-founder of Tenable Network Security, Inc. and Tenable Holdings, Inc., a cybersecurity software company. Mr. Huffard served as President and Chief Operating Officer and a director of Tenable Network Security, Inc. from 2002 to 2018, where he was responsible for driving Tenable’s global corporate strategy and business operations and was instrumental in the venture funding and IPO process. From 2018 to 2019, Mr. Huffard focused exclusively on business operations as chief operating officer of Tenable Holdings, Inc. Mr. Huffard has been a director of Tenable Holdings, Inc. since 2016.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Human Resources and Compensation; Information Technology

 

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Corporate Governance | 2020 Annual Meeting and Proxy Statement

 

 

(Photo) 

 

Christopher T. Jones

Audit, Governance and Nominating

Director since 2020

Independent

Age 56

 

Career Highlights

 

Mr. Jones served as Corporate Vice President and President of the technology services sector of Northrop Grumman Corporation, a global aerospace and defense technology company, from January 2013 through December 2019. Previously, he served as Vice President and General Manager of Northrop Grumman’s integrated logistics and modernization division from 2010 through 2012. Mr. Jones was a maintenance officer in the Connecticut Air National Guard from 1997 to 2011.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governmental and Stakeholder Relations; Information Technology; Strategic Planning

 

(Photo) 

Thomas C. Kelleher

Audit, Finance and Risk Management

Director since 2019

Independent

Age 62

 

Career Highlights

 

Mr. Kelleher served as President of Morgan Stanley, a leading global financial services firm, from 2016 until his retirement in June 2019. He also served as Chairman and Chief Executive Officer of Morgan Stanley Bank, N.A. until June 2019. Previously, he was President of Morgan Stanley Institutional Securities from 2010 to 2016, CEO of Morgan Stanley International from 2011 to 2016, Chief Financial Officer and co-head of Corporate Strategy from 2007 to early 2010, and served as Morgan Stanley’s Head of Global Capital Markets from 2006 to 2007.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Governmental and Stakeholder Relations; Human Resources and Compensation; Strategic Planning

 

(Photo) 

Steven F. Leer

Compensation, Executive, Governance and
Nominating (Chair)

Director since 1999

Independent

Age 67

 

Career Highlights

 

Mr. Leer served as the Chief Executive Officer of Arch Coal, Inc., a company engaged in coal mining and related businesses, from 1992 through 2012. He was Chairman of its board from 2006 through 2012 and its Executive Chairman from 2012 through 2014. He then served as Senior Advisor to the President and CEO of Arch Coal from 2014 through May 2015. Mr. Leer is also a director of Cenovus Energy Inc. and Parsons Corporation. Mr. Leer served as the non-executive Chairman of USG Corporation until April 2019.

 

Areas of Expertise

 

CEO/Senior Officer; Environmental and Safety; Governance/Board; Governmental and Stakeholder Relations; Human Resources and Compensation; Marketing; Strategic Planning; Transportation

 

          Norfolk Southern Corporation         Page 10         www.norfolksouthern.com          
   
 
 

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Corporate Governance | 2020 Annual Meeting and Proxy Statement

 

 

(Photo) 

Michael D. Lockhart

Audit, Finance and Risk Management

Director since 2008

Independent

Age 71

 

Career Highlights

 

Mr. Lockhart served as Chairman of the Board, President and Chief Executive Officer of Armstrong World Industries, Inc., and its predecessor, Armstrong Holdings, Inc., a leading global producer of flooring products and ceiling systems, from 2000 until his retirement in February 2010. Mr. Lockhart previously served as Chairman and Chief Executive Officer of General Signal Corporation, a diversified manufacturer, from September 1995 until it was acquired in 1998.

 

Areas of Expertise

 

CEO/Senior Officer; Environmental and Safety; Finance and Accounting; Governance/ Board; Marketing; Strategic Planning; Transportation

 

(Photo) 

Amy E. Miles

Audit (Chair), Executive, Governance and Nominating

Director since 2014

Independent

Age 53

 

Career Highlights

 

Ms. Miles served as Chief Executive Officer of Regal Entertainment Group, Inc., a leading motion picture exhibitor, from 2009 until its acquisition in March 2018. During that time, she served as a director of Regal and was named Chair of its board in 2015. Ms. Miles previously served as Regal Entertainment’s Executive Vice President, Chief Financial Officer and Treasurer from 2002 to 2009.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Information Technology; Marketing; Strategic Planning

 

(Photo)

 

Claude Mongeau

Compensation, Finance and Risk Management

Director since 2019

Independent

Age 58

 

Career Highlights

 

Mr. Mongeau served as President and Chief Executive Officer of Canadian National Railway Company (CN), a North American railroad and transportation company, from January 2010 to June 2016 and as a director of CN from October 2009 to June 2016. During his 22-year career at CN, he also served as Executive Vice President and Chief Financial Officer, Vice President Strategic and Financial Planning, and Assistant Vice President Corporate Development. Mr. Mongeau is also a director of Cenovus Energy and Toronto-Dominion Bank. He was formerly a director of Telus from 2017 to 2019.

 

Areas of Expertise

 

CEO/Senior Officer; Environmental and Safety; Finance and Accounting; Governance/ Board; Governmental and Stakeholder Relations; Human Resources and Compensation; Marketing; Strategic Planning; Transportation

 

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Corporate Governance | 2020 Annual Meeting and Proxy Statement

 

 

(Photo)

 

Jennifer F. Scanlon

Compensation, Finance and Risk Management

Director since 2018

Independent

Age 53

 

Career Highlights

 

Ms. Scanlon has been President and Chief Executive Officer and Director of UL, a global science safety organization, since September 30, 2019. She is the first woman to lead the organization. She previously served as President and Chief Executive Officer of USG Corporation from 2016 until its acquisition in April 2019. During that time, she served as a director of USG. Ms. Scanlon also previously served as President of USG’s international business, President of its L&W Supply Corporation, and Chief Information Officer and Chairman of the Board for USG Boral Building Products.

 

Areas of Expertise

 

CEO/Senior Officer; Environmental and Safety; Governance/Board; Information Technology; Marketing; Strategic Planning; Transportation

 

(Photo) 

James A. Squires

Executive (Chair)

Director since 2014

Age 58

 

Career Highlights

 

Mr. Squires has been President of Norfolk Southern since 2013 and Chief Executive Officer since June 2015. Mr. Squires was named Chairman of the Board of Norfolk Southern in October 2015. Mr. Squires previously served as Norfolk Southern’s Executive Vice President-Administration, Executive Vice President-Finance and Chief Financial Officer, Senior Vice President Finance, Senior Vice President Law, and Vice President Law.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Governmental and Stakeholder Relations; Human Resources and Compensation; Marketing; Strategic Planning; Transportation

 

(Photo) 

John R. Thompson

Audit, Governance and Nominating

Director since 2013

Independent

Age 68

 

Career Highlights

 

Mr. Thompson served as a government relations consultant for Best Buy Co., Inc., a multinational consumer electronics corporation, from October 2012 to April 2016, and as Senior Vice President and General Manager of BestBuy.com LLC, a subsidiary of Best Buy Co., Inc., from 2002 through 2012. Mr. Thompson was formerly a director of Belk, Inc. and Wendy’s International, Inc.

 

Areas of Expertise

 

CEO/Senior Officer; Finance and Accounting; Governance/Board; Governmental and Stakeholder Relations; Information Technology; Marketing; Strategic Planning

 

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Qualifications of Directors and Nominees

 

Our directors have diverse backgrounds and provide critical experience and expertise to Norfolk Southern. The Governance and Nominating Committee carefully considers the experience and qualifications of each director standing for re-election and potential nominees for election, including how the director will contribute to the diversity of the Board, to ensure that the Board can effectively carry out its oversight role on behalf of our shareholders.

 

The Governance and Nominating Committee has identified ten areas of expertise that are of particular importance to Norfolk Southern given the nature of our business and our expectations for the future of our company. The categories identified by the Governance and Nominating Committee are as follows:

 

CEO/Senior Officer Experience working as a CEO or senior executive of a major public, private, 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 public, private, or non-profit entity.
Governmental and Stakeholder Relations Experience in or a strong understanding of the workings of government and public policy on a local, state, and national level and stakeholder strategy and engagement.
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.

 

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The table and chart below summarize the areas of expertise that our Governance and Nominating Committee has identified as being represented on our Board, both from an individual and collective standpoint. In addition to these areas of expertise, the Governance and Nominating Committee also considers ethical integrity, board dynamics, reputation of potential nominees, recommendations of director search firms, and diversity of the Board.

 

Norfolk Southern defines diversity as the collective mixture of similarities and differences that impact our workforce, workplace, and marketplace. Our Governance and Nominating Committee 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. However, more information on Norfolk Southern’s diversity principles and philosophy can be found on our website on the “Work at NS” page under “Learn more about NS.”

 

  Bell Daniels Donadio Huffard Jones Kelleher Leer Lockhart Miles Mongeau Scanlon Squires Thompson
CEO/Senior Officer · · · · · · · · · · · · ·
Environmental and Safety ·           · ·   · ·    
Finance and Accounting   · · · · ·   · · ·   · ·
Governance/Board · · · ·   · · · · · · · ·
Governmental and Stakeholder Relations · ·     · · ·     ·   · ·
Human Resources and Compensation ·   · ·   · ·     ·   ·  
Information Technology       · ·       ·   ·   ·
Marketing ·           · · · · · · ·
Strategic Planning · · ·   · · · · · · · · ·
Transportation             · ·   · · ·  

 

(Bar Chart) 

 

More information on director qualifications and nomination is contained in Norfolk Southern’s Corporate Governance Guidelines, posted on the “Invest in NS” page under “Corporate Governance Documents” on our website.

 

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Director Independence

 

The Board of Directors has considered whether the members of our Board of 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, shareholder, 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 exist 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 used in the New York Stock Exchange’s Listing Standards. These categorical independence standards are available on our website at www.norfolksouthern.com on the “Invest in NS” page under “Corporate Governance Documents.”

 

The Board has determined that all the director nominees other than Mr. Squires satisfy the above categorical standards and qualify as independent directors of Norfolk Southern. Mr. Squires serves as our Chairman, President and Chief Executive Officer and, therefore, is not an independent director. In addition, the Board determined that Messrs. Wesley Bush and Martin Nesbitt, who served as directors during 2019 but were not director nominees at our 2019 Annual Meeting, and Mr. Daniel Carp, who served as a director during 2019 but is not a director nominee at our 2020 Annual Meeting, were “independent” directors. In making these independence determinations, our Board of Directors considered the following transactions:

 

·The Norfolk Southern Foundation made charitable grants to Purdue University during the past three years, pursuant to Norfolk Southern’s College Partnership program. From time to time, the Norfolk Southern Foundation makes charitable contributions to Purdue University pursuant to the Foundation’s employee-directed matching gift program. Mr. Daniels has been President of Purdue University since January 2013.
·Mr. Kelleher served as President of Morgan Stanley from 2016 until his retirement in June 2019. Morgan Stanley provided banking/financial advisory services to Norfolk Southern in the past and is a participating lender in Norfolk Southern’s credit facility. These transactions were in the ordinary course, on substantially the same terms as those prevailing at the time for comparable services provided by other investment banks and participating lenders in the credit facility, and the dollar amounts involved were not material to either Norfolk Southern or Morgan Stanley.
·Norfolk Southern provided transportation services to and received lease payments from USG Corporation during the past three years. Ms. Scanlon has served as President and Chief Executive Officer of USG Corporation from November 2016 until its acquisition in April 2019.

 

These transactions did not exceed our categorical independence standards and were not sufficiently material as to require disclosure as a Related Persons Transaction under Item 404(a) of Regulation S-K. In addition, the Board considered these relationships in its nomination of Ms. Scanlon and Messrs. Daniels and Kelleher and determined that their independence as directors of Norfolk Southern is not impaired.

 

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ITEM
2

Approval of Proposed Amendments to Our Amended and Restated Articles of Incorporation

 

ü The Board of Directors unanimously recommends that you vote FOR the approval of each of the proposed amendments set forth in each of the sub-Items below to the Articles to revise voting standards.

 

 

The Board of Directors presents Item 2 for vote by shareholders in response to the non-binding shareholder proposal that received support from a majority of the votes cast at the 2019 Annual Meeting of Shareholders. The proposal, submitted by one of our shareholders, requested that the Board take the steps necessary to eliminate the supermajority voting provisions in the Corporation’s Amended and Restated Articles of Incorporation (“Articles”) or Bylaws or implicit due to a default to state law. After considering corporate governance best practices for our shareholders and taking into account last year’s shareholder vote, the Board, at its meeting on July 26, 2019, voted to recommend shareholders approve certain amendments (as described below) to the Articles to revise voting standards for certain items (the “Proposed Amendments”), in accordance with Virginia law, which requires such changes to be presented to shareholders for approval. The Proposed Amendments are set forth in Items 2(a), 2(b), and 2(c) below, which will be voted on separately. Approval of any sub-Item is not conditioned upon approval of the other sub-Items.

 

Overview of the Proposed Amendments

Article VII of the Corporation’s current Articles establishes a voting standard of the majority of all votes entitled to be cast in order to amend the Articles, but gives the Board of Directors the ability to require a higher standard. In addition, because our Articles and Bylaws are silent on certain other voting standards, the voting standards are determined by certain default provisions in the Virginia Stock Corporation Act (“VSCA”). In many cases this default would require a voting standard greater than a majority of votes cast, unless and until a lower standard is adopted and included in the Articles. After consideration of the vote results at the 2019 Annual Meeting and the Corporation’s engagement with shareholders, the Board recommends an amendment to our Articles adding explicit voting standards, where permitted by the VSCA. More information on the Proposed Amendments to revise these voting standards is set forth in the descriptions of Items 2(a), 2(b), and 2(c) below.

 

ITEM 2(a): RESOLVED, Article VII of the Articles is amended to provide, the shareholder vote required, of each voting group entitled to vote thereon, to approve an amendment to the Corporation’s Articles of Incorporation is a majority of all votes entitled to be cast by that voting group, unless the VSCA conditions approval of such an amendment upon a greater vote.

 

Description of Amendment. Currently Article VII of the Articles establishes a voting standard of the majority of all votes entitled to be cast in order to amend the Articles, but gives the Board of Directors discretion to require a higher voting standard. Item 2(a) requests that shareholders approve an amendment to Article VII to delete and replace the language that provides the Board with this discretion and replace it with language indicating that a higher voting standard would only be required if the VCSA conditioned approval of the amendment upon a greater vote.

 

ITEM 2(b): RESOLVED, the Articles are hereby amended to add a new ARTICLE VIII to provide, in whole or in part, any action on a matter involving: (i) a plan of merger or acquisition for which the VSCA requires shareholder approval; (ii) a share exchange for which the VSCA requires shareholder approval; (iii) the conversion of the Corporation; (iv) a sale of all or substantially all the Corporation’s property for which the VSCA requires shareholder approval; or (v) the dissolution of the Corporation shall require the approval, by the affirmative vote, of a majority of the votes cast thereon.

 

Description of Amendment. Currently, because the Articles and Bylaws are silent on certain voting standards for certain actions, those voting standards are determined by default to provisions in the VSCA. In many cases, this default would require a voting standard greater than a majority of votes cast, unless and until a lower standard is adopted in the Articles.

 

This Item 2(b) requests that shareholders approve an amendment to the Articles to add a new Article VIII. As a result of the amendment, the default VSCA voting standards for certain actions would no longer apply as the Articles would now contain an explicit voting standard. If Item 2(b) is approved, the new Article VIII would revise the voting standard to be the affirmative vote of a majority of the votes cast for (i) a plan of merger or acquisition for which the VSCA requires shareholder approval; (ii) a share exchange for which the VSCA requires shareholder approval; (iii) the conversion of the Corporation; (iv) a sale of all or substantially all the Corporation’s property for which the VSCA requires shareholder approval; and (v) the dissolution of the Corporation.

 

ITEM 2(c): RESOLVED, the Articles are hereby amended to add a new ARTICLE VIII to provide, in whole or in part, any action on a matter involving: (i) the re-domestication of the Corporation; or (ii) an affiliated transaction for which the VSCA requires shareholder approval shall require the approval, by the affirmative vote, of a majority of the votes entitled to be cast thereon.

 

Description of Amendment. Currently, because the Articles and Bylaws are silent on certain voting standards for certain actions, the voting standards are determined by default to provisions in the VSCA. In many cases this default would require a voting standard greater than a majority of votes cast, unless and until a lower standard is adopted in the Articles.

 

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This Item 2(c) requests that shareholders approve an amendment to the Articles to add a new Article VIII. As a result of the amendment, the default VSCA voting standard for certain items would no longer apply as the Articles would now contain an explicit voting standard. If Item 2(c) is approved, the new Article VIII would revise the voting standard to be the affirmative vote of a majority of the votes entitled to be cast for (i) the re-domestication of the Corporation; and (ii) an affiliated transaction for which the VSCA requires shareholder approval.

 

Additional Information

 

The full text of the Proposed Amendments, in each case marked to show the proposed deletions and insertions, is set forth in Exhibit A to this Proxy Statement. The general description of provisions of our Articles and the Proposed Amendments set forth herein are qualified in their entirety by reference to the text of Exhibit A.

 

If shareholders approve any of the Proposed Amendments by the requisite vote, we will file Articles of Amendment that include only those amendments that were approved by the shareholders with the Virginia State Corporation Commission promptly after this Annual Meeting. The Articles of Amendment will become effective upon the issuance of a certificate of amendment by the Virginia State Corporation Commission. For any Proposed Amendment that does not receive the requisite vote, that Proposed Amendment will not be implemented and the Corporation’s current voting standards relating to such Proposed Amendment will remain in place.

 

Governance Framework and Practices

 

The Board of Directors has adopted Corporate Governance Guidelines that, among other matters, describe procedures for shareholders and other interested parties to communicate with the non-employee members of the Board (the “outside” directors). Communications will be forwarded to the Lead Independent Director after review by the Corporate Secretary, as appropriate. Communications that are unrelated to the duties and responsibilities of the Board may not be forwarded. These include matters involving individual grievances or that are otherwise not of general concern to all shareholders, and items that are business solicitations or advertisements, resumes or other job-related inquiries, spam, and hostile, threatening, or similarly unsuitable communications, each of which will be handled by management, as appropriate. However, all shareholder and interested parties’ communications are made available to the Board of Directors upon the Board’s request. The Corporate Governance Guidelines are available on our website at www.norfolksouthern.com on the “Invest in NS” page under “Corporate Governance Documents.”

 

Board Leadership Structure

 

Mr. Squires has served as Chief Executive Officer since June 1, 2015, and as Chairman since October 1, 2015. While the Board believes that combining the CEO and Chairman positions provides a leadership structure that is in the best interests of Norfolk Southern and our shareholders, the Board of Directors recognizes the importance of strong independent board leadership and has provided for such leadership by designating a Lead Independent Director, as discussed in detail below under “Lead Independent Director.”

 

Combining the CEO and Chairman positions provides for consistency of leadership of the Board and management and maintains clear lines of authority. Given that Mr. Squires’ knowledge of the Corporation is more extensive than that of any other director, he is particularly well equipped to lead the Board and set the Board’s agenda in collaboration with our Lead Independent Director. Further, Mr. Squires’ experience gives him a depth of knowledge about the broader industry that the Board believes is a highly valuable feature for the Chairman.

 

Lead Independent Director

 

In order to provide strong independent Board leadership, the Board’s leadership structure is enhanced by the role of our Lead Independent Director, who:

 

·is selected from the independent directors of the Board by the independent directors;
·presides at all meetings of the Board at which the Chairman is not present, including all meetings of the outside directors;
·calls additional meetings of the outside directors as necessary;
·serves as a liaison between the Chairman and CEO and the independent directors, conferring with the Chairman and CEO on a number of topics, including the effectiveness of Board meetings;
·develops and approves, together with the Chairman and CEO, Board and committee meeting agendas, meeting schedules, and other materials to be distributed to the Board in order to ensure sufficient time for informed discussions of complex issues;
·monitors the flow of information from the committee chairs to the directors, reviews shareholder communications, meets with significant shareholders as appropriate, and interviews potential director candidates; and
·presides over our annual board self-evaluation process.

 

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Mr. Leer was selected by the independent directors to be our Lead Independent Director in 2013. Mr. Leer is an experienced director with extensive knowledge of Norfolk Southern’s business, drawing from his perspectives both as a board member and as a former customer. While Mr. Leer has extensive experience as a public company CEO and chairman, because he is not currently a standing executive he is able to devote extensive time and focus to his role as Lead Independent Director. Mr. Leer has served as a director of Norfolk Southern through two leadership transitions and has been instrumental in providing continuity in the leadership of the Board, and in facilitating communication amongst board members.

 

More information on the position of Lead Independent Director is contained in Norfolk Southern’s Corporate Governance Guidelines, posted on the “Invest in NS” page under “Corporate Governance Documents” on our website.

 

Board Self-Evaluation Process

 

Our Lead Independent Director presides over our annual board self-evaluation process. For the 2019 evaluation, the Board retained a third-party firm to facilitate the evaluation, with evaluation results sent directly to the directors without input or interpretation by management. The evaluation included an assessment of the effectiveness of the Board and its committees, director performance, board dynamics, director succession planning, the effectiveness of our Lead Independent Director and committee chairs, and the level of independence between the Lead Independent Director and our Chairman and CEO. The individual assessments were organized and summarized by the third-party firm for discussion by our Lead Independent Director with the Board. In addition, our Lead Independent Director supplemented the evaluation process with one-on-one reviews with individual directors following the evaluation as he deemed appropriate. The Board believes utilizing a third-party firm and reviewing and updating the questionnaire each year as appropriate ensures the evaluation process remains robust and that the process is free from any conflicts of interest and is truly an independent review.

 

Board Refreshment and Succession Planning Policy

 

Our Governance and Nominating Committee adopted a policy under our Corporate Governance Guidelines requiring that it discuss succession planning for directors, including the committee chair and lead director positions, at least annually. The Committee considers any upcoming retirements under its retirement policy for directors, desired skills and expertise for the Board, and tenure of current directors. In evaluating tenure, the Committee reviews average tenure and distribution of individual tenures for the Board (that is, the number of directors having less than five years of service, five to ten years of service, and over ten years of service), with the goal of maintaining an appropriate balance of new perspectives and longer-term expertise.

 

Retirement Policy

 

Under our Corporate 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 75th birthday.

 

Director Education

 

Directors will receive continuing education from time to time through presentations about the Corporation and new legal and regulatory developments relating to directors. Directors are encouraged to participate in outside director education seminars at the Corporation’s expense. In addition, Directors periodically participate in site visits to our railroad facilities.

 

Director Elections Majority Voting Policy and Resignation Requirement

 

Norfolk Southern’s Bylaws require that in an uncontested election of directors, a director will be elected by a majority of votes cast. Any incumbent director who is not re-elected will promptly tender his or her resignation to the Board of Directors for consideration by our Governance and Nominating Committee. The Governance and Nominating Committee 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.

 

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Proxy Access

 

The Corporation’s Bylaws permit a group of shareholders holding 3% of our outstanding shares for at least 3 years, and who otherwise comply with the Corporation’s Bylaws, to nominate up to 20% of the Board of Directors (with a minimum of 2 nominees). Up to 20 shareholders may aggregate their holdings to reach the 3% threshold. Our Bylaws are posted on our website on the “Invest in NS” page under “Corporate Governance Documents.”

 

Special Meetings

 

A special meeting will be called by the Corporate Secretary of the Corporation upon written request by one or more shareholders who in the aggregate represent at least 20% of the Corporation’s voting shares and who otherwise comply with the Corporation’s Bylaws, which are posted on our website on the “Invest in NS” page under “Corporate Governance Documents.”

 

Shareholder Engagement

 

Norfolk Southern regularly engages with its shareholders on our strategic plan, governance, executive compensation, sustainability, and other matters of interest to shareholders. During 2019, we continued our shareholder outreach program and met with many of our largest institutional investors. Our outreach program included one-on-one meetings with members of our governance team, as well as members of our investor relations, human resources, and sustainability teams. Feedback we received from shareholders was presented to our Board of Directors and to our Governance and Nominating Committee or Compensation Committee, as appropriate, for that committee’s consideration. Our Governance and Nominating Committee, headed by our Lead Independent Director, discussed both the process for conducting this outreach program and the results of these shareholder meetings with our Board of Directors. In response to these engagements, our Board recommended amendments to our Articles of Incorporation, as described in Item 2 of this Proxy Statement, in response to shareholder approval of the shareholder proposal on majority vote at the 2019 Annual Meeting.

 

Corporate Sustainability and Responsibility

 

Moving freight by rail is more fuel- and carbon-efficient than moving freight by truck: on average four times more efficient. In addition, Norfolk Southern strives to continuously reduce our fuel consumption and lower our carbon emissions. In support of these goals, we continue to implement technology-driven initiatives that benefit both the environment and our bottom line.

 

Our Governance and Nominating Committee’s charter includes oversight of sustainability initiatives. We have entwined sustainability into daily operations in ways that advance our business goals and honor our environmental and social commitments as a responsible corporate citizen. We strive to satisfy these commitments while driving business forward, to ensure success for all stakeholders: investors, customers, employees, communities, and industry partners.

 

Our Corporate Social Responsibility Report is published annually and informed by the Global Reporting Initiative’s G4 Core Level guidelines. The report is available on our website on the “Get to Know NS” page under “Environment.” (Please note that information contained on our website is not incorporated by reference in this Proxy Statement or considered to be part of this document.)

 

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Highlights from our most recently reported sustainability cycle include:

 

Integrating Sustainable Business Practices into Daily Operations

 

Safety is a Core Value and Pillar of Our Strategy

· Maintained record-level locomotive fuel efficiency for the second consecutive year. Over the past two years, our fuel-efficiency initiatives have conserved more than 47.3 million gallons of diesel compared to 2016 fuel-economy performance and avoided more than 481,000 metric tons of greenhouse gas emissions.

· Advanced our favorable trend of reducing greenhouse gas emissions. Year-over-year, we reduced absolute emissions (Scope 1 and 2) by 2.6% even as business volumes, as measured by revenue ton miles, increased by nearly 3%. We lowered our emissions intensity per revenue ton mile by 5%.

· Continued to make gains in energy performance, reducing electricity use by more than 1% and lowering electricity costs by more than 5%.

 

· Experienced zero employee work-related fatalities and reduced the number of serious on-the-job injuries.

· Expanded our “Don’t just work here, thrive here” program to enhance employee experience.

· Provided free training to more than 6,200 emergency responders, including police and firefighters, on how to prepare for and safely respond to potential rail- related incidents involving hazardous materials.

· Visited 22 communities in 15 states on our territory in our safety train, a mobile training lab, providing classroom and hands-on rail-safety training to more than 2,060 first responders.

     

Generating Economic Benefits for Businesses and Communities

 

Increasing the Diversity of Our Workforce and Improving our Communities

· Financed an employee payroll of more than $2.4 billion and disbursed more than $6 billion in taxes, purchases, and other payments in 22 states and the District of Columbia.

· Invested $1.95 billion in capital projects to ensure safe and efficient operations and support growth. Gained more than 60,000 carloads of new business through industrial development efforts. The additional traffic was generated by 90 industries that built new or expanded existing facilities on our rail network, representing customer investment of more than $1.5 billion that created more than 2,970 customer jobs.

 

· 84% of employees are represented by 13 trade unions.

· Became the first railroad to sign the CEO Action for Diversity and Inclusion pledge, a public commitment to cultivate a workplace environment where diverse experiences and perspectives are welcome and where employees feel comfortable and empowered to discuss diversity and inclusion.

· Recognized externally as a military-friendly employer. In 2018, we hired more than 400 people who are veterans, or nearly 18% of new hires for the year.

· Donated more than $8.8 million in charitable contributions to communities where we work.

 

Sustainability and Climate Change Risk Management

 

Norfolk Southern, through its Enterprise Risk Management (“ERM”) program and disclosure procedures, reviews and monitors sustainability and climate change risks relating to volatility in energy prices, business interruptions from severe weather, and legislative and regulatory efforts to limit greenhouse gas emissions. Our Board receives updates on these risks, and our management works with employees to identify, assess, and mitigate these risks and any potential emerging risks associated with sustainability and climate change. For more information on these risks, please see our annual and quarterly reports filed with the SEC.

 

Risk Oversight

 

Norfolk Southern considers and manages opportunities, threats, and uncertainties that may impact the Corporation’s business objectives by employing a robust ERM program. The ERM program supports the Corporation’s achievement of business objectives by enabling a collaborative risk management environment to proactively identify, assess, monitor, and mitigate business risk.

 

While the Board of Directors is ultimately responsible for oversight of the ERM program, the Finance and Risk Management Committee has been delegated oversight of the ERM program. The Finance and Risk Management Committee:

 

·recommends ERM program procedures and processes to the Board;
·oversees the ERM program and requests reports from management on its monitoring and mitigation of risks;
·discusses with management the relationship between Norfolk Southern’s risk appetite and business strategies; and
·collaborates with the Audit Committee to assist it in its review of major financial risk exposures and its oversight of the guidelines and policies used to govern the ERM program.

 

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Other Board committees also play a role in risk oversight:

 

·The Audit Committee is responsible for oversight of ERM program guidelines and policies, and considers Norfolk Southern’s major financial risk exposures, as well as risks associated with financial reporting and fraud.
·The Compensation Committee considers major compensation-related risks when reviewing our compensation strategy, plans, and programs.

 

Management implements the ERM program through its Enterprise Risk Council. The Council comprises executive leadership and the chief risk officer, who coordinate with business leaders across Norfolk Southern to assess and mitigate enterprise risks. Management provides regular presentations and updates on risk management efforts to the Finance and Risk Management Committee. In addition, the Board or the Finance and Risk Management Committee may conduct additional risk assessments at any time, and the Board - and each of its committees - is empowered to engage outside advisors to assist in performing its risk oversight duties.

 

Related Persons Transactions

 

During 2019, Norfolk Southern did not have any related persons transactions.

 

We may occasionally participate in transactions with certain “related persons.” Related persons include our Executive Officers, directors, beneficial owners of 5% or more 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 persons transactions.” We have adopted a written policy to prohibit related persons transactions unless they are determined to be in Norfolk Southern’s best interests. Under this policy, the Audit Committee of our Board is responsible for the review and approval of each related persons 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 persons transaction, the Chair of the Audit Committee has been delegated authority to act between Audit Committee meetings. The Audit Committee, or its Chair, considers all relevant factors when determining whether to approve a related persons transaction, including 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 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% shareholder, in the transaction; and
·whether we have developed an appropriate plan to monitor or otherwise manage the potential 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 persons 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 shareholders’ best interest to continue, modify, or terminate the related persons transaction.

 

Anti-Hedging and Anti-Pledging Policies

 

In September 2019, the Board of Directors amended the Corporation’s anti-hedging policy to extend the policy to all officers and members of the Board, effective for transactions entered into after adoption of the amendment. The policy provides that the Corporation’s executive and non-executive officers and members of its Board of Directors are prohibited from purchasing any financial instruments (including prepaid variable forward contracts, equity swaps, collars, exchange funds) that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Corporation’s securities, whether granted by the Corporation as part of the officer’s or director’s compensation or held, directly or indirectly, by the officer or director. Corporation policy also prohibits executive officers from entering into pledging transactions or positions regarding the Corporation’s securities. The Corporation is not aware of any violation of these policies.

 

The Thoroughbred Code of Ethics

 

The Board has approved and adopted The Thoroughbred Code of Ethics, which 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 and our Corporate Governance Guidelines are available on our website at www. norfolksouthern.com on the “Invest in NS” page under “Corporate Governance Documents.” Any shareholder may request printed copies of our Corporate Governance Guidelines, The Thoroughbred Code of Ethics, or Code of Ethical Conduct for Senior Financial Officers by contacting: Denise W. Hutson, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510 (telephone 757-823-5567).

 

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Board Composition and Attendance

 

On September 23, 2019, the Board of Directors elected Mr. Mongeau. On February 21, 2020, the Board of Directors elected Mr. Huffard and Mr. Jones. The Board met six times in 2019. 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.

 

The Corporate Governance Guidelines also describe the Board’s policy with respect to director attendance at the Annual Meeting of Shareholders, which provides that, to the extent possible, each director is expected to attend the Annual Meeting. We work hard to coordinate schedules so that all our directors can attend, but occasionally events arise that we are unable to schedule around. All directors attended our 2019 Annual Meeting of Shareholders.

 

Committees of the Board

 

Our Board committees and their responsibilities are described below. Each committee operates under a charter approved by the Board of Directors that requires the committee to evaluate its performance at least annually. The committee’s evaluation includes effectiveness, size and composition, the quality of information and presentations given to the committee by management, the suitability of the committee’s duties and other issues that the committee deems appropriate. Copies of the committee charters are available on our website on the “Invest in NS” page under “Corporate Governance Documents.” Any shareholder may request a printed copy of one or more of the committee charters by contacting: Denise W. Hutson, Corporate Secretary, Norfolk Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510 (telephone 757-823-5567).

 

 

1

 
   
   

Executive Committee

 

Current members:      James A. Squires (Chair)
Thomas D. Bell, Jr.
Daniel A. Carp
Steven F. Leer
Amy E. Miles

 

Meetings in 2019: Two

 

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 next meeting and are subject to revision or alteration by the Board.

 

2

 
   
   

Audit Committee

 

Current members:      Amy E. Miles (Chair)
Marcela E. Donadio
Christopher T. Jones
Thomas C. Kelleher
Michael D. Lockhart
John R. Thompson

 

Meetings in 2019: Nine

 

All members of the Audit Committee are independent (see information under “Director Independence” on page 15), satisfy all additional requirements for service on an Audit Committee, as defined by the applicable New York Stock Exchange Listing Standards and SEC rules, and qualify as “audit committee financial experts,” as that term is defined by SEC rules. No member of the Committee serves on more than three public company audit committees.

 

During 2019 the Audit Committee:

 

·assisted board oversight of the accuracy and integrity of our financial statements, financial reporting process, and internal control systems;
·engaged an independent registered public accounting firm (subject to shareholder ratification) based on an assessment of their qualifications and independence, and pre-approved all services associated with their engagement;
·evaluated the efforts and effectiveness of our independent registered public accounting firm and Audit and Compliance Department, including their independence and professionalism;

 

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·facilitated communication among the Board, the independent registered public accounting firm, our financial and senior management, and our Audit and Compliance Department;
·assisted board oversight of our compliance with applicable legal and regulatory requirements;
·reviewed procedures established for the receipt, retention, and treatment of complaints received, including confidential, anonymous submissions by employees, or others, of concerns regarding questionable accounting or auditing matters, and significant cases of alleged employee conflict of interest, ethical violations, misconduct, or fraud, the volume and nature of calls to the “Ethics and Compliance Hotline” and other matters similar in nature;
·discussed the Corporation’s guidelines and policies with respect to risk assessment and risk management, including the Corporation’s major financial risk exposures, and the steps management has taken to monitor and control such exposures; and
·prepared the “Audit Committee Report” that SEC rules require be included in our annual proxy statement.

 

3

 
   
   

Finance and Risk Management Committee

 

Current members:       Thomas D. Bell, Jr. (Chair)
Marcela E. Donadio
John C. Huffard, Jr.
Thomas C. Kelleher
Michael D. Lockhart
Claude Mongeau
Jennifer F. Scanlon
   

Meetings in 2019: Five

 

All members of the Finance and Risk Management Committee are independent (see information under “Director Independence” on page 15).

 

During 2019 the Finance and Risk Management Committee:

 

·oversaw implementation of policies concerning our capital structure, including evaluating the appropriate structure of our long-term debt, mix of long-term debt and equity, and strategies to manage our interest burden, and recommended to the Board the declaration of dividends, share repurchases, and the issuance of debt securities;
·reviewed and evaluated tax and treasury matters and financial returns of our transactions, including management of cash flows, tax planning activities, and evaluating financial returns of proposed mergers, acquisitions, and divestitures; and
·provided oversight of our Enterprise Risk Management program, including recommending Enterprise Risk Management procedures and processes to the Board, requesting reports from management on its monitoring and mitigation of risks, and discussing with management the relationship between Norfolk Southern’s risk appetite and business strategies.

 

4

 
   
   

Governance and Nominating Committee

 

Current members:       Steven F. Leer (Chair)
Daniel A. Carp
Mitchell E. Daniels, Jr.
Christopher T. Jones
Amy E. Miles
John R. Thompson

 

Meetings in 2019: Five

 

All members of the Governance and Nominating Committee are independent (see information under “Director Independence” on page 15).

 

During 2019 the Governance and Nominating Committee:

 

·recommended to the Board qualified individuals to be nominated as members of the Board;
·recommended to the Board qualified individuals to be elected as our officers;
·evaluated and considered whether to recommend the adoption of any amendments to our Corporate Governance Guidelines;
·monitored legislative developments relevant to us and oversaw efforts to affect legislation and other public policy;

 

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·provided oversight of our sustainability initiatives, political contributions, and charitable giving;
·oversaw our relations with shareholders; and
·monitored corporate governance trends and practices and made recommendations to the Board of Directors concerning corporate governance issues.

 

5

 
   
   

Compensation Committee

 

Current members:       Daniel A. Carp (Chair)
Thomas D. Bell, Jr.
Mitchell E. Daniels, Jr.
John C. Huffard, Jr.
Steven F. Leer
Claude Mongeau
Jennifer F. Scanlon

 

Meetings in 2019: Three

 

All members of the Compensation Committee are independent (see information under “Director Independence” on page 15) and satisfy all additional requirements for service on a Compensation Committee, as defined by the applicable New York Stock Exchange Listing Standards and the SEC rules.

 

During 2019 the Compensation Committee:

 

·considered and made recommendations to the Board concerning the compensation levels, plans, and programs for the directors, chief executive officer, and executive officers;
·reviewed and approved corporate goals and objectives relevant to the chief executive officer’s compensation and considered and recommended to the independent members of the Board the compensation of the chief executive officer based on an evaluation of his performance relative to those corporate goals and objectives;
·considered the results of the shareholder advisory vote on executive compensation in connection with its review of Norfolk Southern’s executive compensation strategy, plans, and programs;
·provided oversight of each management annual incentive plan, deferred compensation plan, long-term incentive plan, and other executive compensation plan that the Board has adopted and granted, and recommended or approved awards under the plans;
·made compensation decisions for which it was desirable to achieve the protections afforded by Rule 16b-3, or by other laws or regulations relevant in this area and in which only disinterested directors may participate; and
· oversaw disclosures included in the Compensation Discussion and Analysis (“CD&A”) and produced a Compensation Committee Report indicating that it has reviewed and discussed the CD&A with management and approved its inclusion in the annual proxy statement.

 

Compensation Committee Interlocks and Insider Participation

 

During 2019, each of Daniel A. Carp, Chair, Thomas D. Bell, Jr., Wesley G. Bush (resigned February 5, 2019), Mitchell E. Daniels, Jr., Steven F. Leer, Claude Mongeau (joined September 23, 2019), and Jennifer F. Scanlon served on our Compensation Committee. None of these members have ever been employed by Norfolk Southern, and no members had any relationship with us during 2019 requiring disclosure as a transaction with a related person, promoter, or control person under Item 404 of Regulation S-K or under the Compensation Committee Interlocks disclosure requirements of Item 407(e)(4) of Regulation S-K.

 

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Compensation of Directors

 

2019 Non-Employee Director Compensation Table1

 

 

 

 

 

 

 

 

Name

 

 

Fees
Earned
or
Paid in
Cash3
($)

 

Stock
Awards4
($)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings5
($)

 

 

 

 

 

All Other
Compensation6
($)

 

 

 

 

 

 

Total
($)

Thomas D. Bell, Jr. 120,000 159,507 0 7,265 286,772
Wesley G. Bush2 25,000 159,507 0 2,265 186,772
Daniel A. Carp 123,750 159,507 0 7,265 290,522
Mitchell E. Daniels, Jr. 100,000 159,507 0 16,765 276,272
Marcela E. Donadio 100,000 159,507 0 10,015 269,522
Thomas C. Kelleher 100,000 159,507 0 0 259,507
Steven F. Leer 150,000 159,507 14,732 4,365 328,604
Michael D. Lockhart 105,000 159,507 0 7,265 271,772
Amy E. Miles 120,000 159,507 0 7,265 286,772
Claude Mongeau2 53,750 44,222 0 0 97,972
Martin H. Nesbitt2 50,000 159,507 0 2,265 211,772
Jennifer F. Scanlon 103,750 159,507 0 22,265 285,522
John R. Thompson 100,000 159,507 0 12,265 271,772

 

1Mr. Squires received no compensation for Board or committee service in 2019, and Mr. Squires will not receive compensation for Board or committee service in 2020. Therefore, neither this table nor the narrative that follows contains compensation information for Mr. Squires. For compensation information for Mr. Squires, see the Summary Compensation Table on page 47. Neither Mr. Huffard nor Mr. Jones was a director in 2019, and they are not included in this table because neither received compensation for Board or Committee service in 2019.
2Mr. Bush served as a director through February 5, 2019, and Mr. Nesbitt served as a director through May 9, 2019. Mr. Mongeau began his service as a director on September 23, 2019.
3Includes 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.
4For all directors, represents the full grant date fair value computed in accordance with FASB ASC Topic 718 of the restricted stock units granted pursuant to our Long-Term Incentive Plan on January 28, 2019, or for Mr. Mongeau, on October 24, 2019. Mr. Bush declined to accept his 2019 stock award in light of his decision to resign from the Board effective February 5, 2019. All of the restricted stock units granted to our directors under the Long-Term Incentive Plan are vested upon grant and acceptance of the award, but are subject to a restriction period of one year and a retention period that ends upon the director’s termination of service. Each director serving on the Board as of December 31, 2019, and who was elected to the Board before 2015, also held 3,000 restricted shares granted pursuant to the Directors’ Restricted Stock Plan. See below under “Non-Employee Director Compensation - Long-Term Incentive Plan” and “Non-Employee Director Compensation - Directors’ Restricted Stock Plan” for more information.
5Represents the amounts by which 2019 interest accrued on fees deferred prior to 2001 by Mr. Leer 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.
6Includes (i) the dollar amounts we contributed to charitable organizations on behalf of directors pursuant to our matching gifts programs as follows: Mr. Bell, $5,000; Mr. Carp, $5,000; Mr. Daniels, $14,500; Ms. Donadio, $7,750; Mr. Leer, $2,100; Mr. Lockhart, $5,000; Ms. Miles, $5,000; Ms. Scanlon, $20,000; and Mr. Thompson, $10,000, and (ii) each director’s proportional cost of NS-owned life insurance policies used to partially fund the Directors’ Charitable Award Program. We do not regard these contributions as compensation; however, this disclosure is required by SEC rules. For further discussion of the Directors’ Charitable Award Program, see the narrative discussion below. 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. Kelleher or Mr. Mongeau.

 

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Narrative to Non-Employee Director Compensation

 

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

 

How We Set Director Compensation. 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 director compensation program and reviews 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.

 

The Corporation pays for or reimburses directors for expenses related to attending Board and committee meetings, director education programs, and other company business meetings.

 

Fees. In 2019, each member of the Board received a quarterly fee of $25,000 for service on the Board and its standing committees. Directors who served as committee chairpersons received an additional quarterly fee of $5,000 for such service, and our Lead Independent Director received an additional quarterly fee of $12,500. For the last quarter of 2019, members of a newly-formed special-purpose safety committee received an additional quarterly fee of $3,750, and that committee’s chairperson received a quarterly fee of $5,000.

 

Long-Term Incentive Plan. Each of our then current non-employee directors was granted restricted stock units effective January 2019. Each restricted stock unit represents the economic equivalent of one share of our common stock, and will be settled in shares of our stock. Restricted stock units are credited with dividend equivalents as dividends are paid on our common stock, and the amount credited is converted into additional restricted stock units based on the fair market value of our stock on the dividend payment date. Upon leaving the Board, a director will receive the value of the restricted stock units in shares of our stock either in a lump sum distribution or in ten annual distributions, in accordance with an election made by each director.

 

Under the Long-Term Incentive Plan, if a new non-employee director is appointed after the date of the Plan awards for the year, the new director will receive an award under the same terms as made to other non-employee directors for the year but with the amount of the award prorated based on the number of days remaining in the year that the individual became a director.

 

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 account maintained in the name of each participating director. Six directors elected to defer compensation that would have been payable in 2019 into the Directors’ Deferred Fee Plan.

 

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 will be settled in cash, not in shares of stock. These amounts 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.

 

Amounts deferred before January 1, 2001, earn a fixed rate of interest, which is credited to the account at the beginning of each quarter. The fixed interest rate under the plan is determined based on the director’s age at the time of the deferral, which rate was 10% for deferrals made when a director was between ages 45-54. Amounts set forth in the table above represent the extent to which this rate exceeds 120% of the applicable federal long-term rate. These amounts will be distributed in ten annual installments beginning in the year following the year in which the participant ceases to be a director.

 

Our commitment to accrue and pay interest and/or earnings on amounts deferred is facilitated by the purchase of corporate-owned life insurance. 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 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’ Charitable Award Program. Each director who has served for one year 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 our long-standing commitment to contribute to educational, cultural and other appropriate charitable institutions and to encourage others to do the same. We fund some of the charitable contributions made under the program out of general corporate assets, and some of the charitable contributions with proceeds from life insurance policies we have purchased on some of the directors’ lives. We are the owner and beneficiary of these policies, and the directors have no rights to any policy benefits. Upon directors’ deaths, we receive these life insurance death benefits free of income tax, which provide a source from which we can be reimbursed for

 

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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. We allocate a proportional share of the cost of maintaining these policies during 2019 to each director eligible for the Directors’ Charitable Award Program in the above table under “All Other Compensation,” regardless of whether we purchased a life insurance policy with respect to each particular director.

 

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 receive 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’ Restricted Stock Plan. Before 2015, each non-employee director received a grant of 3,000 shares of restricted stock upon election to the Board. Restricted stock was registered in the name of the director, who has the right to vote the shares and receive dividends, but restricted stock may not be sold, pledged, or otherwise encumbered during the restriction period. The restriction period begins when the restricted stock was granted and ends on the earlier of death or the director ceasing to serve on the Board because of disability or retirement. Effective January 2015, the Board of Directors amended the Directors’ Restricted Stock Plan to provide that no additional awards will be made under the plan, and alternate awards will be made to new directors under the Long-Term Incentive Plan.

 

Share Ownership Guidelines for Directors

 

Our Board of Directors has established as part of our Corporate Governance Guidelines that each non-employee director should own shares of Norfolk Southern stock equal to at least five times the annual amount of quarterly fees paid for service on the Board and its standing committees. The Board of Directors believes this stock ownership guideline is reasonable and aligns director and shareholder interests. Norfolk Southern common stock, restricted stock, 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 guideline. Directors may acquire such holdings over a five-year period. All directors currently meet this guideline or are expected to meet the guideline within the five-year period.

 

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Audit Committee Matters

 

ITEM
3

Ratification of Appointment of Independent Registered Public Accounting Firm

 

ü The Audit Committee unanimously recommends, and the Board of Directors concurs, that shareholders vote FOR the proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2020.

 

 

The Audit Committee of the Board of Directors has appointed KPMG LLP, independent registered public accounting firm, to perform the integrated audit of our consolidated financial statements and internal control over financial reporting for 2020. KPMG and its predecessors have been the Corporation’s external auditor since 1982.

 

Selection of KPMG. The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the Corporation’s independent registered public accounting firm and consequently is involved in the selection of the lead audit partner for the engagement. In addition, the Audit Committee is responsible for negotiating and approving the fees paid to KPMG. In determining whether to reappoint KPMG this year, the Committee reviewed KPMG’s performance and independence and considered a number of factors, including:

 

·the quality of its interactions and discussion with KPMG;
·KPMG’s performance in the audit engagement;
·the qualifications of the lead audit partner and audit team;
·KPMG’s independence program and processes for maintaining independence;
·KPMG’s expertise and global reach;
·the length of time KPMG has been engaged; and
·the potential impact of changing our independent registered public accounting firm.

 

Due to KPMG’s high quality performance and strong independence, the Audit Committee and the Board of Directors believe that the continued engagement of KPMG as the Corporation’s independent registered public accounting firm is in the best interests of the Corporation and its shareholders.

 

KPMG Fees. For the years ended December 31, 2019, and December 31, 2018, KPMG billed us for the following services:

 

  2019 2018
Audit Fees1 $ 3,178,997 $ 3,288,506
Audit-Related Fees2 $ 215,000 $ 263,000
Tax Fees3 $ 39,349 $ 92,544
All Other Fees $ 0 $ 0
Total Fees $ 3,433,346 $ 3,644,050

 

1Audit Fees include fees for the audit of our consolidated financial statements and internal control over financial reporting (integrated audit), the review of our consolidated 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 employee benefit plan audits and other attestation services.
3Tax Fees consist of tax advice, tax planning, and tax compliance services.

 

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Pre-Approval Policy. The Audit Committee requires that management obtain the Committee’s prior approval for all audit and permissible non-audit services. The 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 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 our independent registered public accounting firm. All services rendered to us by KPMG in 2019 and 2018 were pre-approved in accordance with these procedures.

 

Representatives of KPMG are expected to attend the 2020 Annual Meeting. They will have the opportunity to make a statement, if they so desire, and be available to respond to appropriate questions.

 

Audit Committee Report

 

Before our Annual Report on Form 10-K for the year ended December 31, 2019, 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, 2019.*

 

The Audit Committee has discussed with KPMG LLP, our independent registered public accounting firm, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC.

 

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

 

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, 2019, filed with the SEC.

 

MEMBERS OF THE AUDIT COMMITTEE

 

Amy E. Miles, Chair
Marcela E. Donadio
Thomas C. Kelleher
Michael D. Lockhart
John R. Thompson

 

*Christopher T. Jones was appointed to the Audit Committee on February 21, 2020, upon his election to the Board, and he did not participate in the Committee's deliberations regarding the audited financial statements for the year ended December 31, 2019.

 

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Executive Compensation

 

ITEM
4

Approval of Advisory Resolution on Executive Compensation

 

ü The Board of Directors unanimously recommends that shareholders vote FOR the advisory resolution approving the compensation of our Named Executive Officers.

 

 

We are asking our shareholders to vote to support the compensation of Norfolk Southern’s Named Executive Officers, as disclosed in this Proxy Statement. Our executive compensation program is described in detail in the “Compensation Discussion and Analysis” beginning on page 33 and our “Executive Compensation Tables” beginning on page 47. This vote is not intended to address any specific item of compensation, but rather the overall compensation of Norfolk Southern’s Named Executive Officers and the philosophy, policies, and practices described in this Proxy Statement. While this “Say-on-Pay” vote is advisory, and therefore not binding on the Board, the Compensation Committee will consider the results of the vote in evaluating our executive compensation program in the future.

 

As more fully described in our Compensation Discussion and Analysis, Norfolk Southern’s executive compensation program is designed to align executives’ compensation with the Corporation’s overall business strategies, to attract and retain highly qualified executives, and to provide incentives that drive shareholder value. Accordingly, the compensation program consists of a mix of the following compensation components that the Committee believes best serve to achieve those objectives:

 

2019 CEO Target Total Compensation Mix                   2019 Other Continuing NEOs Target Total Compensation Mix*

 

 (Pie Chart)

 

Long-Term Incentive Awards Annual Incentive Salary

·  Target longer-term achievement of corporate objectives by aligning interest of executives with shareholders

·  Include performance shares that are earned over a 3-year performance cycle, stock options, and time-based restricted stock units

·  See page 42 for further details

·  Compensate executives based on achievement of annual corporate goals

·  Earn based on performance against financial and operating metrics

·  See page 40 for further details

 

·  Help attract and retain executives

·  Provide a fixed level of compensation

·  See page 40 for further details

 

 

*Average for Mr. Scheib, Mr. Shaw and Mr. Wheeler. Ms. Earhart is omitted from this table because she retired effective November 1, 2019. Also omitted from this table is Mr. George, who joined the Corporation on November 1, 2019. As described further in the Summary Compensation Table and in the Form 8-K filed on August 28, 2019, Mr. George was granted a signing bonus and inducement equity award effective upon his hire, which awards are distinct from the annual compensation components the Compensation Committee granted to our Named Executive Officers.

 

Under the direction of our Compensation Committee, our executive compensation program emphasizes performance- based compensation, including compensation that is contingent upon performance conditions or subsequent stock price appreciation. The Committee considers the annual cash incentive, long-term performance share units, and stock options to be performance-based awards. The annual cash incentive and performance share units are at risk of having no value unless threshold goals are achieved, and the stock options are at risk of having no value unless our stock price appreciates.

 

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The Committee believes such performance-based compensation creates a strong alignment between the interests of our executive officers and our shareholders. In 2019, our Chief Executive Officer’s target compensation was 71% performance-based, and the other Named Executive Officers’ target compensation was on average 61% performance- based.

 

The Committee establishes financial and operating metrics for the annual cash incentive, and financial and stock performance criteria for our performance share unit (PSU) long-term stock incentive, and establishes challenging goals that must be met for threshold, target, or maximum payouts to be awarded. For the annual and long-term incentives that ended in 2019, the results were as follows:

 

·2019 Annual Incentive: Our Named Executive Officers earned 48.5% of their annual cash incentive opportunity based on achieving below-target performance levels for the operating income and operating ratio metrics.
·2017-2019 PSU Performance Cycle: An above-target payout of 87.5% was achieved for the three-year cycle, based on performance against goals that were established in January 2017 for two equally weighted metrics, after-tax return on average invested capital (ROAIC) and relative total shareholder return (TSR). We achieved a 75% payout for TSR for the three-year cycle and a 100% payout for ROAIC.

 

The Committee grants stock options with a ten-year term, providing incentives to our executives to promote long- term shareholder interests. The value of stock options is inextricably linked to the creation of shareholder value, since options generate value for executives when Norfolk Southern creates value for shareholders through price appreciation.

 

Shareholders have repeatedly expressed strong support for Norfolk Southern’s executive compensation program. We regularly engage in a shareholder outreach program to solicit feedback concerning our executive compensation program. This process allows shareholders to provide input to the Compensation Committee on our executive compensation program and disclosure beyond the annual advisory vote on compensation. In the meetings held during 2019, shareholders expressed satisfaction with Norfolk Southern’s compensation program and with our disclosures related to the program in the proxy statement.

 

Shareholder Support for Norfolk Southern’s Executive Compensation Program

 

The Board of Directors and its Compensation Committee believe the compensation program for the Named Executive Officers is appropriately designed to support Norfolk Southern’s goals. Since this advisory vote was first held in 2011, shareholders have agreed, as they have strongly supported our executive compensation program with 94% or more of the votes cast in support each year, including 94% in 2019, in favor of our executive compensation program.

 

Historical “Say-on-Pay” Voting Results (FOR)

 

(Bar Chart)

 

We therefore ask that you express your support by voting FOR the following advisory resolution:

 

RESOLVED, that the shareholders 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 2020 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2019 Summary Compensation Table, and the other related tables and disclosures.


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Compensation Committee Report

 

The Compensation Committee of our Board of Directors oversees the executive compensation program on behalf of the Board. In fulfilling its oversight responsibilities, we reviewed and discussed with management the “Compensation Discussion and Analysis” set forth in this Proxy Statement.*

 

The Compensation Discussion and Analysis discloses the material elements of Norfolk Southern’s executive compensation program. We are committed to a compensation program that is designed to align executives’ compensation with Norfolk Southern’s overall business strategies, attract and retain highly qualified executives, and provide incentives that drive shareholder value. The Compensation Discussion and Analysis describes how our

decisions regarding Norfolk Southern’s executive compensation program for 2019 implemented these design elements.

 

In reliance on the review and discussions with management referred to above, we recommended to the Board that the Compensation Discussion and Analysis be included in Norfolk Southern’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and this Proxy Statement.

 

MEMBERS OF THE COMPENSATION COMMITTEE

 

Daniel A. Carp, Chair
Thomas D. Bell, Jr.
Mitchell E. Daniels, Jr.
Steven F. Leer

Claude Mongeau
Jennifer F. Scanlon

 

*John C. Huffard, Jr. was appointed to the Compensation Committee on February 21, 2020, upon his election to the Board, and he did not participate in the Committee’s deliberations regarding the Compensation Discussion and Analysis.

 

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Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis describes the objectives, governance, and policies that guide our executive compensation program, the compensation components that made up that program during 2019, and the performance goals and results.

 

Executive Summary

 

Our 2019 Executive Compensation Program

The following chart summarizes the key characteristics and performance metrics that apply to the compensation program for our Named Executive Officers for 2019:

 

Element Form Key Characteristics & Performance Metrics

Base Salary

Fixed Cash

·   Reviewed annually and periodically adjusted based on market data, individual performance and experience, changes in position or duties, or other circumstances

Annual Incentive

Performance-
Based Cash

·   Designed to compensate executives based on achievement of annual corporate performance goals

·   Performance metrics chosen to encourage employees to do all they can individually and as a team to increase revenue, reduce expenses, and improve operating performance

Performance metrics for 2019:

(Pie Chart) 

 

 

 

 

 

Long-Term Incentive Awards

 

Performance
Share Units
(60%)

·   Performance metric chosen to promote efficient utilization of corporate assets and enhancement of shareholder value

·   The performance metric is return on average invested capital, with total shareholder return versus publicly-traded North American Class I railroads as a modifier that may reduce or increase payout (if any) by up to 25%

·   Vest at the end of a 3-year period if performance goal is achieved

Restricted
Stock Units
(25% CEO,
30% Other
NEOs)

 

·   Serve as a retention tool for valued members of management

·   Vest ratably in 4 installments beginning on the 1st anniversary of the date of grant

Stock Options
(15% CEO,
10% Other
NEOs)

 

·   Provide the ability to retain key employees and at the same time increase shareholder value

·   Vest on the 4th anniversary of the date of grant

 

2019 Compensation Alignment

At Norfolk Southern, our Compensation Committee aligns compensation to performance by emphasizing performance- based compensation components. These components include an annual cash incentive, long-term performance share units with a three-year cycle, and stock options.

 

In February 2019, Norfolk Southern announced its three-year strategic plan focused on increased productivity, efficiency, and revenue growth. Under the strategic plan, Norfolk Southern’s goal is to achieve an operating ratio of 60 percent by 2021 (including a full year operating ratio improvement in 2019 of at least 100 basis points on our 2018 operating ratio of 65.4 percent), revenue growth at a compound annual rate of 5 percent through 2021, focused capital expenditures between 16 percent and 18 percent of revenues through 2021, and significant return of capital to shareholders through a dividend payout ratio of 33 percent and continuance of share repurchases using free cash flow and borrowing capacity. Norfolk Southern is intensely focused on executing these initiatives to drive long-term shareholder value.

 

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As described in the “Business Highlights” beginning on page 6, implementation of Norfolk Southern’s three-year strategic plan quickly produced results in 2019, including a record operating ratio of 64.7 percent for the year and diluted earnings per share of $10.25 as compared with $9.51 for 2018. The 2019 operating ratio was a 70 basis point improvement over the prior year’s record, and 2019 diluted earnings per share was an 8 percent improvement over 2018.

 

In 2019, we reinvested $2 billion in the Corporation through our capital spending and replacement program, while paying $949 million in dividends and repurchasing just over $2 billion of the Corporation’s stock. Annual revenues decreased by 1% in 2019 due to a 5% decrease in total volume, which was partially mitigated by an increase in revenue per unit.

 

The Committee is committed to tying executives’ annual and long-term incentive compensation to Norfolk Southern’s performance and strategic plan goals.

 

Annual Incentive. Norfolk Southern did not meet the challenging 2019 target goals for operating income and operating ratio, resulting in a payout of 48.5% of the annual incentive opportunity for the Named Executive Officers.

 

Performance Share Units. Our Named Executive Officers earned 87.5% of performance share units for the three- year cycle ending in 2019, based on equally weighted goals for total shareholder return (TSR) and after-tax return on average invested capital (ROAIC). We achieved an above-target earnout based on a 75% payout for TSR for the three-year cycle, and a payout of 100% for the ROAIC portion of the award.

 

Leading Compensation Governance Practices

 

Embedded in our overall executive compensation program are features that reflect leading governance principles and demonstrate our commitment to best practices in executive compensation:

 

   At Norfolk Southern, We Do        At Norfolk Southern, We Do Not Do   
    
(Graphic)      (Graphic) 

 

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Key 2019 Compensation Decisions

 

As the Compensation Committee continues its focus on aligning executives’ compensation with Norfolk Southern’s strategic plan goals and overall business strategies, attracting and retaining highly qualified executives, and providing incentives that drive shareholder value, the Committee made the following key decisions with respect to executive compensation for 2019:

 

·Established Challenging 2019 Annual Incentive Performance Targets Aligned to Our Strategic Plan Goals. The Committee selected operating income and operating ratio as performance measures for the 2019 annual incentive, as these measures reflect the Corporation’s financial profitability and operational efficiency. The Committee chose not to include the composite service measure, a railroad network performance measure, as a component in the annual incentive for 2019; rather, the Committee decided that the primary focus of the executives should be on operating income growth and operating ratio improvement, and that the railroad’s operating performance would be incorporated in these two performance measures.

In January 2019, the Committee set challenging financial and operating targets consistent with the 2019 goals established under the Corporation’s three-year strategic plan which, if met, would have produced a 67% annual incentive payout. In establishing performance targets for operating income and operating ratio for 2019, the Committee considered:

·Norfolk Southern’s forecasted business environment;
·Norfolk Southern’s continued focus on service; and
·goals of the three-year strategic plan.

Given Norfolk Southern’s strong financial results for operating income and operating ratio in 2018, the Committee’s expectations of improving profitability, growth, productivity, service, and efficiency, and in consideration of the goals of the strategic plan, the Committee in 2019:

·increased the performance necessary to achieve the threshold, target, and maximum payout levels for operating income and operating ratio;
·established Norfolk Southern’s 2018 results as the threshold to earn a minimum payout on either the operating income or operating ratio measure; and
·increased the payout that would be made upon achievement of the threshold level for operating income. Against these challenging performance measures, Norfolk Southern achieved a 48.5% payout of its 2019 annual incentive, which was below the 67% target payout.
·Established Compensation for CEO that is 71% Performance-Based. The Committee established Mr. Squires’ 2019 compensation, which provided 74% of his targeted compensation in the form of equity-based awards that are aligned with shareholder interests, and 71% as performance-based compensation.
·Granted Long-Term Incentive Awards that are Performance-Based. The Committee continued to grant annual long- term incentive awards, the majority of which consist of performance share units and of stock options whose ultimate value is based on shareholder return and which may not have any value at the end of the vesting period. The value of these long-term incentives is closely tied to delivery of results under the Corporation’s three-year strategic plan, and the Committee increased the percentage of total compensation granted as long-term incentive awards for each of the Named Executive Officers in 2019 as compared with 2018.
·Granted Inducement Awards to CFO. The Committee determined it was in the best interest of the Corporation to provide a new-hire equity grant to Mr. George to serve as an inducement for him to join Norfolk Southern as the Corporation’s Chief Financial Officer in 2019. This equity award created immediate alignment with shareholder interests, and incentivized Mr. George as part of our leadership team to drive long-term value creation. In addition, the Committee provided Mr. George with a cash signing bonus, in part to replace compensation opportunities he forfeited by leaving his former employer. The amounts and terms of these compensation arrangements were deemed necessary by the Committee to recruit the best executive in a competitive market for talent.

Our 2019 Named Executive Officers

Name Position
James A. Squires Chairman, President and Chief Executive Officer
Mark R. George Executive Vice President Finance and Chief Financial Officer
John M. Scheib Executive Vice President and Chief Strategy Officer
Alan H. Shaw Executive Vice President and Chief Marketing Officer
Michael J. Wheeler Executive Vice President and Chief Operating Officer
Cynthia C. Earhart Former Executive Vice President Finance and Chief Financial Officer

 

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Objectives of Compensation Program

 

Norfolk Southern’s executive compensation program is primarily designed to:

 

·Align executives’ compensation with overall business strategies.
·Provide incentives that drive shareholder value.
·Attract and retain highly qualified executives.

 

Compensation Governance

 

The Compensation Committee works closely with its independent compensation consultant throughout the year to develop the executive compensation program and to align pay with performance and with pay at comparable companies. While the Compensation Committee discusses current and proposed compensation structures with management, the Committee acts independently of management and has the full authority to retain any advisors it deems appropriate to assist it in making these decisions.

 

Role of Independent Compensation Consultant

The Committee engaged an independent compensation consultant, Pay Governance LLC, to provide executive compensation consulting services during 2019. Pay Governance does not provide services to Norfolk Southern other than those provided at the request of the Committee.

 

At the Committee’s request, Pay Governance compiled compensation data for the peer group selected by the Committee. Pay Governance also provided requested reports and information to the Committee, including at the Committee’s request, recommendations regarding individual pay and compensation program design. Pay Governance attended Committee meetings as requested by the Committee. The Committee used the information provided by Pay Governance, and considers Pay Governance’s analysis and recommendations, as a starting point for its compensation decisions.

 

More specifically, in 2019, Pay Governance:

 

·conducted 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 available market benchmark positions and pay data;
·assisted 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;
·reviewed emerging trends and issues in executive compensation with the Committee and discussed the implications for Norfolk Southern; and
·provided an analysis of the difficulty of achieving the threshold, target, and maximum performance goals for the annual incentive and the performance share units, and of the current plans’ effectiveness in driving achievement of threshold, target, and maximum payouts.

 

For 2019 and 2020, following a review of its records and policies, Pay Governance provided the Compensation Committee with a report regarding its conformance with independence factors under applicable SEC rules and the listing standards of the NYSE. The Committee considered the independence factors and determined that Pay Governance is independent and free from potential conflicts of interest.

 

Performance Reviews

The Committee annually reviews the performance of the Chief Executive Officer and considers this performance when establishing his compensation package. The Committee also reviews the performance of the other Named Executive Officers with the assistance of the Chief Executive Officer, and considers both its own assessment of the executives’ performance and the assessment of the CEO in establishing a compensation package for the other Named Executive Officers.

 

Committee Consideration of Management Recommendations

Management does not make recommendations on the compensation of the Chief Executive Officer. Pay Governance makes recommendations to the Committee on any adjustments to compensation for the Chief Executive Officer, and the Chief Executive Officer is not present when the Committee makes decisions on his compensation package.

 

The Chief Executive Officer provided recommendations to the Compensation Committee on any adjustments to compensation for the Named Executive Officers, other than the Chief Executive Officer. Such adjustments were based on each individual’s performance, level of responsibility, time in position, and internal pay equity.

 

In addition to individual adjustments, the Chief Executive Officer provided recommendations to the Committee on adjustments to compensation to address retention needs, performance goals, market pay equity, overall corporate performance, and general economic conditions. While the Committee considers the recommendations of management in these areas, it makes compensation decisions independently after considering Pay Governance’s recommendations.

 

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Consideration of Shareholder Advisory Vote on Compensation and Shareholder Engagement

At Norfolk Southern’s 2019 Annual Meeting of Shareholders, approximately 94% of the votes cast supported the advisory resolution on the compensation of our Named Executive Officers. The Committee compared the results of the advisory vote to its peer group average results and the average results amongst the S&P 500 companies. The Committee viewed the results of the advisory vote as demonstrating broad shareholder support for our current executive compensation program. Given the results of the shareholder advisory vote and the Committee’s ongoing review of Norfolk Southern’s compensation programs, the Committee believes that our existing compensation program effectively aligns the interests of the Named Executive Officers with Norfolk Southern’s long-term goals. While the shareholder vote on compensation is advisory in nature, the Board and Compensation Committee carefully consider the results of any such vote in future compensation decisions.

 

Norfolk Southern engages in a shareholder outreach program with our institutional investors to solicit feedback concerning our executive compensation program, and this shareholder feedback is reported to the Committee and the Board for consideration. This process allows shareholders to provide input to the Compensation Committee on our executive compensation program and disclosure beyond the annual advisory vote on compensation. In response to specific concerns expressed by shareholders during these discussions, the Committee has taken several actions over the past years to enhance the design of our executive compensation program.

 

Compensation Policies

 

In setting compensation for the Named Executive Officers, our Compensation Committee considers:

 

·each officer’s performance, experience, qualifications, responsibilities, and tenure;
·current and historical salary levels, targeted annual incentive opportunities, and long-term incentive awards;
·expected corporate performance and general economic conditions;
·general industry compensation survey data; and
·comparative market data, provided by the independent compensation consultant, for other North American Class I railroads, as a guideline. The Committee considers total direct compensation (salary plus target annual incentive plus the expected value of long-term incentive awards) relative to the 50th percentile for the Chief Executive Officer and the other Named Executive Officers as compared to the peer group.

 

The Committee does 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 realized amounts may have resulted in a higher or 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 Committee believes that considering amounts realized from prior compensation awards in making current compensation decisions is inconsistent with this purpose.

 

Peer Group

Our Compensation Committee monitors the continuing appropriateness of its selection of the peer group companies. The Committee believes its focus should be on ensuring the peer group includes the other North American Class I railroads or their holding companies (“Class I railroads”) because Norfolk Southern is primarily in competition with those companies for key executive talent. As a result, the Committee determined that reference to the pay levels at the other Class I railroads was the most relevant comparator for the Named Executive Officers. The Class I railroads that make up the peer group companies for 2019 (“Peer Group Companies”) are: BNSF Railway Company, Canadian National Railway Company, Canadian Pacific Railway Limited, CSX Corporation, Kansas City Southern, and Union Pacific Corporation.

 

Our Committee applies its executive compensation policies consistently to all Named Executive Officers, and the application of these policies produces differing amounts of compensation for each officer based on his or her responsibilities and tenure as compared to the compensation set for comparable positions by the Peer Group Companies. In setting the Chief Executive Officer’s compensation, the Committee strives to balance comparative market data for chief executive officers of Peer Group Companies with its goal to provide incentive opportunities that are significantly performance-based and thus designed to drive shareholder value. 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 performance-based component than that of the other Named Executive Officers.

 

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Compensation Components

 

Overview

Our Compensation Committee has designed a balanced compensation program that provides our Named Executive Officers with an appropriate base salary along with competitive annual and long-term incentive compensation. The program directly links executives’ compensation to Norfolk Southern’s strategic goals and financial performance, and thus aligns their interests with those of our shareholders. Norfolk Southern’s total compensation for its Named Executive Officers is weighted heavily toward performance-based incentive compensation, rather than base salary, so that a substantial portion of targeted executive compensation aligns with shareholder interests.

 

2019 CEO Target Total Compensation Mix

 (Graphic)

2019 Average Target Total Compensation Mix for Other NEOs*

 (Graphic)

*Average for Mr. Scheib, Mr. Shaw and Mr. Wheeler. Ms. Earhart is omitted from this table because she retired effective November 1, 2019. Also omitted from this table is Mr. George, who joined the Corporation on November 1, 2019. As described further in the Summary Compensation Table and in the Form 8-K filed on August 28, 2019, Mr. George was granted a signing bonus and inducement equity award effective upon his hire, which awards are distinct from the annual compensation components the Compensation Committee granted to our Named Executive Officers.

 

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In setting executives’ total direct compensation and the compensation component mix, the Committee considers the advice of its independent compensation consultant and then makes its own judgments to determine appropriate compensation levels and mix. The Committee considers each executive’s performance, responsibilities, time in position, and internal pay equity. In addition, the Committee uses market data of the Peer Group Companies when available as a reference point for determining the appropriate compensation, considering where the expected total direct compensation for the upcoming year falls relative to the 50th percentile for the Chief Executive Officer and the other Named Executive Officers. In making its final determinations, the Committee generally considers comparable market data, tenure, and internal pay equity.

 

After considering the available market data and other considerations, at the beginning of 2019, the Committee increased the total direct compensation targets for each of the Named Executive Officers employed at that time, to position each officer’s compensation at a competitive range around the median compensation as compared with comparable positions at the Peer Group Companies. In August 2019, the Committee established the total direct compensation target for Mr. George, which became effective upon his joining the Corporation on November 1, 2019.

 

For 2019, the portion of total direct compensation awarded as total cash compensation versus long-term incentive compensation for the continuing NEOs was approximately:*

 

 (Bar Chart)

 

*Omitted from this table is Ms. Earhart, who retired effective November 1, 2019, and Mr. George, who joined the Corporation on that date.

 

Our Committee further considers the portion of total direct compensation to be awarded as long-term compensation and how the long-term portion should be allocated among performance share units, restricted stock units, and stock options. This allocation is based on general market practices, compensation trends, governance practices, and business issues facing Norfolk Southern. In making this determination, the Committee takes into account the potential dilutive effect of stock-based awards, including guidance on these measures from proxy advisory services, and further considers the purpose behind each element of long-term compensation and how the allocation among these elements will support its overall compensation objectives. For 2019, the Committee maintained the same percentage allocation of long-term incentive awards as granted in 2018.

 

 (Pie Chart)

 

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Salaries

The Board establishes competitive base salaries for our executive officers to attract and retain key executive talent. Our Compensation Committee reviews the Named Executive Officers’ base salaries annually and periodically makes recommendations to Norfolk Southern’s Board of Directors to adjust salaries based on market data, individual performance and experience, changes in position or responsibilities, or for other circumstances.

 

After the Committee’s annual salary review in January 2019, the Committee recommended an increase in Mr. Scheib’s salary, and the Board approved this increase. The Committee did not recommend any adjustments to Mr. Squires’, Ms. Earhart’s, Mr. Shaw’s or Mr. Wheeler’s salaries for 2019, as the Committee determined that those salaries were appropriate based on comparisons for total direct compensation among peers at the Peer Group Companies.

 

In August 2019, the Committee recommended a salary to become effective upon the November 2019 hire of Mr. George as Executive Vice President Finance and Chief Financial Officer, and the Board approved this salary.

 

Annual Incentive

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. Each year, the Compensation Committee establishes a maximum opportunity for each Named Executive Officer at the level of Executive Vice President or above. The opportunity is determined using relevant market data and internal pay equity, and is expressed as a percentage of base salary:

 

                      Corporate
Performance
Payout
Percentage
Earned
      =       Individual
Payout ($)
Annual
Base
Salary ($)
      X         Maximum
Opportunity
       

Committee’s
Discretionary
Adjustment

        X      
                           

  

For 2019, the Committee established annual incentive opportunities of 225% of base salary for the Chief Executive Officer and 135% for the Executive Vice President level. The Committee then established performance levels, including at the threshold, target and maximum performance levels as shown below. The Committee established goals to produce an overall 67% targeted corporate performance payout which, if met, would result in annual incentive payouts equal to the following percentages of each officer’s salary:

 

 

 

Position

Annual
Incentive
Opportunity
 

Target
Performance
Level

  Percent of Salary Paid
as Annual Incentive at
Target Performance
Chief Executive Officer 225% x 67% = 151%
Executive Vice President 135% x 67% = 90%

 

The Committee may reduce the annual incentive paid to any executive based on performance. For 2019, the Committee did not make any adjustments to the annual incentive payout based on individual performance, and approved payouts to Mr. Squires based on a 225% opportunity and to the Executive Vice Presidents based on a 135% opportunity. The annual incentive amounts paid for 2019 and reported as “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table apply these opportunities in the formula described above.

 

Under EMIP, each participant has an opportunity to earn an annual incentive that is determined by Norfolk Southern’s performance relative to goals established by the Committee. In 2019, the Committee established goals for operating income and operating ratio, weighted 60% and 40%, respectively. Approximately 20% of the Corporation’s non- union workforce had an opportunity to earn an annual incentive in 2019 based on the achievement of the same annual corporate performance goals that the Committee established under EMIP.

 

The Committee selected operating income, consisting of operating revenue less the sum of operating expenses, as the metric for the Corporation’s financial profitability. Operating ratio, or operating expenses as a percentage of revenue, is the metric for operational efficiency. The Committee revised its practice from prior years and did not include the composite service measure, a railroad network performance measure, as a component in the annual incentive for 2019. The new strategic plan incorporated the principles of Precision Scheduled Railroading, or PSR, and the composite service measure was based on the pre-PSR railroad operations. In particular, the composite service measure did not necessarily reflect whether the Corporation was efficiently using its assets. As such, the Committee believes that the results of railroad’s operating performance, including the railroad’s service, is best reflected in the two performance measures of operating income and operating ratio, and that the primary focus of the executives should be on operating income growth and operating ratio improvement. The portions of the annual incentive based on operating income and operating ratio each vest independently, so it is possible to earn an annual incentive by achieving the threshold on only one of these metrics. The Committee selected these metrics for 2019 because it believed that use of such metrics encourages employees to do all they can individually and as a team to increase revenue, improve efficiency and reduce expenses.

 

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The Committee sets performance levels required to achieve a target payout at the 67% corporate performance level at levels considered challenging with a reasonable likelihood of being achieved and that represent strong levels of performance based on Norfolk Southern’s overall business outlook, general economic conditions expected during the performance year, and long-term strategic plan. The Committee established the maximum annual incentive opportunity at a level so that the full amount would be earned only if actual performance far exceeded forecasted performance. Performance levels for the operating ratio and operating income metrics are established based on the annual financial plan established at the beginning of the year, and were tied to the Corporation’s 2019 goals under the three-year strategic plan announced in February 2019.

 

For 2019, the Committee set the following threshold, target, and maximum payouts for each of the corporate performance payout metrics for the annual incentive:

 

 

If Norfolk Southern achieved only one of each threshold performance measure listed below, then a threshold payout of:

   

If Norfolk Southern achieved the target or maximum performance measures listed below, then a payout of:

 
Operating Income                       Threshold                                        Target            Maximum          
Outcome   $3.959     $4.371 ≥ $4.846  
Corporate Performance
Payout Percentage
  12%     67% 150%  
    or     and and  
Operating Ratio          Threshold                      Target           Maximum         
Outcome   65.4%     63.4% ≤ 61.8%  
Corporate Performance
Payout Percentage
  8%     67% 150%  
         
                             

 

Overall, the Committee established the following threshold, target, and maximum payouts for the annual incentive which would be multiplied by the executive’s annual incentive opportunity shown on the previous page:

 

     

If Norfolk Southern achieved threshold performance for only the operating ratio measure, then a threshold payout of:

     

If Norfolk Southern achieved the target for each of the performance measures listed above, then a payout of:

     

If Norfolk Southern achieved the maximum for each of the performance measures listed above, then a payout of:

Overall Result              Threshold                             Target                       Maximum       
Corporate Performance
Payout Percentage
    8%       67%       150%  
                         

 

The dollar amounts corresponding to the above-listed threshold, target, and maximum opportunities for each of the Named Executive Officers can be found under Grants of Plan-Based Awards on page 49.

 

For each of the performance metrics, the Committee sets performance levels and resulting payouts at intervals between the threshold, target, and maximum. When the Committee met in January 2019 and established the performance metrics for the annual incentive, the Committee considered Norfolk Southern’s forecasted business environment, Norfolk Southern’s continued focus on service, and the goals of the three-year strategic plan. As a result, the Committee increased the performance necessary to achieve the threshold, target, and maximum payout levels for operating income and operating ratio as compared with 2018, and established a threshold level for these metrics equal to 2018 performance. The Committee increased the payout that would be made upon achievement of the threshold for operating income as compared with 2018 in light of the significant performance required to achieve a payout at the threshold level for operating income. The Committee maintained a maximum payout for operating income and operating ratio at the 150% earnout level so as to incent achievement of the strategic plan goals.

 

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The final percentage for the annual incentive is calculated using a weighted average of the payouts for each performance metric as illustrated below:

 

  Operating Income (billions) 60%   Operating Ratio 40%
  OI   Payout   OR   Payout
  $ 4.846   150%   61.8%   150%
  $ 4.760   120%   62.2%   125%
  $ 4.651   100%   62.6%   100%
  $ 4.511   82%   62.9%   80%
  $ 4.371   67%   63.4%   67%
  $ 4.019   52%   65.0%   52%
  $ 3.959   20%   65.4%   20%
  <$ 3.959   0%   >65.4%   0%

 

Actual results for the year were applied to each schedule to determine the earned 2019 award, as detailed below:

 

Performance Metric Performance % of Award Earned Component Weighting Subtotal
Operating Income (billions) $3.989 40.5% 60% 24.3%
Operating Ratio 64.7% 60.5% 40% 24.2%
Total (rounded)       48.5%

 

Annual incentive award targets and payout ranges for 2019, as well as the actual annual incentive award payouts for each of the Named Executive Officers for 2019, are:

 

 

Named Executive Officer

67% Target Incentive

Range of Potential

Payouts

Award Actually

Earned

James A. Squires            $  1,658,250            $   0 - $3,712,500            $ 1,200,375
Mark R. George $ 90,450 $   0 - $   202,500 $ 65,475
Each of Messrs. Scheib, Shaw, and Wheeler $ 542,700 $   0 - $1,215,000 $ 392,850
Cynthia C. Earhart $ 452,250 $   0 - $1,012,500 $ 327,375

 

Under the terms of the Executive Management Incentive Plan, the annual incentive paid to any individual executive under the plan will not exceed the lesser of three-tenths of one percent of Norfolk Southern’s income from railway operations for the incentive year or ten million dollars.

 

Long-Term Incentive Awards

Norfolk Southern believes the most effective means to achieve long-term corporate performance is to align the interests of our Named Executive Officers with shareholders. The Committee achieves this alignment by granting equity-based awards that are earned based on continued employment, and at least half of which vest on achievement of predetermined performance goals. The Compensation Committee believes that the use of long-term incentive compensation for executives reinforces their focus on the importance of returns to shareholders, promotes achievement of long-term performance goals, and encourages executive retention.

 

For 2019, the Committee allocated the annual long-term incentive award to the Chief Executive Officer 60% as performance share units, 15% as stock options, and 25% as restricted stock units, and to the other Named Executive Officers 60% as performance share units, 10% as stock options, and 30% as restricted stock units. Executives were required to enter into an agreement not to engage in competing employment as a condition of receiving the 2019 award.

 

Performance Share Units. Norfolk Southern uses performance share units to reward the achievement of performance goals over a three-year period. Performance share units settle in shares of Norfolk Southern common stock after the Committee certifies the extent to which the performance goals were attained. At the time of grant, Norfolk Southern uses the estimated grant date fair values of the performance share unit awards for market comparison purposes.

 

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For 2019, the Committee established performance goals based directly on ROAIC, with TSR serving as a modifier rather than a stand-alone metric. The Committee believes ROAIC is an important indicator to shareholders of a capital- intensive company such as Norfolk Southern. No payout will be made unless the threshold is achieved for the three- year ROAIC metric. The Committee believes that management has more influence and control over the ROAIC metric than TSR, and therefore increased emphasis on this financial metric. For the 2019 awards, the Committee determined that if a threshold payout is met for the ROAIC measure, then the payout will be modified based on Norfolk Southern’s TSR as compared with the shareholder return of the other publicly-traded North American Class I railroads reflecting the return over the entire three-year period, as follows:

 

Modifier for 2019–2021 Performance Share Units
Ranking NS 3-Year Total Shareholder Return vs. Class I Railroads Performance Share Unit Multiplier
1st 1.250
2nd 1.125
3rd or 4th 1.000
5th 0.875
6th 0.750

 

Using TSR as a modifier, rather than a performance measure, reduces the impact of the performance rankings within Norfolk Southern’s small group of Class I railroad peers on the determination of the units earned, while still ensuring that the final payout is reflective of the Corporation’s performance relative to its peers. Overall, the Committee believes that the use of the ROAIC measure, with the TSR modifier, promotes the enhancement of shareholder value and efficient utilization of corporate assets.

 

The performance share units will be forfeited if the recipient terminates from employment with the Corporation before October 1 of the year of grant, except in the case of death or disability.

 

To allow shareholders to assess the link between corporate performance and compensation, the Committee is committed to disclosing in this Compensation Discussion and Analysis the achievements for our performance share units at the end of each performance period. The Committee believes, however, that disclosing our long-term targets for ROAIC would give substantial insight into the Corporation’s confidential, forward-looking strategies, and could therefore place the Corporation and its shareholders at a competitive disadvantage.

 

Completed 2017-2019 Performance Share Unit Cycle: For the 2017-2019 performance cycle, the performance criteria were based on two equally weighted criteria: ROAIC and TSR. Under the 2017-2019 grant, each half of the performance share units vested independently of the other half and its respective performance measures. For the 2017-2019 performance cycle, the performance criteria were as follows:

 

Performance Metric   % of PSUs Earned
NS Three-Year Total Shareholder Return (“TSR”) vs. North American 1st 100%
Class I Railroads 2nd 75%
  3rd 50%
  4th 25%*
  5th 0%*
*Minimum 40% earnout if NS TSR > median S&P 500 TSR for three-year period 6th 0%*
Three-Year Average After-Tax Return on Average Invested Capital 11.0% 100%
  10.4% 75%
  9.05% 25%
  <9.0% 0%

 

The earned award for the 2017-2019 performance cycle was determined as follows:

 

 

 

Performance Metric

 

 

Performance

% of
Award
Earned
Three-Year Total Shareholder Return vs. North American Class I Railroads 2nd 75%
Three-Year Average After-Tax Return on Average Invested Capital 11.2% 100%
Total (sum of % of Award Earned divided by 2 for one-half weighting of each of the components)   87.5%

 

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Based on the final earnout of 87.5% for the 2017-2019 performance share units, the Named Executive Officers who were employed in 2017 received the following number of shares of stock of Norfolk Southern Corporation in early 2020, with the earned award reduced upon distribution as required for tax withholding:

 

Named Executive Officer Award Granted (#) Target Award (#) Earned Award (#)
James A. Squires 56,370 28,185 49,324
John M. Scheib 2,150 1,075 1,881
Alan H. Shaw 12,360 6,180 10,815
Michael J. Wheeler 14,090 7,045 12,329
Cynthia C. Earhart 9,970 4,985 8,724

 

Stock Options. Norfolk Southern believes that use of stock options provides us with the ability to retain key employees and at the same time increase shareholder value since the value of the options is only realized if our stock price increases from the date on which the options are granted. For 2019, the Committee maintained a four-year cliff-vesting period to encourage retention of key employees and awarded dividend equivalent payments on options during the vesting period. The value of the option awarded is adjusted to recognize the effect of the dividend equivalents.

 

The Committee has never issued backdated option grants. 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. In addition, the Long-Term Incentive Plan prohibits repricing of outstanding stock options without the approval of shareholders.

 

The Committee grants nonqualified stock options annually at the regularly scheduled January meeting of the Compensation Committee. Under the terms of the Long-Term Incentive Plan, the effective date of a grant is the date on which the Compensation Committee makes the grant or, if granted during a blackout period that precedes the release of the Corporation’s financial information for the prior calendar quarter, the first day on which the Corporation’s common stock is traded after a full trading day has elapsed following the release of the prior quarter’s financial information. This establishes a prospective effective date to price the options.

 

Restricted Stock Units. Norfolk Southern believes that the use of time-based restricted stock units serves as a retention tool for valued members of management. For 2019, the Committee granted restricted stock units that vest ratably over four years beginning on the first anniversary of the date of grant and which settle in shares of Norfolk Southern common stock. The restricted stock units will be forfeited if the recipient terminates from employment with the Corporation before October 1 of the year of grant, except in the case of death or disability.

 

Special Inducement Grants

The Committee made certain new hire inducement grants to Mr. George, our new Executive Vice President Finance and Chief Financial Officer. These cash and equity awards were special one-time inducements, the amounts of which are distinct from the salary, annual incentive, and regular annual long-term incentive awards described above. As we disclosed in the Form 8-K filed on August 28, 2019, the Committee approved, and the Board granted Mr. George a $400,000 signing bonus, and the Committee granted a $1,000,000 inducement equity award effective upon his hire. The equity award compensation mix made to Mr. George in November 2019 was made in the same proportions of PSUs, RSUs and non-qualified stock options as the equity awards made to the other Named Executive Awards in January 2019, as shown on page 39, and Mr. George was required to execute a non-compete agreement to receive those awards. Additional information concerning these awards can be found in the Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table under the heading “Employment and Other Agreements.”

 

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. Our officers, including our Named Executive Officers, participate in the Retirement Plan, a tax-qualified defined benefit pension plan that is generally provided to all our employees who are not subject to a collective bargaining agreement. The Retirement Plan provides a benefit based on age, service, and a percentage of final average compensation. Norfolk Southern also sponsors the Supplemental Benefit Plan, a non-qualified plan that restores the retirement benefit for amounts in excess of the Internal Revenue Code limitations for tax-qualified retirement plans, and provides a retirement benefit for salary or annual incentive that is deferred under Norfolk Southern’s deferred compensation plans. In addition to supporting the goal to retain key employees, the Committee believes the Supplemental Benefit Plan maintains internal equity by ensuring that pension benefit levels are based on relative compensation levels of each participant. Further information on the Retirement Plan and Supplemental Benefit Plan may be found in the Narrative to Pension Benefits Table.

 

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, as adjusted for earnings or losses, until retirement or another specified date or event. We do not make any company or matching contributions to the EDCP. Further information on the EDCP may be found in the Narrative to Nonqualified Deferred Compensation Table.

 

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Other Benefits and Perquisites

Norfolk Southern provides the Named Executive Officers with certain health and welfare benefits, relocation program benefits, and a tax-qualified 401(k) plan in the same manner that such benefits have been made available to other salaried employees of the Corporation. However, an Executive Officer is not eligible for an equity advance against the value of his or her residence, which is a benefit that is available to all other salaried employees of the Corporation under the Corporation’s relocation program.

 

The Named Executive Officers receive limited perquisites that the Compensation Committee believes are necessary to retain Executive Officers and to enhance their productivity. Our Board of Directors has directed and requires the Chief Executive Officer, and his family and guests when appropriate, to use Norfolk Southern’s aircraft whenever reasonably possible for air travel. The Board believes that such use of the corporate aircraft promotes the best interests of Norfolk Southern by generally ensuring the immediate availability of the Chief Executive Officer and by providing a prompt, efficient means of travel in view of the need for security in such travel. For the same reasons, our Board of Directors has determined that the Chief Executive Officer may authorize employees and their guests to use the corporate aircraft for purposes that further the Corporation’s business interests. Such non-business use by other employees and their guests is infrequent.

 

Other perquisites may include executive physicals and certain approved spousal travel. Norfolk Southern does not make tax gross-up payments on perquisites for the Named Executive Officers employed at the Executive Vice President level or above, except for tax gross-ups on certain relocation expenses and benefits consistent with our relocation programs for all management employees.

 

The Committee reviews perquisites periodically for both appropriateness and effectiveness. However, the value of any perquisites provided to any of the Named Executive Officers is a limited portion of any officer’s compensation; as such, the Committee does not consider perquisites in its analysis of the total compensation package granted to the Named Executive Officers.

 

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

 

Our 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 executive officers to the extent such compensation exceeds $1 million per executive officer in any year. The Committee believes that tax-deductibility is but one factor to be considered in fashioning an appropriate compensation package for executives, and that shareholder interests are best served if the Committee’s discretion and flexibility in awarding compensation is not restricted to deductible compensation. Therefore, the Committee has approved compensation for executive officers that was not fully deductible because of Section 162(m), and expects in the future to approve compensation that is not deductible for income tax purposes. 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 shareholders.

 

Change-in-Control Agreements

 

Norfolk Southern has entered into change-in-control agreements with the Named Executive Officers to provide certain economic protections to executives in the event of a termination of employment following a change in control of Norfolk Southern. The change-in-control agreements are intended to keep management intact and focused on the best interests of Norfolk Southern and its shareholders in pursuing a potential change-in-control transaction, while serving to eliminate potential management distraction related to the uncertainty of possible job and income loss. The Compensation Committee believes 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. The Committee believes this “double trigger” maximizes shareholder 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.

 

A detailed description of the benefits provided under the change-in-control agreements may be found in the Change-in-Control Agreements section on page 61.

 

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Individual Agreement for Payment in Connection with Termination

 

Norfolk Southern entered into an offer letter with Mr. George that provides certain benefits if Mr. George is terminated without “Cause” within sixty months following his November 1, 2019 hire date, as we disclosed in the Form 8-K filed on August 28, 2019. The Committee determined that it was appropriate to include this term in the offer letter to attract Mr. George to join the Corporation as its Executive Vice President Finance and Chief Financial Officer and leave his prior employment. For a summary of the material terms of this offer letter, see the discussion in the Narrative to the Summary Compensation Table and the Grants of Plan-Based Awards Table section of this Proxy Statement, under the heading “Employment and Other Agreements.”

 

Share Ownership Guidelines for Officers

 

Our Board of Directors has established as part of its Corporate Governance Guidelines the following ownership guidelines for shares of Norfolk Southern stock for its officers:

 

Position Minimum Value
Chairman, President and Chief Executive Officer 5 times annual salary
Executive Vice Presidents 3 times annual salary
Senior Vice Presidents, Vice Presidents 1 times annual salary

 

Norfolk Southern common stock, stock equivalents held in Norfolk Southern’s 401(k) plan, and restricted stock units held in our Long-Term Incentive Plan are counted toward these holdings, but unexercised stock options or unvested performance share units are not counted. Officers may acquire such holdings over a five-year period. All officers currently meet this guideline or are expected to meet the guideline within the five-year period.

 

Please refer to the Beneficial Ownership of Stock table on page 69 for a summary of the number of common shares owned by our directors and Named Executive Officers as of March 1, 2020.

 

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, and pledging or hedging transactions will not be approved.

 

Anti-Pledging/Anti-Hedging Policy. All of our Executive Officers are prohibited from entering into pledging transactions or positions regarding the Corporation’s securities.

 

All of our officers (including Executive Officers) and directors are prohibited from purchasing any financial instruments (including prepaid variable forward contracts, equity swaps, collars, exchange funds) that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Corporation’s securities, whether granted as part of the officer’s or director’s compensation or held, directly or indirectly, by the officer or director.

 

Policies and Decisions Regarding the Adjustment or Recovery of Awards

 

While we do 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, the Committee has the discretion to take all actions necessary to protect the interests of shareholders up to and including actions to recover such incentive awards. The performance share awards include a clawback provision 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 annual incentives as a result of any material noncompliance with any financial reporting requirement under the securities laws. The long-term incentive award agreements further provide for forfeiture of awards, including after retirement, if the recipient engages in certain competing employment, or if it is determined that the recipient has committed fraud or theft in the course of the recipient’s employment with Norfolk Southern, or if the recipient discloses certain confidential information. 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.

 

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Executive Compensation Tables

 

Summary Compensation Table

 

The following table shows the total compensation awarded to, earned by, or paid to each Named Executive Officer during 2019 for service in all capacities to Norfolk Southern and our subsidiaries for the fiscal year ended December 31, 2019. The table also sets forth information regarding fiscal 2018 and 2017 compensation.

 

Name and
Principal Position
(a)
Year
(b)
Salary
($)
(c)
Bonus
($)
(d)
Stock
Awards
($)
(e)
Option
Awards
($)
(f)
Non-Equity
Incentive
Plan
Compensation
($)
(g)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
All Other
Compensation
($)
(i)
Total
($)
(j)
James A. Squires
Chairman, President and
Chief Executive Officer
2019 1,100,000 0 6,671,681 1,177,650 1,200,375 6,184,152 302,816 16,636,674
2018 1,100,000 0 6,162,974 1,087,536 2,833,875 2,957,616 129,984 14,271,985
2017 1,000,000 0 4,225,099 2,275,119 2,603,250 1,710,708 122,961 11,937,137
Mark R. George1
Executive Vice President
Finance and Chief Financial
Officer
2019 100,000 400,000 900,298 100,170 65,475 10,296 8,222 1,584,461
                 
                 
John M. Scheib
Executive Vice President and
Chief Strategy Officer
2019 600,000 0 1,395,560 155,074 392,850 806,787 9,800 3,360,071
2018 475,000 0 1,125,559 125,100 724,212 200,864 7,517 2,658,252
                 
Alan H. Shaw
Executive Vice President and
Chief Marketing Officer
2019 600,000 0 1,395,560 155,074 392,850 2,182,500 18,694 4,744,678
2018 600,000 0 1,304,995 145,116 927,450 929,508 19,114 3,926,183
2017 600,000 0 926,630 498,791 937,170 689,472 17,461 3,669,524
Michael J. Wheeler
Executive Vice President and
Chief Operating Officer
2019 600,000 0 1,756,114 195,212 392,850 2,969,436 185,015 6,098,627
2018 600,000 0 1,665,345 185,148 927,450 1,458,696 19,527 4,856,166
2017 600,000 0 1,056,432 568,591 937,170 948,447 22,036 4,132,676
Cynthia C. Earhart2
Former Executive Vice
President Finance and Chief
Financial Officer
2019 500,000 0 1,574,219 175,142 327,375 3,543,651 88,242 6,208,629
2018 600,000 0 1,484,432 165,132 927,450 1,310,124 20,390 4,507,528
2017 600,000 0 746,753 402,579 937,170 1,033,920 22,103 3,742,525

 

1Mark George joined the Corporation on November 1, 2019.
2Cynthia Earhart retired from the Corporation effective November 1, 2019.

 

Salary (Column (c))

Reflects salary payable before reduction for elective deferrals to our 401(k) plan, non-qualified deferred compensation plan, or our other plans.

 

Bonus (Column (d))

Reflects a signing bonus paid to Mr. George upon his hire, as described in the Form 8-K filed on August 28, 2019.

 

Stock Awards (Column (e))

The amounts reported for Stock Awards are the full grant date fair values of the awards computed in accordance with FASB ASC Topic 718 “Compensation - Stock Compensation.” This column includes Performance Share Units and Restricted Stock Units.

 

For Performance Share Units, the full grant date fair value is determined consistent with the estimated full accounting cost to be recognized over the three-year performance period, determined as of the end of the month 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, 2019. For the grant date fair value of only those awards granted to the Named Executive Officers in 2019, see the Grants of Plan-Based Awards Table.

 

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The value of the Stock Awards reported in column (e), calculated in accordance with FASB ASC Topic 718 but assuming the highest level of performance would be achieved is as follows:

 

Year J. A. Squires M. R. George J. M. Scheib A. H. Shaw M. J. Wheeler C. C. Earhart
2019 $ 13,736,544 $1,800,446 $2,790,853 $ 2,790,853 $ 3,512,176 $ 3,148,702
2018 $ 12,688,069   $2,250,728 $ 2,609,572 $ 3,330,950 $ 2,968,415
2017 $   5,818,538     $ 1,276,016 $ 1,454,721 $ 1,028,580

 

Option Awards (Column (f))

The amounts reported for Option Awards are the full grant date fair values of the awards computed in accordance with FASB ASC Topic 718. For discussions of the relevant assumptions made in calculating these amounts, see note 13 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

Non-Equity Incentive Plan Compensation (Column (g))

The amounts reported as Non-Equity Incentive Plan Compensation were paid under the Executive Management Incentive Plan, as more fully described in the Compensation Discussion and Analysis. Amounts reported in this column were earned in the indicated year, and may have been received on a current basis or deferred in accordance with our deferred compensation plans.

 

Change in Pension Value and Nonqualified Deferred Compensation Earnings (Column (h))

For all the Named Executive Officers other than Ms. Earhart, the amounts shown in this column solely represent the aggregate increase in the actuarial present value of the Named Executive Officers’ accumulated benefits under the Retirement Plan and the Supplemental Benefit Plan for 2019. In accordance with SEC rules, any increase or decrease in the present value of the benefits under our Retirement Plan is aggregated with any increase or decrease in the present value of the benefits under our Supplemental Benefit Plan.

 

Pension values may fluctuate significantly from year to year depending on a number of factors, including age, years of service, average annual compensation, and the assumptions used to determine the present value, such as the discount rate and mortality assumptions. For 2019, each of the Named Executive Officers had an increase in the present value of his or her Retirement Plan and Supplemental Plan benefit as a result from increases in each individual’s years of service, final average compensation calculation, and age, and from a decrease in the discount rate assumption, that together more than offset changes in mortality assumptions.

 

For Ms. Earhart, in addition to the aggregate increase in the actual present value of her pension benefits, $3,795 shown in this column is the amount by which 2019 interest accrued on amounts she deferred under the Officers’ Deferred Compensation Plan before 2001 exceeded 120% of the applicable Federal long-term rate provided in Section 1274(d) of the Internal Revenue Code.

 

All Other Compensation (Column (i))

The amounts reported as All Other Compensation for 2019 include: (i) matching contributions to our Thrift and Investment Plan of $9,800 for each of the Named Executive Officers other than Mr. George, and (ii) premiums paid on individually owned executive life insurance policies under our Executive Life Insurance Plan as follows: Mr. Squires, $18,516; Mr. Shaw, $8,894; Mr. Wheeler, $9,183; and Ms. Earhart, $10,022.

 

Norfolk Southern has different relocation programs that offer benefits on a uniform basis to similarly situated nonagreement employees who are required to relocate for their employment. Several of our Named Executive Officers received benefits under these programs in 2019, and these amounts are further included in the amounts reported as All Other Compensation for 2019:

 

·In connection with Norfolk Southern’s relocation of its corporate headquarters from Norfolk, Virginia, to Atlanta, Georgia, Mr. Squires and Mr. Wheeler each relocated to Atlanta in 2019, and each received benefits under the Corporation’s Corporate Consolidation Relocation Program. Mr. Squires and Mr. Wheeler were each subject to the same relocation policy as all other employees who relocated in connection with the corporate headquarters move. The value of allowances, reimbursements, and benefits provided in connection with relocation was $123,040 for Mr. Squires, and $151,958 for Mr. Wheeler.
·Ms. Earhart elected to receive Norfolk Southern’s Nonagreement Allowance in Lieu of Relocation Benefits, which the Corporation offers to all similarly situated employees as an alternative to the Corporate Consolidation Relocation Program. The program provides certain allowances for up to one year following the date of the employee’s relocation. The value of allowances and reimbursements provided to Ms. Earhart in connection with her position transfer from Norfolk to Atlanta was $10,728.
·In connection with his start of employment on November 1, 2019, Mr. George was provided $6,500 in allowances under Norfolk Southern’s Relocation Program for Experienced New Hire Employees.

The relocation programs provide tax gross-ups that are designed to partially offset the taxes an employee incurs on certain relocation benefits that are considered ordinary income under federal and state laws, and the amounts reported as All Other Compensation for 2019 include such tax gross-ups as follows: Mr. Squires, $11,264; Mr. Wheeler, $14,074; and Mr. George, $1,722.

 

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For Ms. Earhart, the amount further includes a payment of $57,692 made upon her retirement for unused vacation in accordance with the Corporation’s Vacation Pay Program.

 

For Mr. Squires, the amount further includes his proportional cost of NS-owned life insurance policies used to fund the Directors’ Charitable Award Program, and perquisites during 2019 of $138,020, consisting of use of corporate aircraft totaling $134,131, and an executive physical. All perquisites are valued on the basis of aggregate incremental cost to us. All the Named Executive Officers also participated in the Executive Accident Plan, for which there was no aggregate incremental cost.

 

With regard to personal use of corporate aircraft, aggregate incremental cost is calculated as the weighted-average cost of fuel, aircraft maintenance, parts and supplies, landing fees, ground services, catering, and crew expenses associated with such use, including those associated with “deadhead” flights related to such use. Use of corporate aircraft includes use by the Named Executive Officers as permitted by resolution of the Board of Directors. The aggregate incremental cost for personal use of corporate aircraft by our Named Executive Officers is allocated entirely to the highest-ranking Named Executive Officer on the flight. Because corporate aircraft are used primarily for business travel, this calculation excludes fixed costs that do not change based on usage. Fixed costs include pilot salaries, the purchase or lease costs of the airplane, and the cost of maintenance not related to such personal travel.

 

2019 Grants of Plan-Based Awards

 

Name
(a)
Grant
Date
(b)
Committee
Action
Date2
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards1
  Estimated Future Payouts
Under Equity Incentive Plan
Awards
All
Other
Stock
Awards:
Number
of Shares
of Stock
or Units
(#)
(i)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
(j)
Exercise
or Base
Price of
Option
Awards
($/Sh)
(k)
Grant
Date Fair
Value of
Stock
and
Option
Awards
($)
(l)
Threshold
($)
(c)
Target
($)
(d)
Maximum
($)
(e)
  Threshold
(#)
(f)
Target
(#)
(g)
Maximum
(#)
(h)
James A. Squires 1/28/2019 1/22/2019 198,000 1,658,250 3,712,500                
1/28/2019 1/22/2019         6,653 29,570 73,925       4,709,911
1/28/2019 1/22/2019               11,930     1,961,770
1/28/2019 1/22/2019                 25,820 165.79 1,177,650
Mark R. George 11/1/2019 8/27/2019 10,800 90,450 202,500                
11/1/2019 8/27/2019         763 3,390 8,475       600,097
11/1/2019 8/27/2019               1,610     300,201
11/1/2019 8/27/2019                 2,250 189.92 100,170
John M. Scheib 1/28/2019 1/22/2019 64,800 542,700 1,215,000                
1/28/2019 1/22/2019         1,314 5,840 14,600       930,195
1/28/2019 1/22/2019               2,830     465,365
1/28/2019 1/22/2019                 3,400 165.79 155,074
Alan H. Shaw 1/28/2019 1/22/2019 64,800 542,700 1,215,000                
1/28/2019 1/22/2019         1,314 5,840 14,600       930,195
1/28/2019 1/22/2019               2,830     465,365
1/28/2019 1/22/2019                 3,400 165.79 155,074
Michael J. Wheeler 1/28/2019 1/22/2019 64,800 542,700 1,215,000                
1/28/2019 1/22/2019         1,654 7,350 18,375       1,170,708
1/28/2019 1/22/2019               3,560     585,406
1/28/2019 1/22/2019                 4,280 165.79 195,212
Cynthia C. Earhart 1/28/2019 1/22/2019 64,800 542,700 1,215,000                
1/28/2019 1/22/2019         1,483 6,590 16,475       1,049,655
1/28/2019 1/22/2019               3,190     524,564
1/28/2019 1/22/2019                 3,840 165.79 175,142

 

1The amounts shown represent the full-year threshold, target, and maximum opportunity payable for the annual incentive under the EMIP, as determined at the time that the Compensation Committee made the awards. Because Ms. Earhart retired during the year, she was eligible only for a prorated award. As a result of Ms. Earhart’s retirement effective November 1, 2019, her threshold, target and maximum prorated awards were $54,000, $452,250, and $1,012,500, respectively. The amount actually paid as an annual incentive under the EMIP is reported in the Non-Equity Incentive Plan Compensation (column (g)) of the Summary Compensation Table.
2Consistent with past practice and the terms of LTIP, the Committee made all January 2019 equity awards to directors and executive officers effective on the day after a full trading day had elapsed following the release of our fiscal year financial results. Because the Committee meetings 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 our “Compensation Discussion and Analysis” section for further discussion of our equity award grant practices.

 

          Norfolk Southern Corporation         Page 49         www.norfolksouthern.com          
   
 
 

Table of Contents
 

Executive Compensation | 2020 Annual Meeting and Proxy Statement

 

 

Estimated Future Payouts Under Non-Equity Incentive Plan Awards (EMIP) (Columns (c), (d), and (e))

These awards were made pursuant to our Executive Management Incentive Plan (“EMIP”) and had the potential to be earned upon the achievement of certain performance goals established by the Committee for the fiscal year ended December 31, 2019. For a discussion of the performance goals established by the Committee, see page 41 of our “Compensation Discussion and Analysis” section. The Committee targeted a payout of 67% in 2019 in setting the annual performance goals for EMIP incentive awards, and using an annual incentive opportunity equal to 225% of salary for the Chief Executive Officer and 135% of salary for an Executive Vice President. Consequently, the target amounts in column (d) assume that the Named Executive Officers earned 67% of the potential EMIP awards that they could have earned using these annual incentive opportunities. The threshold amounts in column (c) assume that the Named Executive Officers earned the minimum EMIP awards based on performance required to trigger any level of payment; if performance fell below performance goals required to earn the threshold amount, they would not have been entitled to any EMIP awards. The Named Executive Officers earned 48.5% of these EMIP awards based on our performance during 2019. These annual incentive amounts are also included under “Non-Equity Incentive Compensation” in the Summary Compensation Table.

 

Estimated Future Payouts Under Equity Incentive Plan Awards (PSUs) (Columns (f), (g), and (h))

These 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, 2021. 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 Committee targeted a payout of 100% in setting the performance goals for performance share unit awards. Consequently, the target amounts in column (g) assume that the Named Executive Officers will earn 100% of the maximum potential number of performance share units that can be earned under the awards. The threshold amounts in column (f) 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 the Corporation’s performance fell below performance goals required to earn the threshold amount, they would not receive any performance share units.

 

All Other Stock Awards (RSUs) (Column (i))

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

 

All Other Option Awards (Stock Options) (Columns (j) and (k))

These non-qualified stock options are exercisable as of January 28, 2023. The Committee 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 for both the January 28, 2019 grant of stock options for the Named Executive Officers other than Mr. George, and for the November 1, 2019 grant of stock options for Mr. George was higher than the average price on each date of grant, so the exercise price shown is the closing 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 participant for at least six months preceding the date of exercise) valued on the date of exercise. For a discussion of the other material terms of these option awards, see the narrative discussion which follows this table.

 

Grant Date Fair Value of Stock and Option Awards (Column (l))

The amounts reported in Column (l) 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 also computed in accordance with FASB ASC Topic 718.

 

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