(The following story by Mark Basch appeared on The Florida Times-Union website on March 31.)
JACKSONVILLE, Fla. — Michael Ward made considerably less money in his first year as chairman and chief executive officer of CSX Corp. than his predecessor, current U.S. Treasury Secretary John Snow. But some shareholders would still like to see Ward earn even less.
The proxy statement for CSX’s May 5 annual meeting, filed Tuesday with the Securities and Exchange Commission, includes two proposals by unidentified shareholders that ask all stockholders to vote on limiting compensation packages for top executives. One calls for management to consider discontinuing stock options, severance payments and other extra pay for CSX’s top five managers. The other would require shareholders to approve future large severance agreements for all senior executives.
When Snow left CSX in January 2003 to become Treasury Secretary, he received a severance package valued at $68.9 million, according to the company’s 2003 proxy statement. In his final full year as CEO in 2002, he earned a base salary of $1.25 million and a bonus of $810,000.
Ward’s annual base salary as CEO was set at less than Snow at $850,000, according to the 2003 proxy, and he actually received $808,333 last year. But according to the 2004 proxy, he and other top executives received no bonuses in 2003.
The proxy says that annual bonuses are based on the company reaching “a minimal threshold of operating income performance” and the company “did not meet this minimum threshold.”
The Jacksonville-based transportation company reported operating income of $626 million for 2003, down from $1.13 billion in 2002.
CSX has been seeking to increase earnings this year by overhauling its operations, including the elimination of 800 to 1,000 non-union jobs. The company cut 325 jobs in Jacksonville last week as part of that program.
As part of his 2003 compensation package, Ward was granted 400,000 options last May to buy CSX stock for a 10-year period at a price of $32.145 a share. The stock has been trading below that price for the last two months, but if the stock rises in the next few years, those options could be lucrative.
Stock options are seen as a key incentive for executives to perform well. They are only rewarded if the stock price rises, and all shareholders benefit. But the CSX stockholder who filed the proposal asking management to discontinue the award of options thinks they are unnecessary.
“When management is hired for their position at a good salary, they are expected to earn it, and not have to be paid more when and if they do,” the unnamed stockholder said in the proxy proposal.
But CSX’s board of directors recommends that shareholders reject the proposal, saying it would put the company at a disadvantage in attracting top executives. Management said in the proxy that stock options and other incentive compensation “best serves the interests of shareholders because the compensation of company executives and, in particular, senior management, is closely tied to the company’s performance.”
Similarly, management opposes the shareholder proposal that would require stockholders approve large severance packages, saying it would put CSX at a competitive disadvantage.
The CSX shareholder proposals come at a time when more and more large public companies are getting pressured by stockholders to examine executive pay. The Investor Responsibility Research Center, a Washington, D.C.-based company that provides research on corporate governance and proxy voting, said that there were 334 shareholder proposals on executive pay last year at the 2,000 large companies it looked at. So far this year, there have been 178 such proposals.
But the proposals don’t necessarily get a lot of support, even at companies like Tyco International, which is in the news as its former CEO and chief financial officer stand trial on charges of illegally taking $600 million from the company. At Tyco’s annual meeting last week, only about 5 percent of shareholders approved a proposal to strictly limit executive pay, according to The Associated Press.
Even a successful vote won’t necessarily bring change. “None of these, even when they’re getting over 50 percent support, are legally binding,” said Michele Soule, director of marketing at the IRRC. The measures only recommend that management take action.
The CSX proxy also has a third shareholder proposal that would seek to have stockholders vote on any attempt by management to institute a “poison pill” plan. These plans are used to thwart hostile takeover attempts.
CSX management pointed out in the proxy that it terminated the company’s poison pill plan last October and has no plans to reinstate one, but it thinks management should have the flexibility to do so without shareholder approval.