CLEVELAND – Activist investor Ancora Holdings has asked the Norfolk Southern board to explain why it gave CEO Alan Shaw a 37% raise last year despite presiding over the industry’s worst financial results, poor stock performance, and the railroad’s “ineffective and tone-deaf response” to the hazardous materials derailment in East Palestine, Ohio.
“It is astonishing to us that the Board would reward Mr. Shaw with a 37% increase in the value of compensation to a total of $13.4 million for a year in which the Company’s customers, employees, shareholders and community partners all suffered. This figure includes more than $10 million in stock and option awards, which were granted to Mr. Shaw even though he missed all six annual incentive targets pertaining to financial performance, customer service and safety. To add insult to injury, Mr. Shaw appears to be a major beneficiary of the ‘East Palestine Adjustment’ that increased Performance Stock Unit payout percentages from 56% to 96.3% of target,” Ancora’s Jim Chadwick wrote in a letter today to Amy Miles, independent chair of the NS board of directors.
Ancora and its investor group, which seeks to gain control of the NS board and oust Shaw and Chief Operating Officer Paul Duncan, disagreed with the board’s contention that it had to increase compensation to retain key executives. “We do not see how the Board could have actually viewed Mr. Shaw as a flight risk,” Chadwick wrote, noting that Shaw got off to a rocky start as chief executive.
The NS board should have held Shaw accountable by reducing executive pay in the wake of East Palestine, much as BP did after its 2010 oil spill in the Gulf of Mexico and Boeing did following a pair of 737 MAX crashes, Chadwick said.
“The fact that this decision was made suggests concerning deference to management and a lack of respect for shareholders and stakeholders,” Chadwick said.
An NS spokesman said the board reduced the incentive plan payout for 2023.
“Ancora is mischaracterizing Alan’s compensation in an apparent attempt to mislead shareholders. The Norfolk Southern Board has held and continues to hold management accountable for performance, including the impact of the East Palestine incident,” the railroad said in a statement.
“The facts regarding compensation are: The board used its discretionary authority to reduce the 2023 annual incentive plan payout to zero for the CEO and all Executive Vice Presidents, including all of our named executive officers,” NS said.
The increase in Shaw’s compensation primarily reflects his promotion to CEO from president in May 2022, the railroad said.
“Norfolk Southern is focused on executing its strategy that balances safe and reliable service, continuous productivity improvement and smart growth for the benefit of shareholders, customers, communities and the industry,” the spokesman said.
Ancora claims shareholders are concerned that the railroad is pursuing a “scorched-earth campaign that involves poisoning the well with key stakeholders of the railroad.”
Shaw and Miles have misrepresented Ancora’s plans for NS to regulators, Chadwick wrote.
“You, as Chair, and Mr. Shaw, as CEO, are no doubt aware that our published materials reveal no emphasis on cost cutting, headcount reductions or short-sighted tactics,” Chadwick wrote. “To the contrary, our slate and proposed management team have repeatedly committed to pursuing stronger growth and implementing a network strategy that will leverage Norfolk Southern’s existing assets. We find it extremely disingenuous for the Company to miscast our intentions, especially since Mr. Shaw stated during 4Q23 earnings that Norfolk Southern’s ‘cost structure is too high.’”
Chadwick adds: “For the avoidance of doubt, our network strategy accounts for responsible cost management and the principles of scheduled railroading — just like Mr. Shaw’s resilience strategy, as can be seen in numerous public statements.”
Ancora has proposed a slate of eight board candidates and is touting former UPS executive Jim Barber as CEO and former CSX operations boss Jamie Boychuk as chief operating officer.
“Our slate and proposed management team know a better-run Norfolk Southern will have the financial power to invest more in safety and service, while enabling employees to benefit from the prosperity of the railroad,” Chadwick wrote. “The more you direct your agents and surrogates to publicize inaccurate information about the Investor Group, the more it looks like incumbent leadership has no track record or viable plans of its own to run on.”
Ancora, which has heavily criticized Shaw, said “shareholders want an election contest to be defined by facts and ideas” rather than “incessant smears.”
Note: Updated at 6:50 p.m. Central with comment from Norfolk Southern.
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