JACKSONVILLE, Fla. — Hunter Harrison says he is frustrated that “chest pounding” between his investment partner and directors of CSX Corp. have resulted in a breakdown in negotiations for him to lead the railroad.
“I wish the two sides would get together and allow for this value creation for the shareholders instead of going through these games which create nothing but further anxiety for the shareholders,” Harrison said in an interview with The Wall Street Journal.
According to the Journal, CSX privately offered the chief executive position to the 72-year-old Harrison last week, but negotiations broke down when Paul Hilal, Harrison’s activist partner, refused to back away from some compensation and governance demands. Hilal has conducted most of the discussions with CSX.
Hilal’s hedge fund Mantle Ridge LP invested in CSX and is seeking to add six directors to the CSX board, and eventually shrink it to 12 members. Hilal also asked the railroad to approve a compensation plan for Harrison that CSX estimated could cost $300 million. The package includes a large stock award and $89 million that Mantle Ridge had previously promised to pay Harrison.
CSX said its board has concerns about giving so many seats to a shareholder with less than a 5 percent stake. The company also expressed reservations that the cost of the proposed compensation package is “extraordinary in scope and structured largely as an upfront payment” with few performance requirements.
Harrison said although he is “disappointed” that Hilal was unable to reach an agreement with CSX, “I am not trying to abandon anyone.”
About 50 CSX investors met with Hilal recently to discuss the issues, the Journal reported. They heard him defend his drive for six board seats and Harrison’s proposed pay package, according to two shareholders at the meeting.
“There was pushback” from investors on several issues, but their greatest concern was over the number of seats sought, said one CSX investor who supports bringing in Harrison. At the meeting, Hilal said he needed the five seats besides Harrison’s so the new CSX executive “has control and can execute his plan,” according to the investor.
The standoff with Hilal prompted CSX on Feb. 14 to call for a special shareholder vote on Mantle Ridge’s demands, at a date to be determined.
CSX did offer a counterproposal that would have paid Harrison between $15 million and $20 million a year, well above the current pay plan for its executives. CSX did not want to take on Hilal’s commitment to pay Harrison the compensation he would have earned had he not left Canadian Pacific, the Journal saying in a statement it would be “inappropriate” to compensate Harrison the $89 million he surrendered when he departed CP.
According to the CSX investor, Hilal said the pay package is worth $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures. The CSX shareholder said the $200 million figure “is still a lot of money.” The investor also was concerned over Harrison’s refusal to be examined by an independent physician, saying, “That’s a big issue.”
Harrison said he was willing to meet with CSX directors to reconsider the terms of his compensation package, though CSX’s calculation is based on the assumption that its stock price would improve significantly, “which would benefit all shareholders,” he said. Harrison declined to discuss what concessions he would consider. “If [they] don’t like this package, tell me how you would like to bundle it and I’ll take it under advisement,” he said.
CSX’s proposal exceeds the amount paid to current CEO Michael Ward, who in the three years ended in 2015 earned $31.6 million in salary, stock awards and other benefits. At Canadian Pacific Harrison was paid $18.7 million in salary, bonuses and stock awards in 2016.