NS: ‘Committed to Enhancing Safety, Aligning Management With Shareholder Interests’

(Screen Grab of NS Video Released Via Social Media, Courtesy of NS)

Ancora Holdings Group LLC, which has launched a formal takeover attempt of Norfolk Southern (NS), issued a statement critical of the railroad’s safety record and calling for the removal of CEO Alan Shaw, following the March 2 NS derailment in Pennsylvania. NS on March 4 released a statement that Railway Age excerpts here.

NS provided the following points, covering safety, management compensation, and its engagement with Ancora:

• Safety. “On March 2, Norfolk Southern quickly responded to a derailment in Lower Saucon Township, PA. The derailment resulted in no harm to the community and no hazardous material concerns from the railcars. We take this incident seriously and work hard to avoid all accidents. The National Transportation Safety Board is investigating this incident, and we will work closely with them to understand how it happened and prevent others like it.”
“As a result of our robust safety initiatives, Norfolk Southern achieved a 42% reduction in our mainline accident rate year-over-year in 2023. Today, the company’s mainline accident rate is the lowest it has been in years and is among the best of the North American Class I rails. We are actively building on these achievements and helping the industry become even safer.
“We are committed to building on our safety track record and setting the gold standard for rail safety. We know there is no single solution when it comes to safety. Last year, we initiated a six-point safety plan and made necessary investments to accelerate enhancements to our safety culture and operational transformation. This included installing cutting-edge digital train inspection portals, implementing enhanced employee training, and being the first Class I railroad to join the Federal Railroad Administration’s Confidential Close Call reporting system. We are incorporating feedback from our labor leaders and partnering on new safety initiatives. We also hired Atkins Nuclear Secured as an independent safety consultant. With significant project management and Nuclear Navy experience, they have conducted a comprehensive safety assessment, and we are implementing changes based on their recommendations.”

• Management Compensation. “The Norfolk Southern Board took clear and decisive action in its 2023 compensation decisions, including exercising discretion to eliminate annual performance-based incentive payouts for 2023. The board is committed to best-in-class corporate governance practices. Contrary to Ancora’s claims, the board did not ‘raise CEO pay 37%’. The board’s purposeful efforts to maintain alignment between management and shareholders’ interests though our compensation program are clear:
—“Compared to his target compensation, in 2023 CEO Alan Shaw saw a 33% reduction in his realizable compensation at year end. The difference in his compensation for 2023 compared to 2022 reflects the fact that 2023 was his first full year as CEO.
—“The board used its discretionary authority to eliminate the 2023 annual incentive awards for the CEO and all the company’s executive vice presidents. This decisive action reflects the board’s focus on ensuring alignment between executive pay outcomes and the outcomes experienced by our shareholders and other stakeholders during 2023.
—“92% of Shaw’s target compensation was provided in the form of at-risk or performance-based incentives with value tied to the achievement of preset, rigorous performance goals or our stock price performance. Specifically, 60% of Shaw’s equity awards issued in 2023 are performance-based and will only be earned if certain metrics and targets are met in the future, at the end of the three-year performance period. The remaining 40% is delivered in a mix of restricted stock units and stock options that vest over four years with value directly tied to our stock price performance.
—“Adjustments related to East Palestine were implemented to establish a precedent that would ensure that sizable future recoveries from insurance and third parties would not create a windfall in future years.”

• NS-Ancora Engagement. “We have engaged constructively, and in good faith, with Ancora in an effort to understand their views and avoid a proxy contest. The Norfolk Southern Board remains open to any opportunity to find a reasonable resolution, as outlined in our preliminary proxy materials. However, it was after thoughtful consideration that we determined Ancora’s proposed changes to the Norfolk Southern Board, management team, and strategy would undermine the important progress we have made to protect and enhance our business and franchise, and would lead to the deterioration of shareholder value.”

The Class I reported that it “remains committed to enhancing safety and aligning management with shareholders’ interests.”

NS’s “definitive proxy materials will soon be mailed out to all shareholders and include a WHITE card with voting instructions,” the railroad said. “Shareholders’ votes FOR only the 13 Norfolk Southern director nominees on the WHITE card will be critical.” A blue proxy card is slated to be sent by Ancora.