Atlanta-based Norfolk Southern continues to come under pressure as it responds to another derailment and faces criticism from an activist investor group seeking to replace its CEO.
Three Norfolk Southern trains were involved in a chain reaction accident in Pennsylvania on Saturday that led to the derailment of rail cars and a spill of diesel fuel into the Lehigh River, according to officials. The National Transportation Safety Board is investigating the wreck.
That followed a tumultuous couple of weeks for Norfolk Southern. About two weeks ago, Ohio-based investment firm Ancora Holdings Group nominated a slate of potential board members and proposed that former UPS executive Jim Barber take over as CEO of the railroad.
Last week, Norfolk Southern nominated its own slate of board members in hopes of fending off Ancora’s move.
Over the last year, the railroad has been responding to the derailment of a train carrying hazardous materials in East Palestine, Ohio, and tabulated more than $1 billion in charges for the cleanup, legal expenses and contributions to the community.
Norfolk Southern reported its 2023 net income was down 44% compared to 2022. Its revenue was down 5% in 2023 amid network disruptions — including technology outages — and a weak freight market.
Last week, Norfolk Southern also disclosed that CEO Alan Shaw’s compensation totaled $13.4 million last year, his first full year as chief executive. That’s 37% higher than his total compensation in 2022, after stepping into the role of CEO in May 2022.
Shaw’s total compensation in 2023 included a salary of $1.1 million, up from $900,000 the previous year, according to a filing with the U.S. Securities & Exchange Commission. But the biggest increases came in the value recorded for stock awards and retirement plans.
Shaw’s stock awards were valued at $7.5 million. up from $5.5 million the previous year, while the value of his retirement plans increased by more than $2 million.
Shaw and other top executives at Norfolk Southern did not earn any non-equity incentive plan compensation last year.
Ancora, the activist investor group, on Friday sent an open letter to Norfolk Southern’s board chair Amy Miles criticizing Shaw’s raise. Ancora has also criticized the railroad’s response in East Palestine. On Monday, another firm, EdgePoint Investment Group Inc., said it holds a stake of nearly $1 billion in Norfolk Southern and supports Ancora’s efforts.
Ancora wrote in its letter: “We challenge the Board’s determination that it had to adjust executive compensation in 2023 to ‘retain key talent.’”
Norfolk Southern responded that its board “has held and continues to hold management accountable for performance, including the impact of the East Palestine incident.”
The company noted its board eliminated last year’s annual incentive awards for Shaw and executive vice presidents, and said the reason Shaw’s compensation was higher “primarily reflects” that 2023 was the first full year he was CEO.
Norfolk Southern also said 60% of Shaw’s stock awards issued in 2023 “will only be earned if certain metrics and targets are met in the future.”
The Saturday derailment in Pennsylvania put another harsh spotlight on Norfolk Southern. The NTSB said the derailment occurred after an eastbound Norfolk Southern train struck a stopped Norfolk Southern train on the same track, then the wreckage spilled onto an adjacent track and was struck by a westbound Norfolk Southern train.
Authorities said there were no evacuations or injuries and no hazardous material threat to the community.
Booms were deployed to contain the spill of diesel fuel into the river, according to the Lower Saucon Township Police Department. NTSB said its investigators would be on scene for several days interviewing crew members and collecting more information.
🚨 In Progress Train Derailment 🚂 Rescue Engine 1413 is currently on scene with a train derailment in the area of...
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Norfolk Southern said Monday its crews and contractors were at the derailment site and it will continue to support the NTSB investigation and “will learn from this incident as we constantly strive to improve safety.”
Ancora, however, has issued a statement calling for new management “with a track record of actually delivering on safety commitments.”
That prompted a strong response from Norfolk Southern, which issued a statement Monday morning saying: “It is unfortunate that a serious situation is being used to mislead stakeholders and to advance a proxy fight narrative.”
The railroad said it reduced its mainline accident rate by 42% year-over-year in 2023, has invested in digital train inspection portals and was the first Class I railroad to join the Federal Railroad Administration’s Confidential Close Call reporting system, among other moves to improve safety.
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