U.S. Railway Company Bets Heavily on Superstar CEO

Hunter Harrison helped turn Canadian Pacific Railway around by introducing his “precision railway” approach. Now, he will have a chance to do the same at CSX Corporation. And for a tidy sum to boot.

The 72-year-old railway veteran will replace Michael Ward as CEO of CSX with immediate effect, the company said in a statement late Monday. His installment was part of a move by activist investor Mantle Ridge, whose founder, Paul Hilal, also will join CSX’s board, along with three other new directors.

The signing bonus shows just how much investors are prepared to pay for a CEO with the kind of skills and experience that could, they hope, add billions of dollars to a company’s market value.

CSX said its board would seek shareholder approval to pay Harrison $84 million in compensation and benefits forfeited as a result of his separation from Canadian Pacific. They also would foot a related tax liability, estimated last month by Mantle to be anywhere between zero and $23 million.

Harrison also will receive stock options to purchase 9 million CSX shares at their current trading price. The options would vest over the four-year period of his contract, with half vesting based on service and the other half based on meeting performance goals. CSX shares closed at $49.49 each on Monday, valuing the options at around $445 million.

“The board is united behind a shared goal—creating value for shareholders and all stakeholders by implementing the Precision Scheduled Railroading model at CSX,” Hilal said. “Together, we have created the conditions for success. Now the real work begins.”

In a career spanning five decades, Harrison is credited with improving the fortunes of three major railroads: Canadian Pacific, Canadian National Railway and Illinois Central. While at the latter, he introduced his so-called precision railroading system, which broke from the traditional method of waiting until trains were full before loads were dispatched.

Instead, Harrison put a greater focus on customer service by getting shipments to their origin as quickly as possible. The plan also involved sophisticated asset utilization and a laser focus on costs.

“Together, we will implement Precision Scheduled Railroading—a model proven to improve safety, create better service for customers, produce a proud and winning culture for employees, and generate exceptional, lasting value for shareholders,” Harrison said in the CSX statement.

If past indications are anything to go by, investors are likely to applaud the expensive hire. They have sent CSX’s shares up 30% since Mantle Ridge’s plans were revealed, despite rough details of the monster pay package already being disclosed.