Snow's Latest CSX Contract
Covered Exit to Washington
By THEO FRANCIS
Staff Reporter of THE WALL STREET JOURNAL
For years, John W. Snow's employment contract with CSX Corp. offered limited circumstances under which he could quit the company and still collect a host of payments, perks and benefits. But in his last contract signed in July 2001, another permissible reason for Mr. Snow to leave the company was included in the contract -- to "fulfill an appointment to public office."
Now, that clause puts Mr. Snow in position to receive $3.3 million up-front in salary, bonus and cash retainers if he is confirmed as President Bush's new Treasury secretary and leaves CSX, where he has been chief executive since 1989 and chairman since 1991. Mr. Snow, 63 years old, also will benefit from some executive-compensation techniques that, as Treasury secretary, he would help regulate, including split-dollar life insurance and deferred-compensation plans.
A White House spokeswoman said it is common for contracts to allow executives to depart with pay for a government job.
But compensation experts disagreed. "It's unusual to find an agreement that contemplates return to government service," said Pearl Meyer, founder of New York compensation-consulting firm Pearl Meyer & Partners.
Under his prior contract signed in 1999, if Mr. Snow left the railroad company for "good reason," such as a reduction in his job duties or failure for CSX to pay him agreed compensation, he would have been eligible only for salary and a pro rated bonus through his last day. In addition, he would have received medical and dental benefits through the term of the contract and his restricted shares outstanding also would have vested upon departure.
But under his current contract, soon after leaving CSX he will become eligible for a lump-sum payment equal to his salary through CSX's 2004 annual meeting; his bonus through CSX's 2003 annual meeting; and $700,000 in consulting retainers that were to be paid in 2005 and 2006. In all, the payments would total about $3.3 million, according to company filings with the Securities and Exchange Commission.
Ms. Meyer, the compensation consultant, called the lump-sum payment of the compensation remaining under Mr. Snow's contract "generous."
CSX, of Richmond, Va., referred inquiries about Mr. Snow's corporate compensation to the White House.
Under a so-called split-dollar agreement with Mr. Snow, CSX promised in 2001 to buy him a $25 million life-insurance policy within seven years. The company hasn't yet bought the policy, and will instead pay Mr. Snow $5 million, according to a person familiar with Mr. Snow's compensation. (Premiums of $5 million will buy about $25 million of life insurance, insurance experts say.)
The Treasury is in the midst of drafting regulations enforcing a new ban on corporate loans to executives, which could affect such split-dollar arrangements.
Under CSX's various pension plans for executives, Mr. Snow is eligible for a pension of about $2.38 million a year, according to CSX's latest proxy statement. He will receive a $30 million lump-sum payment instead, the person familiar with his compensation said.
Mr. Snow also received $323,266 last year in above-market interest on pay he set aside between 1985 and 1989, according to the company's proxy. CSX's deferral plan from that period pays an undisclosed rate of interest, but in some circumstances pays a minimum of 10% a year.
The total amount of interest he received on those deferrals and any deferrals since 1989 wasn't disclosed, but CSX's latest plans allow executives to tie their deferred-compensation earnings to market securities or indexes. (SEC rules only require companies to disclose payments above "market-rate" interest, currently 5.91% for amounts compounded annually.)
Mr. Snow will collect his deferral balance -- about $35 million in postponed pay, company contributions and interest -- in cash upon leaving CSX, according to the person familiar with his compensation.
In addition to the above-market interest, Mr. Snow received $36,000 in matching contributions to CSX's various retirement plans for employees and executives.
Mr. Snow's compensation package also came with some of the more familiar rewards of corporate leadership. In 2001, he received $2.2 million in salary and bonus, $7.1 million in restricted stock awards and $753,057 in "other" compensation, including the above-market interest and $117,900 labeled as life-insurance payments. (It isn't clear if those payments relate to Mr. Snow's split-dollar arrangement.) He also received 800,000 stock options, which would currently cost more to exercise than they are worth.
The restricted stock and options were one-time awards tied to the signing of his July 2001 employment agreement.
Retirement qualifies Mr. Snow for lifelong, company-paid country-club memberships, physical exams and use of the company aircraft, plus discounts at CSX's West Virginia resort, the Greenbrier.
While serving as Treasury secretary, he would have to give up those perks under government ethics rules.
The contract calls for CSX to make up some taxes and penalties incurred by Mr. Snow related to his compensation and benefits.
Mr. Snow also owns 1.7 million shares of CSX common stock, valued at about $47 million, excluding stock options. Paul O'Neill, President Bush's first Treasury secretary who left office Friday after the administration requested his resignation, felt considerable pressure to sell his shares in aluminum maker Alcoa Inc., where he have been chief executive. Mr. O'Neill ultimately did so. |
