The vast majority of shareholders of CSX (CSX) on Monday supported an unusual and controversial one-time $84 million payment related to the recent appointment of the railroad giant's chief executive, Hunter Harrison.
CSX shares were down about 1% after the news.
The vote comes after the two major proxy advisory firms, Institutional Shareholder Services Inc., and Glass Lewis, urged shareholders to back the payment, which was partly fronted by activist fund Mantle Ridge, as part of an effort to convince Harrison to leave his previous employer, Canadian Pacific Railway Ltd. (CP) , and join the insurgent fund's efforts to shake up the board and management of CSX.
In March, Mantle Ridge and its founder, Paul Hilal, reached a deal with CSX to install Harrison as the railroad's new CEO, with a four-year contract. As part of the deal, CSX agreed to bring on five new directors, including Harrison and Hilal, while three incumbent directors agreed to step down.
On Monday, 93% of shareholder votes cast at CSX's annual meeting approved a non-binding proposal on the payment.
Harrison has indicated that he would resign from the CSX top position if the proposal would fail to receive approval from investors, a move that would have driven the company's share price down significantly. The stock price spiked up significantly, and traded recently at $52.33 a share, as it became clear that Harrison, a veteran railroad executive, would become the CEO.
In its report, ISS said "cautious support is warranted" for the non-binding proposal reimbursing Mantle Ridge and Harrison "as the failure to approve the payment will likely result in an immediate and significant loss of shareholder value."
And while many in the investor community consider the payment egregious, the company had not made a recommendation on it one way or another.
In its report, Glass Lewis notes that the payment is intended to reimburse Harrison for certain vested and soon-to-be-vested compensation and benefits that the well-respected chief executive essentially left on the table when he left CP to try and join CSX.
The advisory firm, which is very influential when it comes to institutional investor votes, said that the payment could appear to be an "egregious payout." However, it added that "given the decisive market upside and anticipated operational benefits of Mr. Harrison's service...we believe investors should offer clear support" for it. Glass Lewis also noted that the company's failure to provide a recommendation for or against the payment also helped the advisory firm reach that decision.
ISS had previously had urged shareholders to vote against Hilal, noting that it categorized him as a non-independent member of the board of CSX due to his positions on both the railroad's compensation and governance subcommittees.
However, last month CSX announced that Hilal had resigned from both of those committees. He continues to be a member of the CSX's finance and executive subcommittees. Hilal's move to resign from those committees was enough of a move to convince ISS to change its recommendation.
Nevertheless, there are health concerns that continue to plague Harrison. The Wall Street Journal reported recently that Harrison has an undisclosed medical condition that requires he use oxygen occasionally and demands that he works from home several days a week.
Management CV, a research firm, suggested that CSX has set itself up for future disappointment with Harrison as CEO. The research firm noted that Harrison declined CSX's request for an independent pre-hire review of his medical records.