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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NORFOLK SOUTHERN CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF NORFOLK SOUTHERN APPEARS HERE]
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NOTICE AND PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD ON
THURSDAY, MAY 8, 1997
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The Annual Meeting of Stockholders of Norfolk Southern Corporation will be
held at the Conference Center, Williamsburg Lodge, South England Street,
Williamsburg, Virginia, on Thursday, May 8, 1997, at 10:00 A.M., Eastern
Daylight Time, for the following purposes:
1.Election of four directors to the class whose term will expire in
2000.
2.Ratification of the appointment of independent public accountants as
auditors.
3.Transaction of such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 7, 1997, will be
entitled to vote at such meeting.
By order of the Board of
Directors,
DEZORA M. MARTIN,
Corporate Secretary.
Dated: April 1, 1997
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
<PAGE>
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-2191
April 1, 1997
PROXY STATEMENT
This statement and the accompanying proxy will be mailed to stockholders of
Norfolk Southern Corporation on or about April 1, 1997. The Corporation's
Annual Report for 1996 was mailed under separate cover beginning March 13,
1997. The proxy is solicited by the Board of Directors of the Corporation for
use at the Annual Meeting of Stockholders to be held May 8, 1997. The cost of
soliciting proxies will be paid by the Corporation, including the
reimbursement, upon request, of brokerage firms, banks and other institutions,
nominees and trustees for their reasonable expenses in forwarding proxy
material to beneficial owners. In addition to solicitation by mail, officers
and regular employees of the Corporation may solicit proxies by telephone,
telegram or personal interview at no additional compensation.
Policies are in place to safeguard the confidentiality of proxies and
ballots. The Bank of New York, New York, N.Y., which has been retained at an
estimated cost of $21,000 to assist in soliciting proxies directly or through
others and to tabulate all proxies and ballots cast at the Annual Meeting, is
contractually bound to maintain the confidentiality of the voting process.
Each Inspector of Election will have taken the oath required by Virginia law
to execute duties faithfully and impartially. Members of the Board of
Directors and employees of the Corporation do not have access to the proxies
or ballots and therefore do not know how individual stockholders vote on any
matter. However, when a stockholder writes a question or comment on the proxy
card or ballot, or when there is need to determine the validity of a proxy or
ballot, Management and/or its representatives may be involved in providing the
answer to the question or in determining such validity.
If the enclosed proxy is properly signed and returned to The Bank of New
York, the shares represented thereby will be voted in accordance with its
terms. Any stockholder who has executed and returned a proxy and for any
reason wishes to revoke it may do so at any time before the proxy is voted by
giving prior notice of revocation in any manner to the Corporation, or by
executing and delivering a subsequent proxy or by attending the meeting and
voting in person.
The record date for stockholders entitled to vote at the Annual Meeting is
March 7, 1997. As of February 28, 1997, the Corporation had issued and
outstanding 132,426,402 shares of Common Stock, of which 125,173,768 shares
were entitled to one vote per share.
<PAGE>
ELECTION OF DIRECTORS
The terms of Carroll A. Campbell, Jr., David R. Goode, Arnold B. McKinnon
and Harold W. Pote expire at the Annual Meeting on May 8, 1997. At its meeting
held on July 23, 1996, the Board of Directors amended the Bylaws to increase
the number of directors from ten to eleven and elected Carroll A. Campbell,
Jr. a member of the class whose term expires in 1997 to fill the resulting
vacancy.
Unless otherwise instructed on the enclosed proxy, such proxy will be voted
in favor of the reelection of Messrs. Campbell, Goode, McKinnon and Pote to
serve in the class whose term will expire in 2000. If any nominee becomes
unable to serve, an event which is not anticipated, the proxy will be voted
for a substitute nominee to be designated by the Board of Directors, or the
total number of directors will be reduced.
Under Virginia law and under the Corporation's Restated Articles of
Incorporation and Bylaws, directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Votes that are withheld or shares that are not voted, such
as those held by a broker or other nominee who does not vote in person or
return a proxy, are not "cast" for this purpose.
The following information relates to the nominees and the directors whose
terms of office will continue after the stockholders' meeting. There are no
family relationships among any of the nominees or directors--or among any of
the nominees or directors and any officer--nor is there any arrangement or
understanding between any nominee or director and any other person, pursuant
to which the nominee or director was selected.
NOMINEES (FOR TERM EXPIRING IN 2000)
Mr. Campbell, 56, Georgetown, S.C., and Alexandria, Va.,
has been a director since July 23, 1996. He has been
President and Chief Executive Officer of American Council
of Life Insurance, a trade association for the life
insurance industry, since 1995, having served prior
thereto as Governor of South Carolina. He is also a
director of AVX Corporation and Fluor Corporation.
Carroll A. Campbell, Jr.
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Mr. Goode, 56, Norfolk, Va., has been a director since
1992. He has been Chairman, President and Chief Executive
Officer of the Corporation since September 1992, having
served prior thereto as President. He is also a director
of Caterpillar, Inc., Georgia-Pacific Corporation, Texas
Instruments Incorporated and TRINOVA Corporation.
David R. Goode
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2
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NOMINEES (CONTINUED)
Mr. McKinnon, 69, Norfolk, Va., has been a director since
1986. He was Chairman and Chief Executive Officer of
Norfolk Southern Corporation until his retirement in
1992, having served prior thereto as Chairman, President
and Chief Executive Officer.
Arnold B. McKinnon
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Mr. Pote, 50, New York, N.Y., has been a director since
1988. He has been a partner of The Beacon Group, a
private investment partnership, since April 1993, having
served prior thereto as President of PBS Properties, Inc.
(See information under the "Certain Relationships and
Related Transactions" caption on page 10.)
Harold W. Pote
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DIRECTORS WHOSE TERM EXPIRES IN 1998
Mr. Coleman, 66, Grantham, N.H., has been a director
since 1982. He was Chairman of The Lubrizol Corporation,
a diversified specialty chemical company, until his
retirement in 1996, having served prior thereto as
Chairman and Chief Executive Officer. He is also a
director of The Lubrizol Corporation and Harris
Corporation.
L. E. Coleman
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Mr. Hahn, 70, Atlanta, Ga., has been a director since
1985. He has been Honorary Chairman of the Board of
Georgia-Pacific Corporation, a manufacturer and
distributor of building products, pulp and paper products
and chemicals, since December 1993, having previously
become Chairman of the Board in May 1993, and having
served prior thereto as Chairman of the Board and Chief
Executive Officer. He is also a director of Coca-Cola
Enterprises, SunTrust Banks, Inc. and Trust Company Bank
of Georgia.
T. Marshall Hahn, Jr.
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3
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DIRECTORS (CONTINUED)
Mr. Hilliard, 57, New York, N.Y., has been a director
since 1992. He has been a partner in Brown Brothers
Harriman & Co., a private bank in New York City, since
January 1979. He is also a director of Owens-Corning
Fiberglas Corporation.
(See information under the "Certain Relationships and
Related Transactions" caption on page 10.)
Landon Hilliard
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Ms. O'Brien, 43, St. Mary's City, Md., has been a
director since 1994. She has been President of St. Mary's
College since July 1996, having served prior thereto as
President of Hollins College, Roanoke, Va. She is also a
director of Landmark Communications, Inc.
Jane Margaret O'Brien
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DIRECTORS WHOSE TERM EXPIRES IN 1999
Mr. Baliles, 56, Richmond, Va., has been a director since
1990. He has been a partner in the law firm of Hunton &
Williams, a business law firm with offices in several
major U. S. cities and international offices in Brussels,
Belgium, Warsaw, Poland, and Hong Kong since 1990. He is
also a director of Newport News Shipbuilding Inc.
(See information under the "Certain Relationships and
Related Transactions" caption on page 10.)
Gerald L. Baliles
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Mr. Carter, 57, Alexandria, Va., has been a director
since 1992. He has been Executive Director of the
Association for Supervision and Curriculum Development,
among the world's largest international education
associations, since July 1992, having served prior
thereto as Superintendent of Schools in Norfolk, Va.
Gene R. Carter
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4
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Mr. Leisenring, 71, Philadelphia, Pa., has been a
director since 1982. He is Chairman of The Philadelphia
Contributionship, the nation's oldest insurance company.
He was Chairman and Chief Executive Officer of Penn
Virginia Corporation, a natural resources holding and
development company, until his retirement in 1992. He is
also a director of PICO Products, Inc.
E. B. Leisenring, Jr.
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BENEFICIAL OWNERSHIP OF STOCK
To the knowledge of the Corporation, no person beneficially owns more than
5% of its Common Stock.
The following table sets forth as of February 28, 1997, the beneficial
ownership of the Corporation's Common Stock by each director (including the
Chief Executive Officer) and nominee, each of the other four most highly
compensated executive officers and all executive officers and directors of the
Corporation as a group. Each individual and all executive officers and
directors as a group own less than 1% of the total outstanding shares of the
Corporation's Common Stock and, unless otherwise indicated, all shares are
held with sole voting and investment powers. Unless otherwise noted, no
director or executive officer beneficially owns any equity securities of the
Corporation or its subsidiaries other than the Corporation's Common Stock.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
NAME COMMON STOCK NAME COMMON STOCK
- ---- ------------ ---- ------------
<S> <C> <S> <C>
Gerald L. Baliles 2,113/1/,/2/ Arnold B. McKinnon 205,759/1/,/2/
Carroll A. Campbell, Jr. 1,013/1/ Jane Margaret O'Brien 1,656/1/,/2/
Gene R. Carter 2,348/1/,/2/ Harold W. Pote 2,369/1/,/2/
L. E. Coleman 5,879/1/,/2/,/3/ D. Henry Watts 142,723/6/
David R. Goode 265,566/4/ R. Alan Brogan 99,573/7/
T. Marshall Hahn, Jr. 4,787/1/,/2/ Stephen C. Tobias 70,952/8/
Landon Hilliard 3,298/1/,/2/ Henry C. Wolf 74,531/9/
E. B. Leisenring, Jr. 12,589/1/,/2/,/5/
</TABLE>
41 Executive Officers and Directors as a group (including the
persons named above)/10/ 1,711,176/11/
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/1/Includes a one-time grant of 1,000 shares to non-employee directors on
January 1, 1994, or when first elected to the Board thereafter, pursuant to
the Directors' Restricted Stock Plan and over which shares the director
possesses voting power but has no investment power until the shares are
distributed (see information under the "Board of Directors" caption on page
7).
/2/Includes (a) the 1996 grant of Stock Units (one such Stock Unit is equal
in value to one share of Common Stock) to each non-employee director serving
on the date of the 1996 Annual Meeting of Stockholders and (b) the one-time
crediting of Stock Units representing the actuarially determined present value
of the retirement benefit that all non-employee directors serving on the date
of the 1996 Annual Meeting of Stockholders agreed to forego, effective June 1,
1996. Stock Units are credited to
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a separate memorandum account for each director and administered in accordance
with the Corporation's Outside Directors' Deferred Stock Unit Program. At year
end, the number of Stock Units in each director's account was as follows: Mr.
Baliles, 1,113; Mr. Carter, 1,298; Mr. Coleman, 1,767; Mr. Hahn, 2,587; Mr.
Hilliard, 1,298; Mr. Leisenring, 2,784; Mr. McKinnon, 2,297; Ms. O'Brien, 656;
and Mr. Pote, 869.
/3/Includes 112 shares owned by Mr. Coleman's wife, in which he disclaims
beneficial ownership.
/4/Includes 3,155 shares credited to Mr. Goode's account in the
Corporation's Thrift and Investment Plan. Includes 31,106 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Goode possesses voting power but
has no investment power until the shares are distributed. Includes 212,521
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Goode has the right to
acquire beneficial ownership within 60 days. Includes 1,048 Deferred Stock
Units (one Deferred Stock Unit is equal in value to one share of Common Stock)
credited to Mr. Goode pursuant to the Corporation's Long-Term Incentive Plan.
/5/Includes 5,205 shares owned by Mr. Leisenring's wife, in which he
disclaims beneficial ownership.
/6/Includes 3,938 shares credited to Mr. Watts' account in the Corporation's
Thrift and Investment Plan. Includes 19,765 shares held by the Corporation
under share retention agreements pursuant to the Corporation's Long-Term
Incentive Plan and over which Mr. Watts possesses voting power but has no
investment power until the shares are distributed. Includes 101,442 shares
subject to stock options granted pursuant to the Corporation's Long-Term
Incentive Plan and with respect to which Mr. Watts has the right to acquire
beneficial ownership within 60 days. Includes 417 Deferred Stock Units
credited to Mr. Watts pursuant to the Corporation's Long-Term Incentive Plan.
Also includes 17,161 shares owned by Mr. Watts' wife, in which he disclaims
beneficial ownership. (Mr. Watts retired from the Corporation effective
February 1, 1997.)
/7/Includes 2,640 shares credited to Mr. Brogan's account in the
Corporation's Thrift and Investment Plan. Includes 11,003 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Brogan possesses voting power but
has no investment power until the shares are distributed. Includes 68,199
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Brogan has the right to
acquire beneficial ownership within 60 days. Includes 313 Deferred Stock Units
credited to Mr. Brogan pursuant to the Corporation's Long-Term Incentive Plan.
/8/Includes 3,767 shares credited to Mr. Tobias' account in the
Corporation's Thrift and Investment Plan. Includes 7,050 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Tobias possesses voting power but
has no investment power until the shares are distributed. Includes 51,547
shares subject to stock options granted pursuant to the Corporation's Long-
Term Incentive Plan and with respect to which Mr. Tobias has the right to
acquire beneficial ownership within 60 days. Includes 313 Deferred Stock Units
credited to Mr. Tobias pursuant to the Corporation's Long-Term Incentive Plan.
/9/Includes 3,081 shares credited to Mr. Wolf's account in the Corporation's
Thrift and Investment Plan. Includes 6,474 shares held by the Corporation
under share retention agreements pursuant to the Corporation's Long-Term
Incentive Plan and over which Mr. Wolf possesses voting power but has no
investment power until the shares are distributed. Includes 57,527 shares
subject to stock options granted pursuant to the Corporation's Long-Term
Incentive Plan and with respect to which Mr. Wolf has the right to acquire
beneficial ownership within 60 days. Includes 313 Deferred Stock Units
credited to Mr. Wolf pursuant to the Corporation's Long-Term Incentive Plan.
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/10/The spouse of one executive officer owns 70 shares of Norfolk Southern
Railway Company Preferred Stock, Series A, in which the officer disclaims
beneficial ownership.
/11/Includes 79,302 shares credited to officers' individual accounts under
the Corporation's Thrift and Investment Plan. Also includes: 151,590 shares
held by the Corporation for officers under share retention agreements pursuant
to the Corporation's Long-Term Incentive Plan and over which the individual
possesses voting power but has no investment power until the shares are
distributed; 1,093,890 shares subject to stock options granted to officers
pursuant to the Corporation's Long-Term Incentive Plan, with respect to which
the optionee has the right to acquire beneficial ownership within 60 days; and
5,626 Deferred Stock Units credited to officers pursuant to the Corporation's
Long-Term Incentive Plan. Also includes 27,582 shares in which officers
disclaim beneficial ownership.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires the Corporation's
directors and executive officers, and any persons beneficially owning more
than 10 percent of a class of the Corporation's stock, to file certain reports
of beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5)
with the Securities and Exchange Commission and the New York Stock Exchange.
For 1996, based solely on its review of copies of Forms 3, 4 and 5 available
to it, or written representations that no Forms 5 were required, the
Corporation believes that all required Forms were filed on time.
BOARD OF DIRECTORS
The Board of Directors of the Corporation consists of eleven members and is
divided into three classes, each elected for a term of three years, with each
class containing as nearly as possible one third of the total number of
directors as required by the Corporation's Restated Articles of Incorporation.
The Board met a total of eleven times in 1996. Each director attended not less
than 75% of the aggregate number of meetings of the Board and meetings of all
committees on which such director served.
Under the Corporation's retirement policy for directors, a director who
attains the age of 72 shall resign effective the date of the next annual
meeting unless that director's term of office expires on such date, in which
event he shall refrain from becoming a candidate for reelection.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors who is not also an officer of the
Corporation received compensation for services during 1996 of $32,000 a year
as a retainer and, in addition, a fee of $1,800 for each attendance at a
meeting of the Board or of any committee of the Board, plus expenses in
connection with attendance at such meetings. Any officer who also serves as a
director receives no additional compensation.
A director may elect to receive all or a portion of compensation on a
deferred basis under the Corporation's Directors' Deferred Fee Plan. The
amount received on a deferred basis is credited to a separate memorandum
account, together with interest on the amount credited to the account at the
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beginning of each quarter, at a rate for 1994 and later years determined on
the basis of the director's age at the time of the deferral: under age 45, 7%;
age 45-54, 10%; age 55-60, 11%; and over age 60, 12%. The total amount so
credited (including amounts deferred in prior years and interest earned
thereon) is distributed in ten annual installments beginning with the year
following the year in which the participant ceases to be a director. The
Corporation's commitment to accrue and pay interest on amounts deferred is
facilitated by the purchase of corporate-owned life insurance on the lives of
directors. If the Board of Directors determines at any time that changes in
the law affect the Corporation's ability to recover the cost of providing the
benefits payable under the Plan, the Board, in its discretion, may reduce the
interest credited on deferrals to a rate not less than one half the rate
otherwise provided for in the Plan. In 1996, six current directors
participated.
Under the Directors' Restricted Stock Plan each non-employee director
serving on January 1, 1994, was awarded a restricted grant of 1,000 shares of
the Corporation's Common Stock (Restricted Shares). Any person who is not and
never has been an employee of the Corporation and who is first elected to the
Board after January 1, 1994, also will receive a grant of 1,000 Restricted
Shares. Restricted Shares are registered in the name of the director, who has
all rights of ownership (including the right to vote the shares and receive
dividends), subject to certain restrictions. The Restricted Shares awarded
under this Plan may not be sold, pledged or otherwise encumbered during a
restriction period which (a) begins when the Restricted Shares are granted and
(b) ends on the earlier of (i) the date the director dies or (ii) six months
after the director becomes disabled or retires. For purposes of the Plan, a
director "retires" when service as a director terminates because (a) the
director is ineligible to continue serving under the retirement policy for
directors or (b) the director has served for at least two consecutive years
and such termination is (i) due to taking a position with or providing
services to a governmental, charitable or educational institution whose
policies prohibit continued service as a director or (ii) due to the fact that
continued service as a director would be a violation of the law or (iii) not
due to that director's voluntary resignation or refusal to stand for
reelection.
At its January 1996 meeting, the Board adopted the Outside Directors'
Deferred Stock Unit Program, pursuant to which each outside director was
granted 200 Stock Units, effective the date of the 1996 Annual Meeting of
Stockholders. Stock Units are credited to a memorandum account maintained in
the director's name; it is anticipated that outside directors may continue to
be granted, effective the date of each Annual Meeting of Stockholders,
additional Stock Units in an amount sufficient to assure that their total
annual compensation for services is competitive. Stock Units equal in value to
the actuarially determined present value of the terminated pensions of
directors serving on June 1, 1996, also were credited to a separate memorandum
account for each such director.
The Stock Units in each memorandum account are credited with dividends paid
on the Common Stock, and the amount so credited is converted into additional
Stock Units, including fractions thereof, based on the mean of the high and
low trading prices of the Common Stock on the dividend payment date. Upon
leaving the Board for any reason, a director will receive in cash (either in a
lump sum or in ten annual installments, in accordance with an irrevocable
election made by each director) an amount determined with respect to the mean
of the high and low trading prices of the Common Stock. The amount of a lump-
sum payment will be determined on the basis of the mean of the high and low
trading prices of the Common Stock on the last business day of the month
following the director's cessation of service. The amount of installment
payments will be determined annually with respect to
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<PAGE>
the mean of the high and low trading prices of the Common Stock on the third
business day following the public announcement of earnings in January. During
the ten-year period over which installments are paid, Stock Units in the
memorandum account at any time that have not been paid in cash will be
credited with dividends as paid on the Common Stock.
In line with its long-standing commitments to contribute to educational,
cultural and other appropriate charitable institutions and to encourage others
to do the same, the Corporation has instituted the Directors' Charitable Award
Program. Each director serving on February 1, 1996, could nominate one or more
tax-exempt institutions to receive up to a total of $500,000 (payable in five
equal annual installments following the director's death); directors elected
after February 1, 1996, are entitled to designate up to $100,000 per year of
service until the $500,000 cap is reached. Another $500,000 will be paid to
the Norfolk Southern Foundation in the director's name. The program is funded,
and its costs are expected to be recovered, through corporate-owned life
insurance on the directors. Because the Corporation makes the charitable
contributions (and is entitled to the related deduction) and is the owner and
the beneficiary of the life insurance policies, directors derive no direct
financial benefit from the program. Moreover, amounts the Foundation receives
from insurance proceeds under this program may reduce what the Corporation
otherwise would contribute from general corporate resources to support the
Foundation's work.
COMMITTEES
Each year, not later than its organization meeting, the Board of Directors
appoints the Audit Committee, Compensation and Nominating Committee, Executive
Committee and Pension Committee.
The Audit Committee recommends to the Board of Directors the engagement of,
and the fee to be paid to, the independent public accountants; reviews with
the independent accountants the annual audit plan; receives, reviews and
transmits to the Board the annual report and financial statements of the
Corporation and its consolidated subsidiaries; and reviews, in consultation
with the independent accountants and the Corporation's internal audit staff,
as deemed necessary, the Corporation's accounting policies, conflict of
interest policy, internal control systems and financial operations and
reporting. This Committee met five times in 1996, and its members are L. E.
Coleman, Chairman, Gerald L. Baliles, Gene R. Carter, Landon Hilliard and
Harold W. Pote.
The Compensation and Nominating Committee makes recommendations to the Board
of Directors concerning executive compensation; adoption and administration of
any management incentive bonus plan, deferred compensation plan or other
similar plans of the Corporation; individuals to be elected as officers of the
Corporation; and nominees for election to the Board. The Committee will
consider Board nominees recommended by stockholders. Recommendations by
stockholders must be in writing addressed to the Corporate Secretary, Norfolk
Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510-9219,
and shall include sufficient background material to enable the Committee to
consider fully the qualifications of the individual and any potential conflict
of interest or legal restrictions concerning the person's service in the
proposed capacity. This Committee met six times in 1996, and its members are
E. B. Leisenring, Jr., Chairman, L. E. Coleman and T. Marshall Hahn, Jr.
Robert E. McNair was a member of this Committee until his retirement,
effective the date of the 1996 Annual Meeting of Stockholders. Stockholders
wishing to nominate an individual for election as a director at an annual
meeting must comply with specific Bylaw provisions, details of which are
available from the Corporate Secretary.
9
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The Executive Committee is empowered to exercise all the authority of the
Board of Directors to the extent permitted by Virginia law when the Board is
not in session, including the declaration of a quarterly dividend upon the
Common Stock of the Corporation at the rate of the quarterly dividend most
recently declared by the Board. All actions taken by the Committee are to be
reported to the Board at its meeting next succeeding such action and are
subject to revision or alteration by the Board. This Committee met two times
in 1996, and its members are Arnold B. McKinnon, Chairman, David R. Goode, T.
Marshall Hahn, Jr. and E. B. Leisenring, Jr.
The Pension Committee makes recommendations to the Board of Directors
concerning an annual investment policy for investment of the assets of the
Corporation's pension fund and the engagement of, and the fees to be paid to,
firms of investment managers to manage designated portions of such assets
within the framework of the investment policy; reviews the performance of the
investment managers; and receives, reviews and transmits to the Board the
annual reports, financial statements and actuarial valuations of the pension
plans. This Committee met four times in 1996, and its members are T. Marshall
Hahn, Jr., Chairman, Carroll A. Campbell, Jr., E. B. Leisenring, Jr., Jane
Margaret O'Brien and Harold W. Pote.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, the Corporation paid approximately $492,000 for legal services to
the law firm of Hunton & Williams, in which Mr. Baliles is a partner.
Norfolk Southern maintains various banking relationships with Brown Brothers
Harriman & Co. ("Brown Brothers"), in which Mr. Hilliard is a partner, on
bases that are consistent with normal financial and banking practices. All
transactions are entered into in the ordinary course of business on
substantially the same terms as those prevailing at the time for comparable
transactions with other banks. Also, Brown Brothers was paid approximately
$119,000 in fees for managing a portion of the assets of the Corporation's
pension fund in 1996.
Beacon Group Energy Investment Fund L.P.--affiliated with the Beacon Group
in which Mr. Pote is a principal--has purchased MAPCO Coal, Inc. (now known as
Alliance Coal Company). During 1996 and in a number of earlier periods, all
prior to Beacon's proposed acquisition of its interest, Norfolk Southern
Railway Company provided transportation services for MAPCO or Alliance at
rates fixed in conformity with law or governmental authority. It is
anticipated that the Railway will continue to provide transportation services
for Alliance in 1997 and succeeding years. Alliance also had entered into
various leases with a natural resources subsidiary of the Corporation,
generating 1996 rent and royalty income for the subsidiary of slightly more
than $4.5 million. The terms and conditions of such leases are not expected to
be affected by the acquisition. In the future, the parties (1) may negotiate
the terms and conditions of one or more renewals and of new leases and (2) may
compete to acquire fee, leasehold or other interests in natural resource
properties.
Kathryn B. McQuade is Vice President-Internal Audit of the Corporation. Ms.
McQuade's spouse is one of approximately 6,250 partners worldwide in KPMG Peat
Marwick LLP ("KPMG"), a firm of independent public accountants that has acted
as auditors for the Corporation or its subsidiary, Norfolk and Western Railway
Company, since 1969. Ms. McQuade's spouse does not participate in, or have
access to, KPMG's work for the Corporation. The Corporation paid KPMG
approximately $1.9 million for all services rendered during 1996.
10
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following identifies any reportable business relationships between the
Corporation and Messrs. Leisenring, Coleman, Hahn or McNair, who were the
members of the Compensation and Nominating Committee during all or part of
1996.
In 1996, the Corporation paid approximately $353,000 to McNair Law Firm,
P.A., of which Mr. McNair is Chairman, for legal and consulting services. Mr.
McNair retired, effective the date of the 1996 Annual Meeting of Stockholders,
pursuant to the Corporation's retirement policy for directors.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid, as well as
certain other compensation accrued or paid, to the Chief Executive Officer and
to each of the other four most highly compensated executive officers of the
Corporation in 1996 for service in all capacities to the Corporation and its
subsidiaries for the fiscal years ending December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ---------------------
AWARDS PAYOUTS
---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY/1/ BONUS/1/ COMPENSATION/2/ OPTIONS/3/ PAYOUTS/4/ COMPENSATION/5/
POSITION YEAR ($) ($) ($) (#) ($) ($)
- ------------------ ---- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Goode 1996 800,000 800,000 269,864/6/ 40,000 /7/ 73,149
Chairman, President 1995 685,000 616,500 1,349,379 50,000 1,511,034 63,796
and Chief Executive 1994 585,000 497,250 537,303 40,000 505,965 4,500
Officer
D. Henry Watts 1996 425,000 340,000 312,104 16,000 /7/ 37,090
Vice Chairman 1995 381,250 290,938 612,354 12,500 472,134 33,758
1994 370,000 277,500 459,530 12,500 316,195 4,500
R. Alan Brogan
Executive Vice 1996 285,000 213,750 118,556 12,000 /7/ 40,224
President-Trans. 1995 250,000 187,500 435,548 12,500 472,134 38,416
Logistics 1994 240,000 176,060 173,511 12,500 126,491 4,500
Stephen C. Tobias
Executive Vice 1996 365,000 273,750 65,666 12,000 /7/ 31,391
President- 1995 305,000 228,750 183,723 12,500 188,836 26,304
Operations 1994 267,500 200,625 139,362 5,000 126,491 4,500
Henry C. Wolf 1996 365,000 273,750 62,511 12,000 /7/ 34,753
Executive Vice 1995 305,000 228,750 188,856 12,500 188,836 29,693
President-Finance 1994 267,500 200,625 142,245 12,500 126,491 4,500
</TABLE>
- --------
/1/Includes portion of any salary or bonus award elected to be received on a
deferred basis.
/2/Includes cash payment of dividend equivalents in 1994 in an amount equal
to, and commensurate with, dividends paid on the Common Stock on performance
share units awarded through 1992 pursuant to the Corporation's Long-Term
Incentive Plan (dividend equivalents are not paid on performance share units
awarded after 1992). Includes amounts reimbursed for the payment of taxes on
personal benefits. Does not include for 1996 a tax absorption payment, which
was not determinable in time to be reported, under the Long-Term Incentive
Plan for the 1996 award of performance shares. Also includes the amount by
which the interest accrued on salary and bonuses deferred under the Officers'
Deferred Compensation Plan exceeds 120% of the applicable Federal long-term
rate provided under Section 1274(d) of the Internal Revenue Code; for 1996,
these amounts were: for Mr. Goode, $53,873; Mr. Watts, $297,583; Mr. Brogan,
$110,168; Mr. Tobias, $36,141; and Mr. Wolf, $40,433.
/3/Options were granted without tandem SARs.
11
<PAGE>
/4/Represents market value, as of the date of award, of Common Stock earned
pursuant to the performance share feature of the Corporation's Long-Term
Incentive Plan for periods ended December 31, 1995 and 1994 (for 1994,
performance shares were awarded for achievements in the three-year period
1992-1994 and for 1995, performance shares were awarded for achievements in
the three-year period 1993-1995). For 1996, the award of performance shares
for achievements in the three-year period 1994-1996 had not been approved in
time to be reported.
/5/Includes for 1996 (i) contributions of $4,500 to the Corporation's 401(k)
plan on behalf of each named executive officer; and (ii) total premium
payments (out-of-pocket cash cost) on "split dollar" life insurance policies
for Mr. Goode, $68,649; Mr. Watts, $32,590; Mr. Brogan, $35,724; Mr. Tobias,
$26,891; and Mr. Wolf, $30,253.
/6/Includes personal use, as directed by resolution of the Board of
Directors, of the Corporation's aircraft valued at approximately $136,482 --
calculated on the basis of the aggregate incremental cost of such use to the
Corporation.
/7/For 1996, the award of performance shares for achievements in the three-
year period 1994-1996 had not been approved in time to be reported.
LONG-TERM INCENTIVE PLAN
The Corporation's Long-Term Incentive Plan, as last approved by stockholders
in 1995, provides for the award of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock and performance
share units to officers and other key employees of the Corporation and certain
of its subsidiaries. The Compensation and Nominating Committee of the Board of
Directors ("Committee") is charged with administration of the Plan and has the
sole discretion, subject to certain limitations, to interpret the Plan; to
select Plan participants; to determine the type, size, terms and conditions of
awards under the Plan; to authorize the grant of such awards; and to adopt,
amend and rescind rules relating to the Plan.
STOCK OPTIONS
The following table sets forth certain information concerning the grant in
1996 of stock options under the Corporation's Long-Term Incentive Plan to each
named executive officer:
OPTION/SAR* GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- --------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED/1/ EMPLOYEES IN BASE PRICE /2/ EXPIRATION VALUE/3/
NAME (#) FISCAL YEAR ($ PER SHARE) DATE ($)
- ---- ---------- ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
D. R. Goode 40,000 5.83% 78.0625 01/28/2006 850,400
D. H. Watts 16,000 2.33% 78.0625 01/28/2006 340,160
R. A. Brogan 12,000 1.75% 78.0625 01/28/2006 255,120
S. C. Tobias 12,000 1.75% 78.0625 01/28/2006 255,120
H. C. Wolf 12,000 1.75% 78.0625 01/28/2006 255,120
</TABLE>
*No SARs were granted in 1996.
- --------
/1/These options were granted as of January 29, 1996, and first are
exercisable one year later. They earn dividend equivalents -- in an amount
equal to, and commensurate with, dividends as paid on the Common Stock --
which are converted into Deferred Stock Units, the aggregate fair market
12
<PAGE>
value of which is payable in cash to the officer on the earliest of the (a)
the five-year anniversary of the date of grant; (b) the exercise of the option
(exercises of less than the full option grant result in a prorated cash
payment); and (c) the officer's death, disability or retirement.
/2/The exercise price (fair market value on the date of grant) may be paid
in cash or in shares of Common Stock (previously owned by the optionee for at
least one year next preceding the date of exercise) valued at fair market
value on the date of exercise.
/3/In accordance with regulations of the Securities and Exchange Commission,
the present value of the option grant at the date of grant was determined
using the Black-Scholes statistical model. The actual amount, if any, an
executive officer may realize depends on the stock price on the date the
option is exercised; consequently, there is no assurance the amount realized
by an executive officer will be at or near the monetary value determined by
using this statistical model.
The model assumes:
(a) a stock volatility factor of 0.1667: volatility was determined by an
independent compensation consultant using monthly data averaged over the
60-month period January 1, 1991, through December 31, 1995;
(b) a dividend yield of 2.93%: yield was determined monthly and averaged
over the 60-month period January 1, 1991, through December 31, 1995;
(c) a 1995 risk-free rate of return of 6.65%: this represents the monthly
average 10-year Treasury strip rate during 1995, the year prior to the
issuance of these options; and
(d) that the option will be exercised during its ten-year term.
The foregoing measures and assumptions produce a Black-Scholes factor of
0.272 and a resulting present value of $21.26 for each share of Common Stock
subject to the 1996 option grant; that factor and resulting present value have
not been adjusted to reflect that options cannot be exercised during the first
year of their 10-year term, the payment of dividend equivalents on unexercised
options or the conversion of dividend equivalents into Deferred Stock Units.
The following table sets forth certain information concerning the exercise
of options and/or SARs by each named executive officer during 1996 and the
unexercised options and SARs held by each as of December 31, 1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FY-END AT FY-END/1/
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ----------------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. R. Goode 0 0 172,521 40,000 4,699,448 422,500
D. H. Watts 0 0 85,442 16,000 3,036,678 169,000
R. A. Brogan 0 0 56,199 12,000 1,693,542 126,750
S. C. Tobias 0 0 39,547 12,000 1,293,124 126,750
H. C. Wolf 0 0 45,527 12,000 1,333,947 126,750
</TABLE>
- --------
/1/Equal to the mean ($88.625) of the high and low trading prices on the New
York Stock Exchange-Composite Transactions of the Common Stock on December 31,
1996, less the exercise prices of the options, multiplied by the number of
options.
13
<PAGE>
PERFORMANCE SHARE UNITS ("PSUS")
The following table sets forth certain information concerning the grant in
1996 of PSUs under the Corporation's Long-Term Incentive Plan to each named
executive officer. These PSU grants entitle a recipient to "earn out" or
receive performance shares (shares of the Corporation's Common Stock) at the
end of a three-year performance cycle (1996-1998) based on the Corporation's
performance during this three-year period. Under the 1996 award, corporate
performance will be measured using three predetermined and equally weighted
standards; that is, each of the following performance areas will serve as the
basis for "earning out" up to one third of the total number of PSUs granted:
(1) three-year average return on average invested capital ("ROAIC"), (2)
three-year average NS operating ratio and (3) three-year total return to NS
stockholders. A more detailed discussion of these performance criteria can be
found in the Compensation and Nominating Committee Report, beginning on page
16.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
(PERFORMANCE SHARE UNITS)
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
SHARES, OR OTHER NON-STOCK PRICE-BASED PLANS
UNITS OR PERIOD UNTIL ---------------------------------
OTHER RIGHTS/1/ MATURATION THRESHOLD TARGET/2/ MAXIMUM
NAME (#) OR PAYOUT (#) (#) (#)
- ---- --------------- ------------ --------- --------- -------
<S> <C> <C> <C> <C> <C>
D. R. Goode 25,000 01/01/96- 0 22,075 25,000
12/31/98
D. H. Watts 12,000 01/01/96- 0 10,596 12,000
12/31/98
R. A. Brogan 8,000 01/01/96- 0 7,064 8,000
12/31/98
S. C. Tobias 8,000 01/01/96- 0 7,064 8,000
12/31/98
H. C. Wolf 8,000 01/01/96- 0 7,064 8,000
12/31/98
</TABLE>
- --------
/1/Performance shares awarded in 1996, when earned out, will be issued one
half in cash and one half in stock, with the stock portion being held by the
Corporation for up to 60 months pursuant to a share retention agreement unless
such requirement is waived by the Committee in its sole discretion. Because
approximately one half of the performance shares earned under the 1996 award
will be subject to a share retention agreement, the withholding taxes due will
be withheld from the cash portion of this award.
/2/The Long-Term Incentive Plan does not provide a performance target for
the "earn out" of PSUs; consequently, this column represents 88.3% of the
maximum "earn out," which, in accordance with applicable rules of the
Securities and Exchange Commission, is based on the percentage of the previous
fiscal year's actual "earn out" under the Plan.
PENSION PLANS
The following table sets forth the estimated annual retirement benefits
payable on a qualified joint-and-survivor-annuity basis in specified
remuneration and years of creditable service classifications under the
Corporation's qualified defined benefit pension plans, as well as nonqualified
supplemental pension plans that provide benefits otherwise denied participants
because of certain Internal Revenue Code limitations on qualified plan
benefits. It is assumed, for purposes of the table, that an individual retired
in 1996 at age 65 (normal retirement age) with the maximum allowable Railroad
Retirement Act annuity. The benefits shown are in addition to amounts payable
under the Railroad Retirement Act.
14
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITABLE SERVICE
-----------------------------------------------------------------------------
REMUNERATION 25 30 35 40
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 200,000 $ 56,471 $ 69,879 $ 87,287 $ 96,694
300,000 93,971 114,879 135,787 156,694
400,000 131,471 159,879 188,287 216,694
500,000 168,971 204,879 240,787 276,694
600,000 206,471 249,879 293,287 336,694
700,000 243,971 294,879 345,787 396,694
800,000 281,471 339,879 398,287 456,694
900,000 318,971 384,879 450,787 516,694
1,000,000 356,471 429,879 503,287 576,694
1,100,000 393,971 474,879 555,787 636,694
1,200,000 431,471 519,879 608,287 696,694
1,300,000 468,971 564,879 660,787 756,694
1,400,000 506,471 609,879 713,287 816,694
1,500,000 543,971 654,879 765,787 876,694
</TABLE>
Under the pension plans, covered compensation includes salary and bonus;
each officer can expect to receive an annual retirement benefit equal to
average annual compensation for the five most highly compensated consecutive
years out of the last ten years of creditable service multiplied by the number
that is equal to 1.5% times total years of creditable service, but not in
excess of 60% of such average compensation, less an offset for the annual
Railroad Retirement Act annuity.
The respective last five-year average compensation and approximate years of
creditable service, as of January 1, 1997, for each executive officer named in
the Summary Compensation Table were: Mr. Goode, $994,149 and 31 years; Mr.
Watts, $627,875 and 40 years; Mr. Brogan, $380,292 and 33 years; Mr. Tobias,
$489,335 and 27 years; Mr. Wolf, $413,030 and 24 years.
CHANGE-IN-CONTROL ARRANGEMENTS
In May 1996, the Compensation and Nominating Committee recommended, and the
Board of Directors approved, the Corporation's entering into new change-in-
control compensation agreements ("Agreements") with each of the individuals
named in the Summary Compensation Table and with certain other key employees.
The new Agreements, the terms of which were reviewed by outside counsel, were
filed as an exhibit to the Corporation's Report on Form 10-Q for the period
ended June 30, 1996, and provide certain economic protections in the event of
an involuntary or other specified Termination (each term with an initial
capital letter is defined in the new Agreements) of a covered individual
during a period of twenty-four months next following a Change in Control of
the Corporation. As consideration for these new Agreements and to help
encourage management continuity, covered individuals agreed not to engage in
Competing Employment for a period of (a) three years from the date they
execute a new Agreement and (b) one year from their Termination Date, if they
accept benefits payable or provided under the new Agreements.
These Agreements are terminable by either the Corporation or a covered
employee on twenty-four months' notice; however, the term of the prohibition
on engaging in Competing Employment is not affected by the new Agreement's
being terminated.
15
<PAGE>
Generally, these Agreements provide for (a) severance compensation payments
(not continued employment) equal, in the case of individuals named in the
Summary Compensation Table, to three times the sum of their Base Pay and
Incentive Pay (most other covered employees are entitled to receive a lower
multiple of Base Pay and Incentive Pay); (b) redemption of outstanding
Performance Share Units and of outstanding, exercisable options (subject to
restrictions, if any, in the case of persons, such as each officer named in
the Summary Compensation Table, imposed under Section 16 of the Securities
Exchange Act of 1934) and payment of dividend equivalents foregone as a result
of the redemption of such options; (c) payment of an amount equal to the
present value of the projected value of amounts deferred under the Officers'
Deferred Compensation Plan; (d) eligibility for certain Benefits (principally
medical, insurance and death benefits) for up to three years following
Termination; and (e) certain additional service credit under the Corporation's
retirement plans (in the case of any board-elected officer, such service
credit may not exceed the creditable service that officer would have had upon
reaching mandatory retirement age). The Agreements also provide for payment of
any Federal excise tax that may be imposed on payments made pursuant to these
Agreements.
COMPENSATION AND NOMINATING COMMITTEE REPORT CONCERNING
THE 1996 COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
This Report describes Norfolk Southern Corporation's officer compensation
strategy, the components of its compensation program and the manner in which
1996 compensation determinations were made for the Corporation's Chairman,
President and Chief Executive Officer, David R. Goode, and the other officers
(collectively, including Mr. Goode, referred to as the "Executive Officers")
whose 1996 compensation is disclosed in the Summary Compensation Table of this
Proxy Statement.
The Compensation and Nominating Committee of the Board of Directors
("Committee") is composed entirely of non-employee directors and met six times
during 1996. Among other things, the Committee is responsible for: (1)
recommending to the Board the salaries of corporate officers and (2)
administering the Corporation's Executive Management Incentive Plan, as
approved by the stockholders at their May 1995 Annual Meeting, its Management
Incentive Plan (applicable to non-officers) and its Long-Term Incentive Plan,
as amended and approved by stockholders at their May 1995 Annual Meeting,
which authorizes, as more particularly described below, awards of stock
options and performance share units.
BASE SALARY: While the Committee believes that a substantial portion of
each Executive Officer's total compensation should be "performance-based,"
the Committee also seeks to assure that the base salaries of Executive
Officers are competitive with those earned by individuals in comparable
positions.
Specifically, the Committee compares Mr. Goode's base salary with those
paid to the chief executive officers of all other holding companies of
Class I railroads (the same companies comprising the S&P Railroad Index
included in the Stock Performance Graph) and of other American corporations
of comparable revenue size. The base salaries of the other Executive
Officers -- as well as all Board-elected officers of the Corporation -- are
evaluated, principally by Mr. Goode, relative to survey data of base
salaries for comparable positions at a large number of American
corporations of comparable revenue size, including but not limited to those
identified in the Stock Performance Graph. These data are compiled by the
Corporation's Personnel Department and by an outside consultant. The
Committee's general intention is to set the base salaries of Executive
Officers between the 50th and 75th percentiles of their peers in the
respective groups with which they are compared.
16
<PAGE>
Mr. Goode discusses with the Committee the specific contributions and
performance of each of the Executive Officers. Based on such subjective
evaluations, comparative salary data and each Executive Officer's length of
service in current position, Mr. Goode makes base salary recommendations
which are submitted for Committee and Board approval.
Mr. Goode makes no recommendation concerning, nor does he play any role in
determining, his base salary (or other compensation), which is set by the
Board. As noted, the Committee customarily seeks to set the NS Chairman and
CEO's base salary between the 50th and 75th percentiles of the base
salaries paid to CEOs of other American corporations of comparable revenue
size and competitively (within the mid-range of compensation practice) with
those of the chairmen of the other holding companies of Class I railroads.
Mr. Goode's base salary in 1996 approximated the 50th percentile; the
average base salaries of other Executive Officers in 1996 approximated the
35th percentile.
For 1996, Mr. Goode's annual base salary was increased by $115,000, or
16.8%. This 1996 increase, not tied to or reflecting application of any
specific formula, reflects both the Corporation's over all performance in
1995, including its total operating revenues and record net income, and the
Board's confidence in Mr. Goode's leadership. The Committee recommended and
the Board approved average increases of 16.6% for the other Executive
Officers as a group; these increases were based on Mr. Goode's
recommendations and the Corporation's 1995 performance.
EXECUTIVE MANAGEMENT INCENTIVE PLAN ("EMIP"): The Corporation's EMIP is
designed and administered to ensure that a significant portion of each
Executive Officer's total annual cash compensation is based on the
Corporation's annual financial performance. Awards to Executive Officers
and to participants in the Corporation's Management Incentive Plan (MIP)
are paid from an annual incentive fund equal to a percentage (from 0.75% to
1.5%) of the Corporation's adjusted pretax net income, provided the
Corporation's annual return on average invested capital ("ROAIC") equals or
exceeds 10%.
Base salaries of the Corporation's Executive Officers have tended to be
lower than at comparable organizations, and their incentive pay
opportunities have tended to be higher. It is the Committee's philosophy
that, when the Corporation achieves EMIP goals, the total of the Executive
Officers' base salaries and EMIP awards should be competitive with the
total annual cash compensation paid by comparable organizations. In years
in which those goals are not realized, the Executive Officers will receive
less (or no) incentive pay.
Specifically, incentive pay opportunities for Mr. Goode are determined
annually by the Committee by comparing Mr. Goode's total annual cash
compensation with that paid to the chief executive officers of all other
holding companies of Class I railroads (the same companies comprising the
S&P Railroad Index included in the Stock Performance Graph) and of other
American corporations of comparable revenue size. Incentive pay
opportunities for the other Executive Officers are determined annually by
the Committee based on its review of the annual cash compensation of
comparable positions at companies of comparable revenue size, including but
not limited to those identified in the Stock Performance Graph.
Using those criteria in November of 1995, the Committee set Mr. Goode's
maximum 1996 incentive opportunity at 100% of 1996 base salary, the Vice
Chairmen's at 80% of 1996 base salary, and the other Executive Officers' at
75% of 1996 base salary. Actual payments, if any, are based on the total
amount in the annual incentive fund. For 1996, all the Executive Officers
17
<PAGE>
earned EMIP awards, and 302 other key employees earned MIP awards. In light
of the Corporation's 1996 performance, the related EMIP payments earned by
Mr. Goode and the other Executive Officers were equal to 100% of their
respective maximum incentive opportunities. Compared with 1995 bonuses
earned by other comparable executive officers, the 1996 EMIP award paid to
Mr. Goode approximated the 65th percentile, and the average awards paid to
the other Executive Officers approximated the 75th percentile.
LONG-TERM INCENTIVE PLAN ("LTIP"): The Committee believes that a
substantial component of the Executive Officers' total compensation should
be based on and reflect the Corporation's efficient use of assets, its
profitability and the total returns (stock price appreciation and
dividends) to its stockholders. This is achieved by making annual grants of
stock options and performance share units and through share retention
agreements entered into with the Executive Officers. These LTIP
arrangements are intended to ensure that the longer-term financial
interests of the Executive Officers are directly aligned with those of the
Corporation's stockholders and to provide the Executive Officers with the
opportunity to acquire a meaningful beneficial stock ownership position in
the Corporation.
In determining current LTIP awards, the size of prior grants is analyzed
within a current total compensation framework predicated on a review of
both the long-term awards and the total compensation (base salary, bonus
and long-term awards) of comparable positions in U.S. companies with
comparable revenues. The mix of options and performance share units may
vary from year to year to reflect an analysis of the relative value of each
type of award and other considerations. Since the inception of the Plan and
continuing through the awards made in 1994, this analysis resulted in a
general practice of granting options to performance share units in a ratio
of 2 to 1. For grants made beginning in 1995, that ratio changed,
reflecting the award of relatively more performance share units than in
past years -- reflecting, in part, the effects of the Committee's decision
not to make tax absorption payments on the actual earnouts of awards made
in 1995 and subsequent years. For Mr. Goode, the ratio of awarded options
to awarded performance share units in 1996 was roughly 1.6 to 1; for the
other Executive Officers, that ratio was 1.42 to 1.
The number of stock options and performance share units granted in any year
is determined so as to place the total compensation of Mr. Goode and the
other Executive Officers, when corporate performance warrants, above the
75th percentile of total compensation for their respective peer groups.
At its January 1996 meeting, the Committee granted stock options to each of
the Executive Officers and to 294 other key employees at an exercise price
equal to the market value of the shares on the date of grant. These options
are exercisable during a ten-year period following the date of grant, after
a one-year period has elapsed.
At the same meeting, the Committee granted performance share units which
provide the Executive Officers and other recipients the opportunity to earn
awards (that will be paid one half in cash and one half in shares of the
Corporation's Common Stock) during the first quarter of 1999. The number of
performance share units actually earned by recipients is based on criteria
approved by stockholders at their May 1995 Annual Meeting -- specifically,
the Corporation's three-year (i.e., 1996-1998) average Return on Average
Invested Capital, three-year average Operating Ratio and three-year total
Return to Stockholders, evaluated relative to performance measures
established by the Committee and set out in the following schedules. One
third of the performance share units granted in 1996 are available to be
earned based on each of the three performance criteria.
18
<PAGE>
<TABLE>
<CAPTION>
TOTAL STOCKHOLDER RETURN RETURN ON AVERAGE INVESTED
("TSR") VS. S&P 500 CAPITAL ("ROAIC")
- ---------------------------------- ---------------------------------
PERCENTAGE OF PERCENTAGE OF
THREE-YEAR PERFORMANCE THREE-YEAR PERFORMANCE
AVERAGE TSR SHARE UNITS AVERAGE SHARE UNITS
VS. S&P 500 EARNED ROAIC EARNED
- ---------------------------------- ---------------------------------
<S> <C> <S> <C>
90th percentile 100% 20% 100%
80th 90% 19% 90%
70th 85% 18% 80%
60th 80% 17% 70%
50th 75% 16% 60%
40th 50% 15% 50%
30th 30% 14% 40%
25th and below 0% 13% 20%
Below 13% 0%
- ---------------------------------- ---------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPERATING RATIO ("OPR")
--------------------------------------------------------------------
PERCENTAGE OF
THREE- PERFORMANCE
YEAR NS SHARE UNITS
AVERAGE OPR EARNED
--------------------------------------------------------------------
<S> <C>
70% 100%
75% 75%
80% 50%
85% 25%
Above 85% 0%
</TABLE>
All stock options and performance share units granted in 1996 to Executive
Officers were subject to the following terms. For the first five (5) years
following the date stock options are granted, the Corporation credits
dividend equivalents on unexercised options to a separate memorandum
account maintained for each Executive Officer, and -- based on the fair
market value of the Corporation's Common Stock on the dividend payment
date -- the amount of that dividend equivalent is converted into Deferred
Stock Units (one such unit is equal in value to one share of Common Stock).
The value of such Deferred Stock Units is paid in cash to each Executive
Officer based on the then-fair market value of the Corporation's Common
Stock on the earliest to occur of (a) the five-year anniversary of the date
of grant; (b) the exercise of the option (exercises of less than the full
option grant result in a prorated cash payment); and (c) the officer's
death, disability or retirement. The Executive Officers have entered into
share retention agreements with the Corporation whereby they have agreed to
have the Corporation hold shares of the Corporation's Common Stock actually
earned pursuant to the performance share feature of the LTIP for a period
of five years following the date such shares are earned.
For 1996, Mr. Goode was granted options on 40,000 shares of Common Stock
and the opportunity to earn up to 25,000 performance shares, and the other
Executive Officers as a group were awarded options on a total of 52,000
shares of Common Stock and the opportunity to earn up to 36,000 performance
shares.
19
<PAGE>
In summary, the Committee believes that the compensation of Executive
Officers is competitive with that of similar positions at comparable American
corporations. More important, the Committee believes each Executive Officer's
compensation has been appropriately structured and administered so that a
substantial component of total compensation is dependent upon, and directly
related to, the Corporation's efficient use of assets, its profitability and
the total returns to its stockholders.
Regulations of the Securities and Exchange Commission require the Committee
to report to stockholders on the Committee's policy concerning the Revenue
Reconciliation Act of 1993 which amended Section 162 of the Internal Revenue
Code to eliminate the deductibility of certain compensation over $1 million
paid to executive officers. Based on the requirements of this new legislation
and on interpretive regulations and transition rules, the Committee
recommended to the Board, the Board approved and recommended to the
stockholders, and at their 1995 Annual Meeting the stockholders approved,
modifications to the LTIP and establishment of the Executive Management
Incentive Plan (which was effective as of January 1, 1996, for certain Board-
elected officers), all as more particularly described in the Corporation's
1995 Proxy Statement. The Committee will continue to seek to offer its
Executive Officers and other personnel competitive compensation and to
structure such compensation arrangements to entitle the Corporation to take
appropriate related tax deductions.
E. B. Leisenring, Jr., Chairman
L. E. Coleman, Member
T. M. Hahn, Jr., Member
R. E. McNair, Member (Retired,
effective the date of the 1996
Annual Meeting of Stockholders)
PERFORMANCE GRAPH*
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Corporation's Common Stock, the
cumulative total return of the S&P Composite-500 Stock Price Index and the S&P
Railroad Stock Price Index for the five-year period commencing December 31,
1991, and ending December 31, 1996.
--------------------------
Total Stockholder Return
--------------------------
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG NORFOLK SOUTHERN CORP
RAILROADS-500 AND S&P 500
<TABLE>
<CAPTION>
NORFOLK
Measurement Period SOUTHERN RAILROADS- S&P
(Fiscal Year Covered) CORP 500 500 INDEX
- --------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1996 $100.00 $100.00 $100.00
FYE 12/31/1992 $106.25 $112.29 $107.62
FYE 12/31/1993 $125.79 $139.15 $118.46
FYE 12/31/1994 $111.35 $120.22 $120.03
FYE 12/31/1995 $150.21 $175.88 $165.13
FYE 12/31/1996 $171.04 $208.86 $203.05
</TABLE>
- --------
*Assumes that the value of the investment in the Corporation's Common Stock
and each index was $100 on December 31, 1991, and that all dividends were
reinvested.
20
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed the firm of KPMG Peat Marwick LLP, independent public accountants,
to audit the books, records and accounts of the Corporation for the year 1997.
This firm has acted as auditors for the Corporation or its subsidiary, Norfolk
and Western Railway Company, since 1969, and the Board of Directors recommends
that its appointment be ratified by the stockholders.
Under Virginia law and under the Corporation's Restated Articles of
Incorporation and Bylaws, actions such as the ratification of the appointment
of auditors are approved, so long as a quorum exists, if the votes cast
favoring the action exceed the votes cast opposing the action. Abstentions or
shares that are not voted, such as those held by a broker or other nominee who
does not vote in person or return a proxy, are not "cast" for this purpose.
With respect to 1996, KPMG Peat Marwick LLP performed audit services which
consisted of the annual audit of the consolidated financial statements of the
Corporation and its subsidiaries, including annual reports of the Corporation
to the stockholders and the Securities and Exchange Commission, audits of the
financial statements of various subsidiaries, audits of the financial
statements of various employee benefit plans, limited reviews of quarterly
financial statements and review of internal controls not directly related to
the audit of the financial statements.
All services rendered by KPMG Peat Marwick LLP to the Corporation in 1996
were approved in advance or ratified by the Audit Committee of the Board of
Directors, and this Committee determined that none jeopardized the auditing
firm's independence. (See the "Certain Relationships and Related Transactions"
caption on page 10.) KPMG Peat Marwick LLP has represented to the Audit
Committee that its fees are customary and that no agreement exists to limit
current or future years' audit fees.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting of Stockholders with the opportunity to make a statement if
they so desire and available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. In order for a stockholder proposal for the 1998 Annual Meeting of
Stockholders to be eligible for inclusion in the Corporation's proxy statement
and form of proxy, it must be received by the Corporate Secretary, Norfolk
Southern Corporation, Three Commercial Place, Norfolk, Virginia 23510-9219, no
later than December 4, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than as set forth above. However, if any other matters
come before the meeting, the proxies received pursuant to this solicitation
will be voted thereon in accordance with the judgment of the person or persons
acting under the proxies.
By order of the Board of Directors,
DEZORA M. MARTIN,
Corporate Secretary.
21
<PAGE>
NORFOLK SOUTHERN CORPORATION
THREE COMMERCIAL PLACE, NORFOLK, VIRGINIA 23510-2191
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints L. E. Coleman, T. Marshall Hahn, Jr. or E. B.
Leisenring, Jr., and each or any of them, proxy for the undersigned, with power
of substitution, to vote with the same force and effect as the undersigned at
the annual meeting of stockholders of Norfolk Southern Corporation to be held
at the Conference Center, Williamsburg Lodge, South England Street,
Williamsburg, Virginia, on Thursday, May 8, 1997, and any adjournments,
postponements or reschedulings thereof, upon the matters more fully set forth
in the Proxy Statement and to transact such other business as may properly come
before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
OTHER SIDE BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR ITEM (2).
NORFOLK SOUTHERN CORPORATION
P.O. Box 11145
(Continued, and to be MARKED, DATED AND SIGNED New York, N.Y. 10203-0145
on the other side)
<PAGE>
-----
-----
PLEASE MARK BOXES [_] OR [X] IN BLUE OR BLACK INK.
<TABLE>
<S> <C> <C>
(1) Election of Directors FOR all nominees listed below, except as WITHHOLD AUTHORITY to vote for
marked to the contrary (see instruction). [_] all nominees listed below. [_]
Carroll A. Campbell, Jr. David R. Goode Arnold B. McKinnon Harold W. Pote
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.)
(2) Ratification of the appointment of KPMG Peat Marwick LLP, independent
public accountants. (The Board of Directors recommends a vote FOR) FOR [_] AGAINST [_] ABSTAIN [_]
Address Change and/or
Comments Mark Here [_]
SIGN EXACTLY AS NAME APPEARS HEREON. ATTORNEYS-
IN-FACT, EXECUTORS, TRUSTEES, GUARDIANS,
CORPORATE OFFICERS, ETC., SHOULD GIVE FULL
TITLE.
Dated:_________________________________, 1997
---------------------------------------------
(SIGNATURE)
---------------------------------------------
(SIGNATURE)
</TABLE>
- --------------------------------------------------------
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
- --------------------------------------------------------
