<PAGE>
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:
------------------------------------------------------------------------
(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:
<PAGE>
LOGO
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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 14, 1998
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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 14, 1998, at 10:00 A.M., Eastern
Daylight Time, for the following purposes:
1.Election of three directors to the class whose term will expire in
2001 and one
director to the class whose term will expire in 1999.
2.Ratification of the appointment of independent public accountants as
auditors.
3.Transaction of such other business as properly may come before the
meeting.
Stockholders of record at the close of business on March 6, 1998, will be
entitled to vote at such meeting.
By order of the Board of
Directors,
DEZORA M. MARTIN,
Corporate Secretary.
Dated: April 1, 1998
IF YOU DO NOT EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
<PAGE>
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-2191
April 1, 1998
PROXY STATEMENT
This statement and the accompanying proxy will be mailed to stockholders of
Norfolk Southern Corporation on or about April 1, 1998. The Corporation's
Annual Report for 1997 was mailed under separate cover beginning March 12,
1998. The proxy is solicited by the Board of Directors of the Corporation for
use at the Annual Meeting of Stockholders to be held May 14, 1998. 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 $20,500 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 6, 1998. As of February 28, 1998, the Corporation had issued and
outstanding 399,762,336 shares of Common Stock, of which 378,004,434 shares
were entitled to one vote per share.
<PAGE>
ELECTION OF DIRECTORS
The terms of L. E. Coleman, T. Marshall Hahn, Jr., Landon Hilliard and Jane
Margaret O'Brien expire at the Annual Meeting on May 14, 1998.
Mr. E. B. Leisenring, Jr., a member of the class containing three directors
whose term will expire in 1999, will retire effective the date of the Annual
Meeting under the Corporation's retirement policy for directors. Accordingly,
at its meeting held on January 27, 1998, the Board of Directors amended the
Bylaws to decrease the number of directors from eleven to ten, effective the
date of the Annual Meeting.
Unless otherwise instructed on the enclosed proxy, such proxy will be voted
in favor of the reelection of Ms. O'Brien and of Messrs. Coleman and Hilliard
to serve in the class whose term will expire in 2001, and in favor of the
reelection of Mr. Hahn to serve in the class whose term will expire in 1999,
the year he will retire under the Corporation's retirement policy for
directors. The election of Mr. Hahn to be the third director in that class
will result in each class containing as nearly as possible one third of the
total number of directors. If any nominee becomes unable to serve, an event
that 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.
NOMINEE
(FOR TERM EXPIRING IN 1999)
LOGO
Mr. Hahn, 71, Atlanta, Ga., has been a director since
1985. He has been Honorary Chairman of the Board of
T. Marshall Hahn, Jr.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.
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2
<PAGE>
NOMINEES
(FOR TERM EXPIRING IN 2001)
Mr. Coleman, 67, Grantham, N.H., has been a director
LOGO since 1982. Now pursuing graduate studies at Dartmouth
L. E. Coleman College, 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.
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Mr. Hilliard, 58, New York, N.Y., has been a director
LOGO since 1992. He has been a partner in Brown Brothers
Landon Hilliard Harriman & Co., a private bank in New York City, since
January 1979. He is also a director of Owens-Corning
Corporation.
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(See information under the "Certain Relationships and
Related Transactions" caption on page 10.)
Ms. O'Brien, 44, St. Mary's City, Md., has been a
LOGO director since 1994. She has been President of St. Mary's
Jane Margaret O'BrienCollege since 1996, having served prior thereto as
President of Hollins College, Roanoke, Va. She is also a
director of Landmark Communications, Inc.
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DIRECTORS WHOSE TERM EXPIRES IN 1999
LOGO Mr. Baliles, 57, Richmond, Va., has been a director since
1990. He has been a partner in the law firm of Hunton &
Gerald L. Baliles 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.)
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3
<PAGE>
DIRECTORS (CONTINUED)
Mr. Carter, 58, Alexandria, Va., has been a director
LOGO since 1992. He has been Executive Director of the
Gene R. Carter 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.
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DIRECTORS WHOSE TERM EXPIRES IN 2000
Mr. Campbell, 57, Georgetown, S.C., and Alexandria, Va.,
LOGO has been a director since 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, Fluor Corporation and Wackenhut Corporation.
Carroll A. Campbell, Jr.
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LOGO Mr. Goode, 57, Norfolk, Va., has been a director since
1992. He has been Chairman, President and Chief Executive
David R. Goode Officer of the Corporation since September 1992, having
served prior thereto as President. He is also a director
of Aeroquip-Vickers, Inc. (formerly, TRINOVA
Corporation), Caterpillar, Inc., Georgia-Pacific
Corporation and Texas Instruments Incorporated.
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LOGO
Mr. McKinnon, 70, Norfolk, Va., has been a director since
Arnold B. McKinnon 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.
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4
<PAGE>
DIRECTORS (CONTINUED)
Mr. Pote, 51, 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 11.)
LOGO
Harold W. Pote
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BENEFICIAL OWNERSHIP OF STOCK
The following table sets forth as of February 14, 1998, information
concerning the only person or group known to the Corporation to be the
beneficial owner of more than five percent of the Corporation's Common Stock,
its only class of voting securities.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
OF CLASS BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- -------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common FMR Corp. 25,018,258; see 6.63%
Stock 82 Devonshire Street following paragraph
Boston, MA 02109
</TABLE>
Based upon information in its Schedule 13G filed with the Securities and
Exchange Commission on February 14, 1998, FMR Corp. and certain of its
subsidiaries ("FMR") beneficially own 6.63% of the Corporation's Common Stock;
FMR has sole voting power with respect to 2,347,458 such shares, and the
Boards of Trustees of the investment companies for which FMR acts as
investment advisor have sole voting power with respect to all the remaining
shares.
The following table sets forth as of February 28, 1998, the beneficial
ownership of the Corporation's Common Stock, adjusted to reflect the three-
for-one stock split that was effective in September of 1997, 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, and 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
NAME COMMON STOCK
- ---- ------------
<S> <C>
Gerald L. Baliles 8,191/1/,/2/
Carroll A. Campbell,
Jr. 5,129/1/,/2/
Gene R. Carter 8,909/1/,/2/
L. E. Coleman 19,540/1/,/2/,/3/
David R. Goode 1,013,869/4/
T. Marshall Hahn, Jr. 16,324/1/,/2/
Landon Hilliard 11,759/1/,/2/
E. B. Leisenring, Jr. 39,745/1/,/2/,/5/
</TABLE>
<TABLE>
<CAPTION>
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
Arnold B. McKinnon 614,118/1/,/2/
Jane Margaret O'Brien 6,786/1/,/2/
Harold W. Pote 8,941/1/,/2/
R. Alan Brogan 356,746/6/
L. I. Prillaman 272,679/7/
Stephen C. Tobias 264,934/8/
Henry C. Wolf 288,460/9/
</TABLE>
<TABLE>
<S> <C>
41 Executive Officers and Directors as a group (including the
persons named above)/1//0/ 5,647,259/1//1/
</TABLE>
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5
<PAGE>
/1/Includes a one-time grant of 3,000 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
8).
/2/Includes (a) the 1996, 1997 and 1998 grants of Stock Units (one such
Stock Unit is equal in value to one share of Common Stock) to each non-
employee director 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 a separate memorandum account for each director and are
administered in accordance with the Corporation's Outside Directors' Deferred
Stock Unit Program (see information under the "Board of Directors" caption on
page 8). As of February 28, 1998, the number of Stock Units in each director's
account was as follows: Mr. Baliles, 5,191; Mr. Campbell, 1,764; Mr. Carter,
5,759; Mr. Coleman, 7,204; Mr. Hahn, 9,724; Mr. Hilliard, 5,759;
Mr. Leisenring, 10,330; Mr. McKinnon, 8,832; Ms. O'Brien, 3,786; and Mr. Pote,
4,441.
/3/Includes 336 shares owned by Mr. Coleman's wife, in which he disclaims
beneficial ownership.
/4/Includes 9,830 shares credited to Mr. Goode's account in the
Corporation's Thrift and Investment Plan; 184,950 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; 742,593 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; and 9,141 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 15,615 shares owned by Mr. Leisenring's wife, in which he
disclaims beneficial ownership.
/6/Includes 8,249 shares credited to Mr. Brogan's account in the
Corporation's Thrift and Investment Plan; 59,310 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; 214,500 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; and 2,742 Deferred Stock Units credited
to Mr. Brogan pursuant to the Corporation's Long-Term Incentive Plan.
/7/Includes 18,885 shares credited to Mr. Prillaman's account in the
Corporation's Thrift and Investment Plan; 31,767 shares held by the
Corporation under share retention agreements pursuant to the Corporation's
Long-Term Incentive Plan and over which Mr. Prillaman possesses voting power
but has no investment power until the shares are distributed; 165,766 shares
subject to stock options granted pursuant to the Corporation's Long-Term
Incentive Plan and with respect to which Mr. Prillaman has the right to
acquire beneficial ownership within 60 days; and 2,742 Deferred Stock Units
credited to Mr. Prillaman pursuant to the Corporation's Long-Term Incentive
Plan.
/8/Includes 11,881 shares credited to Mr. Tobias' account in the
Corporation's Thrift and Investment Plan; 38,745 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; 182,868 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; and 2,742 Deferred Stock Units credited
to Mr. Tobias pursuant to the Corporation's Long-Term Incentive Plan.
6
<PAGE>
/9/Includes 9,614 shares credited to Mr. Wolf's account in the Corporation's
Thrift and Investment Plan; 47,679 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; 200,424 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; and 2,742 Deferred Stock Units credited to Mr. Wolf pursuant to the
Corporation's Long-Term Incentive Plan.
/1//0/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.
/1//1/Includes 221,568 shares credited to officers' individual accounts
under the Corporation's Thrift and Investment Plan. Also includes: 725,306
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; 3,511,024 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
46,447 Deferred Stock Units credited to officers pursuant to the Corporation's
Long-Term Incentive Plan. Also includes 29,158 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 1997, 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
On December 31, 1997, the Board of Directors of the Corporation consisted of
eleven members. The Board is divided into three classes, each elected for a
term of three years and 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 seven times in 1997. 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 retires effective the date of the next annual meeting
unless that director's term of office expires on such date, in which event
that director refrains from becoming a candidate for reelection.
7
<PAGE>
COMPENSATION OF DIRECTORS
Each member of the Board of Directors who is not also an officer of the
Corporation received compensation for services during 1997 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
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 1997, six directors participated.
Under the Directors' Restricted Stock Plan, each non-employee director
serving onJanuary 1,1994, was awarded a restricted grant of 3,000 shares
(after adjusting for the three-for-one stock split in September 1997) 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 3,000 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 this 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 600 Stock Units, effective the date of the 1996 Annual Meeting of
Stockholders; each outside director was granted 750 Stock Units effective the
date of the 1997 Annual Meeting of Stockholders. (In each such case, the
number of Stock Units has been adjusted for the three-for-one stock split in
September 1997.) Each outside
8
<PAGE>
director also was granted 1,000 Stock Units effective January 27, 1998. Stock
Units are credited to a memorandum account maintained in the director's name;
it is anticipated that, from time to time, outside directors may be granted
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 as
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 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 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
9
<PAGE>
Corporation's accounting policies, conflict of interest policy, internal
control systems and financial operations and reporting. This Committee met six
times in 1997, 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 1997, and its members are
E. B. Leisenring, Jr., Chairman, L. E. Coleman and T. Marshall Hahn, Jr.
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.
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 three times
in 1997, 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 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 five times in 1997, 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 1997, the Corporation paid approximately $265,000 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
10
<PAGE>
on substantially the same terms as those prevailing at the time for comparable
transactions with other banks. Also, Brown Brothers was paid approximately
$123,000 in fees for managing a portion of the assets of the Corporation's
pension fund in 1997.
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). Prior to Beacon's acquisition of its interest, Norfolk
Southern Railway Company had provided transportation services for MAPCO or
Alliance at rates fixed in conformity with law or governmental authority. The
Railway continued to provide such services for Alliance in 1997 on those
bases, and it expects to do so in succeeding years. Alliance also had entered
into various leases with a natural resources subsidiary of the Corporation,
generating 1997 rent and royalty income for the subsidiary of slightly more
than $3.7 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. Mr. Pote would not participate in the Board's consideration of any
such matters.
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 $4.8 million for all services rendered during 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation and Nominating Committee during 1997 were
Messrs. Leisenring, Coleman and Hahn. There were no reportable business
relationships between the Corporation and such individuals.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid, as well as
certain other compensation accrued or paid, to the Chief Executive Officer and
to each of the other four most highly compensated executive officers of the
Corporation in 1997, for service in all capacities to both the Corporation and
its subsidiaries for the fiscal years ending December 31, 1997, 1996 and 1995.
11
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ---------------------
AWARDS PAYOUTS
---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY/1/ BONUS/1/ COMPENSATION/2/ OPTIONS/3/ PAYOUTS/4/ COMPENSATION/5/
POSITION YEAR ($) ($) ($) (#) ($) ($)
- ------------------ ---- --------- -------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Goode 1997 850,000 850,000 287,972/6/ 120,000 2,472,690 85,304
Chairman, President and 1996 800,000 800,000 1,615,682 120,000 1,778,687 73,149
Chief Executive Officer 1995 685,000 616,500 1,349,379 150,000 1,511,034 63,796
R. Alan Brogan 1997 300,000 225,000 143,093 36,000 772,715 51,926
Executive Vice 1996 285,000 213,750 515,321 36,000 555,770 40,224
President-Trans. Logis-
tics 1995 250,000 187,500 435,548 37,500 472,134 38,416
L. I. Prillaman 1997 320,000 240,000 24,411 36,000 309,086 25,619
Executive Vice 1996 285,000 173,437 193,314 36,000 222,289 33,793
President-Marketing 1995 231,250 161,250 153,430 15,000 188,836 17,948
Stephen C. Tobias 1997 400,000 320,000 68,611 36,000 772,715 37,788
Executive Vice 1996 365,000 273,750 233,858 36,000 222,289 31,391
President-Operations 1995 305,000 228,750 183,723 37,500 188,836 26,304
Henry C. Wolf 1997 400,000 320,000 130,907/7/ 36,000 772,715 40,636
Executive Vice 1996 365,000 273,750 483,026 36,000 555,770 34,753
President-Finance 1995 305,000 228,750 188,856 37,500 188,836 29,693
</TABLE>
- --------
/1/Includes portion of any salary or bonus award elected to be received on a
deferred basis.
/2/Includes amounts reimbursed for the payment of taxes on personal
benefits. 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 1997, these amounts were: for Mr. Goode, $69,354;
Mr. Brogan, $131,247; Mr. Prillaman, $8,898;Mr. Tobias, $44,771; and Mr. Wolf,
$48,732. Includes for 1995 and 1996 a tax absorption payment on the "earn-
out" of performance shares.
/3/Options were granted without tandem SARs.
/4/Represents the value of the "earn-out" pursuant to the performance share
feature of the Corporation's Long-Term Incentive Plan for periods ended
December 31, 1997, 1996 and 1995 (for 1997, performance shares were earned for
achievements in the three-year period 1995-1997; for 1996, for achievements in
the three-year period 1994-1996; and for 1995, for achievements in the three-
year period 1993-1995).
/5/Includes for 1997 (i) contributions of $4,750 to the Corporation's 401(k)
plan on behalf of Messrs. Goode, Brogan, Tobias and Wolf, and $4,350 on behalf
of Mr. Prillaman; and (ii) total premium payments (out-of-pocket cash cost) on
"split dollar" life insurance policies for Mr. Goode, $80,554; Mr. Brogan,
$47,176; Mr. Prillaman, $21,269; Mr. Tobias, $33,038; and Mr. Wolf, $35,886.
/6/Includes personal use, as directed by resolution of the Board of
Directors, of the Corporation's aircraft valued at approximately $140,500--
calculated on the basis of the aggregate incremental cost of such use to the
Corporation.
/7/Includes a tax absorption payment made under the Long-Term Incentive Plan
attributable to the gain realized upon exercise of stock options.
12
<PAGE>
LONG-TERM INCENTIVE PLAN
The Corporation's Long-Term Incentive Plan, as last approved by stockholders
in 1995, provides for the award of incentive stock options, non-qualified
stock options, stock appreciation rights, restricted stock and performance
share units to officers and other key employees of both the Corporation and
certain of its subsidiaries. The Compensation and Nominating Committee of the
Board of Directors ("Committee") is charged with administration of the Plan
and has the sole discretion, subject to certain limitations, to interpret the
Plan; to select Plan participants; to determine the type, size, terms and
conditions of awards under the Plan; to authorize the grant of such awards;
and to adopt, amend and rescind rules relating to the Plan.
STOCK OPTIONS
The following table sets forth certain information concerning the grant in
1997 of stock options under the Corporation's Long-Term Incentive Plan to each
named executive officer:
OPTION/SAR* GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- ----------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED/1/ EMPLOYEES IN BASE PRICE/2/ EXPIRATION VALUE/3/
NAME (#) FISCAL YEAR ($ PER SHARE) DATE ($)
- ---- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
D. R. Goode 120,000 6.04% 29.4583 02/02/2007 810,000
R. A. Brogan 36,000 1.81% 29.4583 02/02/2007 243,000
L. I. Prillaman 36,000 1.81% 29.4583 02/02/2007 243,000
S. C. Tobias 36,000 1.81% 29.4583 02/02/2007 243,000
H. C. Wolf 36,000 1.81% 29.4583 02/02/2007 243,000
</TABLE>
*No SARs were granted in 1997.
- --------
/1/These post-split options were granted as of February 3, 1997, and are
exercisable one year after the date of grant. 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 value of which is payable in cash to the officer on the earliest of (a)
the five-year anniversary of the date of option 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 on the date of grant was determined
using the Black-Scholes statistical model. The actual amount, if any, an
executive officer may realize upon exercise depends on the stock price on the
exercise date; 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.
13
<PAGE>
In the case of Common Stock, the Black-Scholes model used the following
measures and assumptions:
(a) a stock volatility factor of 0.1194: Volatility was determined by an
independent compensation consultant using monthly data averaged over the
60-month period January 1, 1992, through December 31, 1996;
(b) a dividend yield of 2.92%: yield was determined monthly and averaged
over the 60-month period January 1, 1992, through December 31, 1996;
(c) a 1996 risk-free rate of return of 6.2%: this represents the monthly
average 10-year Treasury strip rate during 1996, the year prior to the
issuance of these options; and
(d) that the option will be exercised during its ten-year term.
The foregoing produces a Black-Scholes factor of 0.229 and a resulting
present value of $6.75 for each share of Common Stock subject to the 1997
option grant; that factor and resulting present value have not been adjusted
to reflect that options cannot be exercised during the first year of their 10-
year term, the payment of dividend equivalents on unexercised options or the
conversion of dividend equivalents into Deferred Stock Units.
The following table sets forth certain information concerning the exercise
of options by each named executive officer during 1997 and the number of
unexercised options and SARs held by each as of December 31, 1997:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FY-END/1/ AT FY-END/2/
ACQUIRED ON VALUE (#) ($)
EXERCISE REALIZED ------------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. R. Goode 0 0 637,563 120,000 5,792,766 136,260
R. A. Brogan 0 0 204,597 36,000 2,035,560 40,878
L. I. Prillaman 0 0 139,566 36,000 1,506,900 40,878
S. C. Tobias 0 0 154,641 36,000 1,582,580 40,878
H. C. Wolf 3,000/3/ 75,655/3/ 169,581 36,000 1,583,560 40,878
</TABLE>
- --------
/1/Adjusted for the three-for-one stock split in September 1997.
/2/Equal to the mean ($30.5938) of the high and low trading prices on the
New York Stock Exchange-Composite Transactions of the Common Stock on December
31, 1997, less the exercise prices of the options, multiplied by the number of
options.
/3/Mr. Wolf surrendered 900 shares of stock already owned in full
satisfaction of the exercise price of options to acquire 3,000 shares.
14
<PAGE>
PERFORMANCE SHARE UNITS ("PSUS")
The following table sets forth certain information concerning the grant in
1997 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 at the end of a three-year performance cycle (1997-
1999) based on the Corporation's performance during that three-year period.
Under the 1997 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 18.
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 75,000 01/01/97- 0 71,625 75,000
12/31/99
R. A. Brogan 24,000 01/01/97- 0 22,920 24,000
12/31/99
L. I. 24,000 01/01/97- 0 22,920 24,000
Prillaman 12/31/99
S. C. Tobias 24,000 01/01/97- 0 22,920 24,000
12/31/99
H. C. Wolf 24,000 01/01/97- 0 22,920 24,000
12/31/99
</TABLE>
- --------
/1/PSUs granted in 1997 reflect the three-for-one stock split in September
1997. "Earn outs" will be satisfied one half in cash and one half in Common
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. Withholding taxes due on the
"earn outs" will be withheld from the cash portion.
/2/The Long-Term Incentive Plan does not provide a performance target for
the "earn out" of PSUs; consequently, this column represents 95.5% 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.
15
<PAGE>
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 1997 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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITABLE SERVICE
---------------------------------------------------------------------------
REMUNERATION 25 30 35 40
- ------------ -- -- -- --
<S> <C> <C> <C> <C>
$ 300,000 $ 94,536 $115,691 $ 136,845 $ 158,000
400,000 132,036 160,691 189,345 218,000
500,000 169,536 205,691 241,845 278,000
600,000 207,036 250,691 294,345 338,000
700,000 244,536 295,691 346,845 398,000
800,000 282,036 340,691 399,345 458,000
900,000 319,536 385,691 451,845 518,000
1,000,000 357,036 430,691 504,345 578,000
1,100,000 394,536 475,691 556,845 638,000
1,200,000 432,036 520,691 609,345 698,000
1,300,000 469,536 565,691 661,845 758,000
1,400,000 507,036 610,691 714,345 818,000
1,500,000 544,536 655,691 766,845 878,000
1,600,000 582,036 700,691 819,345 938,000
1,700,000 619,536 745,691 871,845 998,000
1,800,000 657,036 790,691 924,345 1,058,000
1,900,000 694,536 835,691 976,845 1,118,000
2,000,000 732,036 880,691 1,029,345 1,178,000
</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.
16
<PAGE>
The respective last five-year average compensation and approximate years of
creditable service, as of January 1, 1998, for each executive officer named in
the Summary Compensation Table were: Mr. Goode, $1,208,573 and 32 years; Mr.
Brogan, $429,622 and 34 years; Mr. Prillaman, $411,763 and 28 years; Mr.
Tobias, $510,294 and 28 years; and Mr. Wolf, $498,070 and 25 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, in most cases, 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 Agreements'
being terminated.
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.
17
<PAGE>
COMPENSATION AND NOMINATING COMMITTEE REPORT CONCERNING
THE 1997 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
1997 compensation determinations were made for the Corporation's Chairman,
President and Chief Executive Officer, David R. Goode, and for the other
officers (collectively, including Mr. Goode, referred to as the "Executive
Officers") whose 1997 compensation is reported 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 1997. 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 theirMay 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 salaries
paid to chief executive officers of 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 compensation
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.
Mr. Goode discusses with the Committee the specific contributions and
performance of each of the Executive Officers. Based on such 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,
President 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
18
<PAGE>
those of the chairmen of the other holding companies of Class I railroads.
Mr. Goode's base salary in 1997 approximated the 70th percentile; and the
average 1997 base salaries of other Executive Officers approximated the
40th percentile, of the 1997 practices of corporations with comparable
revenues.
For 1997, Mr. Goode's annual base salary was increased by $50,000, or 6.3%.
This 1997 increase, not tied to or reflecting application of any specific
formula, reflects the Corporation's performance in 1996, including its
total operating revenues and record net income, as well as the Board's
confidence in Mr. Goode's leadership in general and in the Conrail
transaction in particular. The Committee recommended and the Board approved
average increases of 9.2% for the other Executive Officers as a group;
these increases were based on Mr. Goode's recommendations and the
Corporation's 1996 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%.
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 1996 the Committee set Mr. Goode's
maximum 1997 incentive opportunity at 100% of his 1997 base salary, Mr.
Tobias' and Mr. Wolf's at 80% of 1997 base salary and the other Executive
Officers' at 75% of 1997 base salary. Actual payments, if any, are based on
the total amount in the annual incentive fund. For 1997, all the Executive
Officers earned EMIP awards, and 303 other key employees earned MIP awards.
In light of the Corporation's 1997 performance, the related EMIP payments
earned by Mr. Goode and the other Executive Officers were equal to 100% of
their respective maximum incentive opportunities. As a consequence, total
1997 cash compensation (1997 salary plus 1997 bonus) earned byMr. Goode and
the other Executive Officers approximated the 75th and 65th percentiles,
respectively, of total cash compensation (1997 salary plus 1996 bonus)
relative to the practices of corporations with comparable revenues.
19
<PAGE>
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. 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 1997 meeting, the Committee granted stock options to each of
the Executive Officers and to 299 other key employees with 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 2000. 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., 1997-1999) 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 schedules below. One third of the performance
share units granted in 1997 are available to be earned based on each of the
three following performance criteria.
TOTAL STOCKHOLDER RETURN
("TSR") VS. S&P 500
- ----------------------------------
RETURN ON AVERAGE INVESTED
CAPITAL ("ROAIC")
PERCENTAGE OF
THREE-YEAR PERFORMANCE
AVERAGE TSR SHARE UNITS
VS. S&P 500 EARNED
- ----------------------------------
90th percentile 100%
80th 90%
70th 85%
60th 80%
50th 75%
40th 50%
30th 30%
25th and below 0%
PERCENTAGE OF
THREE-YEAR PERFORMANCE
AVERAGE SHARE UNITS
ROAIC EARNED
20% 100%
19% 90%
18% 80%
17% 70%
16% 60%
15% 50%
14% 40%
13% 20%
Below 13% 0%
20
<PAGE>
<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 granted in 1997 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 dollar
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 the
option 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.
All 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 1997, Mr. Goode was granted options on 120,000 shares of Common Stock
and the opportunity to earn up to 75,000 performance shares, and the other
Executive Officers as a group were awarded options on a total of 144,000
shares of Common Stock and the opportunity to earn up to 96,000 performance
shares; the number of options and performance shares granted has been
adjusted in this report to give effect to the three-for-one stock split
that was effective in September of 1997.
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 regarding the deductibility of certain executive compensation over $1
million. Based on the requirements of this new legislation and on then-current
interpretive regulations and transition rules, the Committee recommended to
the Board, the Board
21
<PAGE>
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
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,
1992, and ending December 31, 1997.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period S&P S&P
(Fiscal Year Covered) NSC RAIL 500
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1992 $100.00 $100.00 $100.00
FYE 12/31/1993 $118.38 $123.93 $110.04
FYE 12/31/1994 $104.8018 $106.8898 $111.4925
FYE 12/31/1995 $141.3672 $156.3795 $153.3468
FYE 12/31/1996 $160.9748 $185.7163 $188.5246
FYE 12/31/1997 $171.5991 $209.5809 $251.3975
</TABLE>
*Assumes that the value of the investment in the Corporation's Common Stock
and each index was $100 on December 31, 1992, and that all dividends were
reinvested.
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 1998.
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
22
<PAGE>
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 1997, 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. The firm also provided accounting and
other services in connection with the Conrail transaction.
All services rendered by KPMG Peat Marwick LLP to the Corporation in 1997
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 11.) 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 and with the Corporation's Bylaws. Any such proposal for the 1999
Annual Meeting of Stockholders must comply with applicable regulations and be
received by the Corporate Secretary, Norfolk Southern Corporation, Three
Commercial Place, Norfolk, Virginia 23510-9219, as follows:
to be eligible for inclusion in the Corporation's proxy statement and form
of proxy, it must be received no later than December 2, 1998; or
to be eligible to be presented from the floor for vote at the meeting (but
not intended for inclusion in the Corporation's proxy materials), it must
be received during the period that begins December 5, 1998, and ends
February 13, 1999.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than as noted in this paragraph and elsewhere in this
Proxy Statement. Under applicable provisions of the Securities and Exchange
Commission's Rule 14a-8, certain stockholder proposals are not included in
this Proxy Statement; if one or more such proposals comes before the Annual
Meeting for a vote, the holders of proxies solicited hereby intend to exercise
their discretionary authority to vote against it or them. 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 holders of such
proxies.
By order of the Board of Directors,
DEZORA M. MARTIN,
Corporate Secretary.
23
<PAGE>
LOGO
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 Gerald L. Baliles, David R. Goode or Harold
W. Pote, 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 14, 1998, and any adjournments, postponements or
reschedulings thereof, upon the matters more fully set forth in the Proxy
Statement, dated April 1, 1998, and to transact such other business, including
the matter(s) noted under the caption "Other Matters" on the last page of that
Proxy Statement, as properly may 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). THE PROXY
HOLDERS HEREBY ARE AUTHORIZED TO VOTE IN THEIR DISCRETION UPON ALL OTHER
MATTERS WHICH PROPERLY MAY COME BEFORE THE MEETING AND ANY ADJOURNMENTS,
POSTPONEMENTS OR RESCHEDULINGS THEREOF.
NORFOLK SOUTHERN CORPORATION
P.O. Box 11145
(Continued, and to be MARKED, DATED AND SIGNED on theNew York, N.Y. 10203-0145
other side)
<PAGE>
LOGO
-----
-----
PLEASE MARK BOXES OR [X] IN BLUE OR BLACK INK.
-
(1) Election of Directors
FOR all nominees listed below, except as marked to the
contrary (see instruction). [_]
WITHHOLD AUTHORITY to vote
for all nominees listed
below. [_]
Term expiring 2001: L. E. Coleman, Landon Hilliard and Jane
Margaret O'Brien
Term expiring 1999: T. Marshall Hahn, Jr.
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:_______________, 1998
___________________________
(SIGNATURE)
___________________________
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY (SIGNATURE)
<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 Gerald L. Baliles, David R. Goode or Harold
W. Pote, 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 14, 1998, and any adjournments, postponements or
reschedulings thereof, upon the matters more fully set forth in the Proxy
Statement, dated April 1, 1998, and to transact such other business, including
the matter(s) noted under the caption "Other Matters" on the last page of that
Proxy Statement, as properly may 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). THE PROXY
HOLDERS HEREBY ARE AUTHORIZED TO VOTE IN THEIR DISCRETION UPON ALL OTHER
MATTERS WHICH PROPERLY MAY COME BEFORE THE MEETING AND ANY ADJOURNMENTS,
POSTPONEMENTS OR RESCHEDULINGS THEREOF.
(Continued, and to be MARKED, DATED AND SIGNED on the other side)
NORFOLK SOUTHERN CORPORATION
P.O. BOX 11145
NEW YORK, N.Y. 10203-0145
<PAGE>
PLEASE MARK BOXES OR [X] IN BLUE OR BLACK INK.
(1) Election of Directors
FOR ALL NOMINEES LISTED BELOW, EXCEPT
X WITHHOLD AUTHORITY TO
VOTE
X
as marked to the contrary (see instruction).
for all nominees listed
below.
Term expiring 2001: L. E. Coleman, Landon Hilliard and Jane Margaret O"Brien
Term expiring 1999: T. Marshall Hahn, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.
FOR AGAINST
ABSTAIN
(2) Ratification of the appointment of KPMG Peat
Marwick LLP, independent public accountants.
The Board of Directors recommends a vote FOR.
X X X X
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: __________________________________________________________________ , 1998
________________________________________________________________________________
(SIGNATURE)
________________________________________________________________________________
(SIGNATURE)
- --------------------------------------------------------------------------------
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY
