I am pleased to invite you to join the CSX Board of Directors, senior management and your fellow shareholders at our 2014 Annual Meeting of Shareholders on Wednesday, May 7, 2014 at the Boston Harbor Hotel at Rowes Wharf.

The attached Notice of Annual Meeting of Shareholders and Proxy Statement includes information about the matters to be voted upon at the meeting. Our 2013 Annual Report to Shareholders, which includes CSX’s audited financial statements and additional information about our business, is also available for review. We encourage you to take a look to familiarize yourself with the latest business update from CSX. Proxy materials for the Annual Meeting of Shareholders are also available online to offer additional means for our shareholders to review important Company information and reduce the environmental impact of the meeting.

Fiscal year 2013 was an important year at CSX, as we continued to manage through the transition in U.S. energy markets and invest for the future. Despite a decline in coal revenue of nearly $300 million, CSX delivered a slight increase in full-year earnings per share over the previous year. The Company focused on the things we are able to control – generating productivity savings in excess of inflation, delivering industry-leading safety results and providing notable improvements in customer satisfaction. As a result, CSX is transitioning to a brighter future with a diversified portfolio that will create sustainable growth opportunities over the short and long term.

We continued executing on our balanced approach to capital deployment, launching a new $1 billion share buyback program and raising our dividend for the 10^th time in 8 years. Strategic investments in markets such as intermodal enable CSX to capitalize on the expansion in the U.S. economy and will contribute to future growth. I look forward to discussing our results and outlook with you in Boston.

We hope that you will participate in the Annual Meeting, either by attending to vote in person or by submitting your proxy via the Internet, by phone, or by signing, dating, and returning the enclosed proxy card (or voting instruction form, if you hold shares through a broker). If you decide to attend the Annual Meeting, you will be able to vote in person, even if you have previously submitted your proxy. Please review the instructions on each of your voting options described in this Proxy Statement as well as in the Notice you received in the mail or via email.

On behalf of the Board of Directors, our management team and the 31,000 CSX employees around the country, thank you for your investment in CSX. I look forward to seeing you at the Annual Meeting.

Proxy Summary

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting. For more complete information regarding the Company’s 2013 performance, please review the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2013.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on May 7, 2014. This Proxy Statement and the 2013 Annual Report are available on the Company’s Internet website (www.csx.com).

Annual Meeting of Shareholders

Eligibility to Vote

You can vote if you were a shareholder of record at the close of business on March 7, 2014, which is the Record Date for the Annual Meeting.

How to Cast Your Vote

You can vote by any of the following methods:

Business Highlights for 2013 (for more detail please see Form 10-K)

Voting Matters and Board Recommendations

Auditors

As a matter of good corporate governance, we are asking our shareholders to ratify the selection of Ernst & Young LLP as our independent auditor for 2014.

Board Nominees

Board Governance
Directors elected annually
Independent presiding director
Policy prohibiting hedging and pledging by directors and executive officers
All directors attended 75% or more of the meetings in 2013
All standing committees (other than the Executive Committee) comprised of solely independent directors
Stock ownership guidelines for directors
Mandatory director retirement age
Majority voting standard and resignation policy
Executive sessions at all regular meetings

2013 Target Compensation Mix For Named Executive Officers

Information regarding the compensation mix for the CEO and each Named Executive Officer is set forth below. The tables indicate that 69% of the CEO’s compensation and an average of 64% of the other Named Executive Officers’ compensation is at risk and subject to the achievement of one or more performance goals.

Executive Compensation Highlights

The table below highlights the 2013 compensation for the Named Executive Officers as disclosed in the Summary Compensation Table.

Stock Performance Graph

The cumulative shareholder returns, assuming reinvestment of dividends, on $100 invested at December 31, 2008 are illustrated on the graph below. The Company references the Standard & Poor 500 Stock Index (“S&P 500”), which is a registered trademark of the McGraw-Hill Companies, Inc., and the Dow Jones U.S. Transportation Average Index, which provide comparisons to a broad-based market index and other companies in the transportation industry. As shown in the graph, CSX’s five-year stock returns significantly outpaced those of the S&P 500.

In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we may furnish proxy materials, including this Proxy Statement and our 2013 Annual Report, to our shareholders by providing access to such documents on the Internet instead of mailing printed copies. Most shareholders will not receive printed copies of the proxy materials unless requested. Instead, the Notice of Internet

Availability of Proxy Materials (the “Notice”), which was mailed to most of our shareholders, instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may submit your proxy on the Internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.

Choosing to receive your future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact

of the printing and mailing of these materials on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until terminated.

The Board of Directors of CSX (the “Board”) is soliciting your vote on matters being submitted for shareholder approval at the Annual Meeting. CSX will pay the costs of preparing proxy materials and soliciting proxies, including the reimbursement, upon request, of trustees, brokerage firms, banks and other nominee record holders for the reasonable expenses

they incur to forward proxy materials to beneficial owners. In addition to using mail, proxies may be solicited by personal interview, telephone and electronic communication by officers and employees of the Company acting without special compensation.

The Company’s bylaws provide that a majority of the outstanding shares of stock entitled to vote constitutes a quorum at any meeting of shareholders. If a share is represented for any purpose at the Annual Meeting, it is deemed to be present for the transaction of all business. Abstentions and shares held of record by a broker, bank or other nominee that are voted on any matter are included in determining the number of shares present.

Shares held by a broker, bank or other nominee that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present.

Your vote is important and we urge you to vote by proxy even if you plan to attend the Annual Meeting.

Election of Directors. The Company’s state of incorporation is Virginia. As permitted under Virginia law and the Company’s bylaws, in an uncontested election, directors are elected by a majority of votes cast with respect to each nominee’s election by the shares entitled to vote at a meeting at which a quorum is present. In accordance with the Company’s Corporate Governance Guidelines, in an uncontested election, any incumbent director nominated for re-election as a director who is not re-elected in accordance with the Company’s bylaws shall promptly tender his or her resignation following certification of the shareholder vote. For more information on the procedures in these circumstances, see “Principles of Corporate Governance” below.

Other Proposals. For the ratification of the appointment of Ernst & Young LLP as CSX’s Independent Auditors for 2014 (Proposal 2), for the approval, on an advisory basis, of the compensation of the Company’s named executive officers (Proposal 3), and for the shareholder proposal regarding shareholder action by written consent (Proposal 4), the proposal will be approved if the votes cast in favor of the proposal exceed the votes cast against the proposal.

Abstentions and “broker non-votes” are not considered votes cast “for” or “against” any proposal at the Annual Meeting and will have no effect on the outcome of any vote.

Vote by Telephone. You can vote your shares by telephone 24 hours a day by calling 1-800-690-6903 on a touch-tone telephone. Easy-to-follow voice prompts enable you to vote your shares and confirm that your instructions have been properly recorded. If you are a beneficial owner, or you hold your shares in “street name” (that is, through a bank or broker), please check your voting instruction card or contact your bank, broker or nominee to determine whether you will be able to vote by telephone.

Vote by Internet. You can also vote via the Internet by following the instructions in the Notice. The website address for Internet voting is indicated in the Notice. Internet voting is also available 24 hours a day. If you are a beneficial owner, or you hold your shares in “street name,” please check your voting instruction card or contact your bank, broker or nominee to determine whether you will be able to vote via the Internet.

Vote by Mail. If you requested printed proxy materials and choose to vote by mail, complete, sign, date and return your proxy card in the postage-paid envelope provided. Please promptly mail your proxy card to ensure that it is received prior to the Annual Meeting.

If you want to vote in person at the Annual Meeting, and you hold your CSX stock in “street name,” you must obtain a proxy from your bank or broker and bring that proxy to the Annual Meeting.

If you are the beneficial owner of shares held in “street name” by a broker, the broker, as the record holder of the shares, is required to vote those shares in accordance with your instructions. If you do not give instructions to the broker, the broker will be entitled to vote the shares with respect to “discretionary” items but will not be permitted to vote the shares with respect to “non-discretionary” items (those shares are treated as “broker non-votes”).

The proposal to ratify the appointment of Ernst & Young LLP as CSX’s Independent Auditors for 2014 is considered a discretionary item for which a broker will have discretionary voting power if you do not give instructions with respect to this proposal. The proposals to: (i) elect directors; (ii) consider an advisory vote on executive compensation; and (iii) allow shareholders to act by written consent are non-routine matters for which a broker will not have discretionary voting power and for which specific instructions from beneficial owners are required.

A shareholder who wants to submit a proposal to be included in the proxy statement for the 2015 Annual Meeting of Shareholders (the “2015 Meeting”) must send it to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, FL, 32202, so that it is received on or before November 26, 2014, unless the date of the 2015 Meeting is changed by more than 30 days from May 7, 2015, in which case the proposal must be received a reasonable time before the Company begins to print and mail its proxy materials for the 2015 Meeting.

A shareholder who wants to submit a proposal that will not be in the proxy statement but will be considered at the 2015 Meeting, pursuant to the CSX bylaws, must send it to the principal executive offices of CSX so that it is received not earlier than the close of business on January 7, 2015, nor later than the close of business on February 6, 2015 unless the date of the 2015 Meeting is more than 30 days before or more than 70 days after May 7, 2015, in which case the proposal must be received not earlier than the 120^th day prior to the date of the 2015 Meeting and not later than the close of business on the later of the 90^th day prior to the date of the 2015 Meeting and the 10^th day following the day on which the Company first publicly announces the date of the 2015 Meeting.

Yes. The Governance Committee of the Board will review recommendations as to possible nominees received from shareholders and other qualified sources. Shareholder recommendations should be submitted in writing addressed to the Chair of the Governance Committee, CSX Corporation, 500 Water Street, C160, Jacksonville, FL 32202, and should include a statement about the qualifications and experience of the proposed nominee, as discussed further below in the Board Leadership and Committee Structure section. Shareholders who wish to nominate a director nominee should do so in accordance with the nomination provisions of the Company’s bylaws. In general, a shareholder nomination for the 2015 Annual Meeting should be delivered to the Company at least 90 days but no more than 120 days prior to the first anniversary of this year’s Annual Meeting date unless the date of the 2015 Annual Meeting is more than 30 days before or more

than 70 days after such anniversary, in which case the proposal must be received not earlier than the 120^th day prior to the anniversary date of the 2014 Annual Meeting and not later than the close of business on the later of the 90^th day prior to the anniversary date of the 2014 Annual Meeting and the 10^th day following the day on which the Company first publicly announces the date of the 2015 Annual Meeting. Nominations should be accompanied by a description of the proposed nominee’s qualifications and experience and his or her consent to serve if elected. A shareholder’s notice regarding any such nomination should also indicate the nominating shareholder’s name and address and the class and number of shares that he or she owns along with all other information required under Article I, Section 11(a)(ii) of the Company’s bylaws.

Thirteen directors are to be elected to hold office until the next Annual Meeting of Shareholders is held and their successors are elected. Unless otherwise specified, the proxy holders will cast votes FOR the election of the nominees named below. Each of the nominees named below was elected at the Company’s 2013 Annual Meeting of Shareholders.

As of the date of this Proxy Statement, the Board has no reason to believe that any of the nominees named will be unable or unwilling to serve. There are no family relationships among any of these nominees or among any of these nominees and any executive officer, nor is there any arrangement or understanding between any nominee and any other person pursuant to which the nominee was selected.

Although the Company does not have a formal Board diversity policy, the Board, as a group, is expected to represent a broad diversity of backgrounds and experience in business matters and to be able to assess and evaluate the role and policies of the Company in the face of changing conditions in the economy, regulatory environment and customer expectations.

Nominees for Board membership are expected to be prominent individuals who demonstrate leadership and possess outstanding integrity, values and judgment. Directors and nominees must be willing to devote the substantial time required to carry out the duties and responsibilities of directors. In addition, each Board member is expected to represent the broad interests of the Company and its shareholders as a group, and not any particular constituency.

The Company believes that each of the director nominees adds to the overall diversity of the CSX Board of Directors. The director nominees bring a wide range of experience and expertise in management, railroad operations, financial markets, and public policy. In addition, several of the director nominees are able to provide valuable perspective into the political and regulatory environments, as well as certain key markets such as coal and construction.

Information regarding each Board nominee follows. Each nominee has consented to being named in this Proxy Statement and to serve if elected.

The Board annually evaluates the independence of each of its directors and, acting through its Governance Committee, the performance of each of its directors. The Board has determined that the following nominees for election as directors are independent under the listing standards of the NYSE: Donna M. Alvarado, John B. Breaux, Pamela L. Carter, Steven T. Halverson, Edward J. Kelly, III, Gilbert H. Lamphere, John D. McPherson, Timothy T. O’Toole, David M. Ratcliffe, Donald J. Shepard, J.C. Watts, Jr. and J. Steven Whisler. In making this determination, the Board considered the NYSE listing standards, as well as transactions or relationships, if any, between each director, director nominee or his or her immediate family

and the Company or its subsidiaries. The purpose of this review was to determine whether any such relationships or transactions were material and thus inconsistent with a determination that the director or nominee is independent.

In February 2014, the Board determined that there were no relationships with any of the non-management director nominees that would preclude an affirmative independence determination. Accordingly, the Board affirmatively determined that each of the director nominees, other than Mr. Ward, as a management director, is independent under the NYSE listing standards.

The Board is committed to corporate governance principles and practices that facilitate the fulfillment of its fiduciary duties to shareholders and to the Company. The Board has adopted Corporate Governance Guidelines that reflect the high standards that employees, investors, customers, suppliers and others can and should expect. Key corporate governance principles observed by the Board and the Company include:

CSX’s Corporate Governance Guidelines, Code of Ethics, and the charters of each standing committee are available on the Company’s website at http://investors.csx.com under the heading “Corporate Governance”. Shareholders may also request a free copy of any of these documents by writing to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, FL 32202. Any waivers of or changes to the Code of Ethics that apply to our directors or executive officers will be disclosed on CSX’s website at http://www.csx.com. There were no waivers to the Code of Ethics in 2013.

Shareholders who wish to communicate with the Board, or with a particular director, may forward appropriate correspondence to CSX Corporation, Office of the Corporate Secretary, 500 Water Street, C160, Jacksonville, FL 32202. Pursuant to procedures established by the non-management directors of the Board, the Office of the Corporate Secretary will forward appropriate correspondence to the Board or a particular director. Appropriate correspondence generally includes any legitimate, non-harassing inquiries or statements. Interested parties who wish to communicate with the Presiding Director or non-management directors may forward correspondence to CSX Corporation, the Presiding Director, CSX Board of Directors, 500 Water Street, C160, Jacksonville, FL 32202.

The Board of Directors has oversight responsibility with respect to the Company’s risk management processes. This includes understanding the Company’s philosophy and strategy towards risk management and mitigation. Management reports periodically to the Board of Directors and to specific committees on current risks and the Company’s approach to avoiding and mitigating risk exposure. The Board reviews in detail the Company’s most significant risks and whether management is responding consistently within the Company’s overall risk management and mitigation strategy.

The Audit Committee is primarily responsible for overseeing the process by which risks are managed. This includes determining that management has established effective risk management practices to identify, assess, and manage the organization’s most significant risk exposures. Management routinely reports to the Audit Committee on risk management processes and the risk identification and evaluation results. The Company has also established an internal Risk Oversight Committee that reviews the Company’s risk profile and provides a methodology and framework for risk management and mitigation processes.

CSX operates under a Code of Ethics that requires all employees, officers and directors, without exception, to avoid engaging in activities or relationships that conflict, or would be perceived to conflict, with the Company’s interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to CSX than could be obtained from an unrelated person. The Audit Committee is responsible for review and oversight of all transactions with related persons. CSX has not adopted written procedures for reviewing related person transactions, but generally follows the procedures described below.

A “Related Person Transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which CSX (including any of its subsidiaries) was, is or will be a participant, the amount involved exceeds $120,000 in any fiscal year, and in which any Related Person had, has, or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).

CSX considers a “Related Person” to be: (i) any person who is, or at any time since the beginning of the last fiscal year was, a director or executive officer or a nominee to become a director; (ii) any person who is known to be the beneficial owner of more than 5% of any class of CSX’s voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent,

spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

On an annual basis in response to the Directors and Officers Questionnaire (“Questionnaire”), each director, director nominee and executive officer submits to the Corporate Secretary a description of any current or proposed Related Person Transactions. Directors and executive officers are expected to notify the Corporate Secretary of any updates to the list of Related Person Transactions during the year. If Related Person Transactions are identified, those transactions are reviewed by the Audit Committee.

The Audit Committee will evaluate Related Person Transactions based on:

In connection with the review of any Related Person Transaction, the Audit Committee will consider whether the transaction will be a conflict of interest or give the appearance of a conflict of interest. In the case of any Related Person Transaction involving an outside director or nominee for director, the Audit Committee will also consider whether the transaction will compromise the director’s status as an independent director as prescribed in the NYSE listing standards. There were no Related Person Transactions in 2013.

CSX combines the roles of Chairman and Chief Executive Officer, which is balanced through the appointment of an independent Presiding Director. The Board believes that combining the positions of Chairman and Chief Executive Officer provides clarity of leadership and is in the best interests of the Company and shareholders at this time. The Board believes that the use of a Presiding Director with carefully delineated duties provides appropriate independent oversight of Management. Independent oversight has been further assured by having only one member of Management on the Board. The non-management directors regularly meet alone in executive session at Board meetings.

The Presiding Director is an independent director selected annually by the Governance Committee. Mr. Kelly currently serves as the Presiding Director. The duties of the Presiding Director include: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as

liaison between the Chairman and the independent directors; (iii) approving information, meeting agendas and meeting schedules sent to the Board; (iv) calling meetings of independent directors when appropriate; (v) pre-clearing all transactions in CSX securities by a director, the President and Chief Executive Officer, and the Executive Vice President-Law & Public Affairs, General Counsel and Corporate Secretary; and (vi) being available for direct communication with major shareholders as appropriate.

The CSX Board has six standing committees: the Audit Committee, the Compensation Committee, the Executive Committee, the Finance Committee, the Governance Committee, and the Public Affairs Committee. Each of these committees has a written charter approved by the Board, a copy of which can be found on the Company’s website at http://investors.csx.com under the heading “Corporate Governance”. As of the Record Date, the composition of the committees of the Board is as follows.

During 2013, there were six meetings of the Board. Each of the current directors attended 75% or more of the meetings of the Board and the committees on which he or she served. The non-management directors meet alone in executive session at each Board meeting. These executive sessions are chaired by the Presiding Director. In accordance with the CSX Corporate Governance Guidelines, the independent directors (when

different than non-management directors) meet in executive session at least once a year. While the Company does not have a formal policy regarding director attendance at annual shareholder meetings, the Company strongly encourages directors to attend absent an emergency. Last year, all director nominees attended the annual shareholders meeting.

The Board has adopted Stock Ownership Guidelines to better align the interests of non-employee directors with the interests of shareholders. These guidelines require that all non-employee directors own shares of CSX common stock. Within five years of election to the Board, a non-employee director is expected to acquire and hold an amount of CSX common stock equal in value to five times the amount of such non-employee director’s annual retainer. Moreover, non-employee directors may only dispose of

shares held in excess of 120% of the applicable ownership threshold. If the annual retainer increases, the non-employee directors will have five years from the time of the increase to acquire any additional shares needed to satisfy the guidelines. Further information on the Stock Ownership Guidelines is available on CSX’s website at http://investors.csx.com under the heading “Corporate Governance”. CSX has a policy prohibiting officers and directors from hedging or pledging of CSX securities.

Directors elected before 2004 are eligible to participate in the CSX Directors’ Charitable Gift Plan (“Charitable Plan”). Under the Charitable Plan, if a director

serves for five consecutive years, CSX will make contributions totalling $1 million on his or her behalf to charitable institutions designated by the

director. Contributions to designated charities are made in installments, with $100,000 payable upon the director’s retirement and the balance payable in installments of $100,000 per year, starting at the time of the

director’s death. Only four current directors are eligible to participate in the Charitable Plan.

Directors may participate in the CSX Matching Gift Program, which is considered an important part of CSX’s philanthropy and community involvement. CSX will match director contributions to organizations that qualify for support under Company guidelines, up to a maximum annual CSX contribution of $50,000 per director. During 2013, 21 philanthropic organizations in areas served by the Company received $370,250 under the Matching Gift Program. The matching amounts are included in the

Directors’ Compensation Table.

In addition, CSX makes available to directors personal excess liability insurance at no expense to the directors. During 2013, the excess liability insurance premium, which is reflected in the “All Other Compensation” column of the Directors Compensation Table, was approximately $1,200 for each participating director.

The Audit Committee recommended, and the Board approved, the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm to audit and report on CSX’s financial statements for the fiscal year ending December 26, 2014. Action by shareholders is not required by law in the appointment of independent accountants. If shareholders do not ratify this appointment, however, the appointment will be reconsidered by the Audit Committee and the Board.

Ernst & Young LLP has no direct or indirect financial interest in CSX or in any of its subsidiaries, nor has it had any connection with CSX or any of its subsidiaries in the capacity of promoter, underwriter, voting trustee, director, officer or employee. Representatives of Ernst & Young LLP will be present at the Annual Meeting and will be afforded an opportunity to make a statement if they desire to do so. It also is expected they will be available to respond to appropriate questions.

The Audit Committee is responsible for the approval of all services performed by Ernst & Young LLP. The Chairman of the Audit Committee has the authority to approve all engagements that will cost less than $250,000 and, in such cases, will report any approvals to the full committee at the next scheduled meeting. All engagements expected to cost $250,000 or

more require pre-approval of the full committee. In addition, it is Company policy that tax and other non-audit services should not equal or exceed base audit fees plus fees for audit-related services. In 2012 and 2013, the Audit Committee preapproved all services performed by Ernst & Young LLP.

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public reporting process. Ernst & Young LLP (“E&Y”), the Company’s independent registered public accounting firm for 2013, is responsible for expressing an opinion that: (i) the Company’s consolidated financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States; and (ii) the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2013.

In this context, the Audit Committee has:

Based on its review and on the discussions described above, the Audit Committee has recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2013.

Executive Overview

2013 Business Highlights

In 2013, the Company demonstrated its ability to manage through volatility in the marketplace as continued declines in coal volume were more than offset by the strength in our merchandise and intermodal businesses. Despite the ongoing changes in overall traffic mix, CSX’s operational performance remained strong, posting significant service and productivity gains for the year. Below are notable business highlights for 2013.

CSX remains highly committed to delivering value to shareholders through a balanced approach to deploying cash that includes investments in the business, dividend growth and share repurchases. In 2013, CSX returned approximately $950 million to its shareholders in the form of dividends and share repurchases. CSX also announced a new $1 billion share repurchase program that is expected to be completed in 2015 based on market and business conditions. In 2013, the Company also invested $2.3 billion to further enhance the capacity, quality, safety and flexibility of its transportation network.

Aligning Compensation Program with Leading Governance Practices

The Compensation Committee of the Board (the “Committee”) establishes compensation programs that incorporate leading governance principles. Highlighted below are certain executive compensation practices designed to drive performance and foster strong corporate governance.

	CSX Compensation Practices Include:			CSX Compensation Practices Do NOT Include:
	High percentage of executive compensation that is performance-based			Dividends or dividend equivalents on unvested performance shares
	Performance measures that are highly correlated to shareholder value creation			Excise tax gross ups
	An independent compensation consultant			Repricing of underwater options (no options outstanding)
	Significant share ownership requirements for executives			Recycling of shares withheld for taxes
	Change of Control agreements requiring a double trigger (i.e., change of control plus termination)			Hedging of CSX securities by directors or executive officers
	Clawbacks in short and long-term incentive plans			Pledging of CSX securities by directors or executive officers

Aligning Executive Compensation with Company Performance

The Committee’s performance-based compensation philosophy is designed to attract and retain executives and motivate them to deliver superior performance results. The Committee structures the Company’s executive compensation program to reward short and long-term performance that creates value for shareholders. The compensation program is designed to provide an appropriate allocation between fixed and variable compensation while mitigating unnecessary or inappropriate risk. Each NEO’s total compensation is heavily weighted towards performance-based awards with long-term incentive compensation comprising the majority of the target compensation.

Long-Term Incentive Compensation. Since 2006, the Company has used operating ratio (“OR”) as the primary performance measure for the long-term incentive plan (“LTIP”). OR is defined as annual operating expense divided by annual operating revenue adjusted by excluding non-recurring items that are disclosed in the Company’s financial statements.

The Company’s performance has generated long-term incentive payouts in past years that correspond to the improvements in operating performance, confirming that OR has served as a positive driver of performance and proper target for determining compensation. Shareholder value has increased over the one-year, three-year and five-year periods ending December 27, 2013, providing total shareholder returns of 46%, 43% and 161%, respectively. The chart below shows the alignment between the CEO’s LTIP payouts and the total shareholder return (“TSR”) during the periods covered by each of the LTIP cycles over the last five years.

CEO LTIP PAYOUTS vs. 3-YEAR TSR

For the 2011-2013 cycle, the Company set an aggressive OR target goal of 66% by the end of 2013. Due to substantial volume declines in our coal markets, the Company was unable to achieve this target. Although OR improved during the cycle to 70.6% in 2011 and 70.6% in 2012, we could not sustain or improve these levels through 2013, resulting in no payout of the performance units because the OR target was not met.

While OR remains a significant component of the LTIP, the opportunity for incremental OR improvement prompted us to seek an equally weighted additional financial measure to drive employee performance and value creation. Accordingly, the Company added return on assets (“ROA”) as an additional financial measure for the 2013-2015 LTIP cycle to supplement OR. ROA was added as a second financial performance measure to drive service and profitability through better asset utilization. CSX uses OR and ROA as performance measures because they have a high correlation to shareholder value.

Short-Term Incentive Compensation. The Company utilizes operating income as the financial performance measure used to determine annual incentive compensation. In addition, the annual incentive compensation program also incorporates various strategic measures. Since 2005, operating income has increased 125% from $1.541 billion to a record $3.473 billion in 2013. The Company exceeded its 2013 operating income target of $3.3 billion resulting in a short-term incentive payout of 130% of target adjusted for individual performance.

The chart below shows the correlation between the CEO’s short-term incentive compensation payouts and the indexed one-year TSR over the last five years.

CEO ANNUAL INCENTIVE PAY vs. 1-YEAR TSR

CEO’s Total Compensation in 2013. The Summary Compensation Table contains a mix of earned pay and target value pay for long-term incentive compensation. It does not reflect the NEO’s actual or “realized” pay (“Realized Pay”) for the most recently completed fiscal year. The CEO’s Realized Pay could be worth more or less than what is shown in the Summary Compensation Table depending on the CEO’s performance and the Company’s financial results and stock price. The chart below shows the CEO’s Realized Pay for the 2013 fiscal year. Based on financial performance for 2013, there was no payout for the 2011-2013 LTIP cycle.

Realized Pay includes the following:

Based on Company and individual performance, the CEO’s Realized Pay for 2013 was approximately $4.67 million compared to $5.22 million in 2012.

CEO REALIZED PAY 2012 v. 2013

The Committee believes that a strong, dedicated and engaged executive leadership team is essential to driving performance and delivering shareholder value. Accordingly, the Committee has designed the executive compensation program to motivate and reward the executive leadership team and align their compensation with the short and long-term performance of the Company. In designing the Company’s compensation program, the Committee considers shareholder input through the annual say-on-pay vote, and believes that the positive 2013 vote (95.4% of votes cast voted for our say-on-pay proposal) validates the Company’s compensation philosophy.

The compensation program at CSX is premised on the following two key principles:

These key principles help ensure that the Company’s executives are properly compensated and focused on specific performance factors that measure progress against the Company’s strategic business goals.

The Committee oversees the development and approval of compensation and benefits philosophy, strategy and design. The Committee strives to incent and reward performance through compensation plans that appropriately balance risks and incentives, and take into account substantial independent data and perspectives, as well as continuously evolving market practices. The Committee believes this balanced approach motivates management to drive positive outcomes while mitigating the risk that any one incentive could lead an executive officer to take actions that are not in CSX’s long-term interests. In assessing performance of the NEOs in connection with incentive compensation payouts, the Committee conducts a detailed review of strategic goals, which includes enterprise, legal, compliance and fraud risk assessments.

In establishing individual executive compensation opportunities and awarding actual payouts, the Committee considers analyses and recommendations from its independent compensation consultant, competitive practices, the CEO’s recommendations (for senior executives other than himself), and internal practices. In determining opportunities and payouts, the Committee

does not rely solely on guidelines, formulas or short-term changes in business performance. Key factors affecting these determinations include:

Pursuant to its charter, the Committee has sole authority to select, retain and terminate any consultant used to assist the Committee in fulfilling its duties, including the authority to approve or ratify payments and other retention terms to any consultant.

The Committee has retained an independent compensation consultant, Meridian Compensation Partners, LLC (the “Consultant”), to provide

objective analyses and to assist in the development and evaluation of the Company’s compensation programs. The Consultant reports directly to the Chairperson of the Committee and performs no other work for the Company. The Consultant generally attends all meetings where the Committee evaluates the overall effectiveness of the executive compensation programs or where the Committee analyzes or approves

executive compensation. The Consultant is paid on an hourly fee basis, with such hourly rates approved by the Committee annually.

The Committee reviews the performance and independence of the Consultant on an annual basis, at which time they make a determination as to the renewal of the Consultant’s annual engagement. Each year, the Committee considers all appropriate information relating to the independence of the Consultant and its professionals involved in the work performed for, and advice provided to, the Committee. In 2013, after taking into account the factors set forth in the NYSE listing standards, the Committee determined that: (i) the relationships and work of the consulting firm and its professionals did not present any conflict of interest; and (ii) the Consultant and its professionals are independent for the purpose of providing advice to the Committee with respect to matters relating to the compensation of the executives and directors of the Company.

In 2013, the Consultant’s duties and responsibilities included:

The performance of the Consultant’s duties in 2013 required an understanding of relevant Company practices, critical business issues, human resource considerations, strategic initiatives, financial plans and actual results, performance drivers and cultural factors.

Mr. Ward reviews compensation benchmark data for members of his senior executive team (“Executive Team”), which includes the five most senior officers other than Mr. Ward. Using this data, he considers information on executive performance and scope of responsibility and makes individual compensation recommendations to the Committee for each Executive Team member. These recommendations include possible salary adjustments, generally considered every other year, and adjustments to the annual

incentive compensation payout for Executive Team members based on individual performance during the previous year.

Mr. Ward also provides input on targets for performance-based compensation plans but does not participate in the formal determination of such targets. He does not make recommendations with respect to his own compensation, nor is he present when the Committee discusses his individual compensation.

The Committee believes appropriately structured compensation plans should take into consideration enterprise risks and avoid encouraging behavior that leads to inappropriate increases in the Company’s overall risk profile. Accordingly, management, the Committee and the Consultant routinely review the Company’s enterprise risks and compensation plan design to consider whether the plans motivate the appropriate levels of risk and mitigate against unnecessary or excessive risk-taking.

On an annual basis, management prepares a risk assessment that focuses primarily on the structure, key features and risk mitigating factors included in the Company’s cash and stock incentive compensation programs. This risk assessment: (i) describes the process for establishing the Company’s compensation programs; (ii) reviews the risks and mitigating factors present in the Company’s compensation plans; (iii) analyzes the relationship between the compensation programs and the Company’s enterprise risks identified through the Company’s business risk mitigation process;

and (iv) provides recommendations for potential enhancements to further mitigate compensation risks. In 2013, management and the Consultant assessed the programs and concluded that the Company’s compensation programs do not create risks that are reasonably likely to have a material adverse impact on the Company.

The risk assessment helps the Committee evaluate whether the Company has designed and implemented appropriate risk management processes that foster a culture of risk-awareness and effectively evaluate the nature of the risks inherent in the Company’s compensation programs. For example, in redesigning the LTIP in 2013, management took into consideration the Company’s Business Risk Management Profile, as well as various other risk elements and presented these to the Committee along with mitigating factors so that the Committee could make a well-informed assessment of the risks associated with changing the LTIP.

The Committee believes the following elements of the Company’s executive compensation program serve to mitigate risk:

Furthermore, the Company’s executive compensation program is designed to reward consistent performance by heavily weighting the NEO’s compensation to long-term incentives that reward sustainable financial and operating performance. Moreover, the Committee believes that the Company’s approach to goal setting, establishment of targets with payouts at differing levels of performance, and evaluation of performance results serve to mitigate excessive risk-taking that could negatively impact shareholder value or reward poor judgment or execution by executives.

The Committee regularly evaluates competitive compensation data including information from peer railroad companies and general industry companies. Data includes broad surveys of general U.S. companies conducted by third parties and analysis of proxy disclosures of other major U.S. railroads.

The Company benchmarks targeted and actual payout data for the NEOs, including base salary, short-term and long-term incentives (“Total Direct Compensation”), with that of similar positions at peer railroad and general industry companies. For purposes of reviewing targeted Total Direct Compensation amounts for NEOs, the Committee reviews market data at the 25^th, 50^th and 75^th percentiles of comparator group compensation. When making compensation decisions, the Committee considers this market data, the scope of the individual’s responsibilities and performance and other factors previously discussed in this CD&A.

For 2013, the Company used a customized comparison group comprised of 18 primarily U.S.-based companies (the “Comparator Group”) to help determine compensation levels and mix. The Committee annually assesses and approves the Comparator Group to ensure that it reflects market characteristics comparable to those of the Company, including revenue, assets, net income, market capitalization, number of employees, industry type and business complexity. The Company believes the use of the Comparator Group over the larger general industry group allows for a more refined analysis of various compensation components. For 2013, the Comparator Group was comprised of the following companies:

CSX uses a variety of compensation elements including: (i) Total Direct Compensation; and (ii) indirect pay—employee benefits, including retirement benefits, nonqualified deferred compensation plans and limited perquisites.

The Committee makes its decisions concerning the specific compensation elements and total compensation paid or awarded to the Company’s NEOs within the framework described below and after consultation with the Consultant. The objective is to provide total pay opportunities that

are competitive with those provided by peer companies in the railroad industry and general industry, with actual payment dependent upon performance. The Committee bases its specific decisions and judgments on whether each award or payment provides an appropriate incentive and reward for individual performance that is consistent with the Company’s compensation objectives. The Committee also periodically reviews the competitiveness of indirect pay.

Yes. All NEOs received adjustments to various elements of their compensation effective in May 2013 based on their performance and a review of the Comparitor Group and industry peers.

To better align Mr. Ward’s compensation with that of his industry peers, he received a 9.1% increase in base pay to $1.2 million as well as a $1 million increase to his long-term incentive opportunity grant to $7 million. This resulted in a 14.5% overall increase to his targeted Total Direct Compensation. Additionally, the Committee chose to recognize and further encourage Mr. Ward’s continued service to CSX by awarding him RSUs, with a target value of $1.5 million, which will vest in full at the end of three years. This award was designed to retain Mr. Ward in his role as Chairman and Chief Executive Officer of the Company even though he is eligible for retirement. The Committee believes these enhancements to Mr. Ward’s compensation are appropriate based on his leadership and performance. Mr. Ward’s last increase in base pay was in June 2008, and his most recent change in long-term incentive opportunity was in May 2011.

Mr. Munoz received a 15.4% increase in base pay to $750,000 in recognition of his performance as Chief Operating Officer as well as to acknowledge the broad scope of his role, which also includes responsibility for the

Company’s technology and process improvement functions. Mr. Munoz’s last increase in base pay occurred in June 2008.

Mr. Gooden received an 18.2% increase in base pay to $650,000 to acknowledge his efforts in growing our Intermodal business over the past 4 years. The last change to Mr. Gooden’s base pay was in June 2008. Similar to Mr. Ward, Mr. Gooden also received an RSU award with a target value of $500,000 to encourage him to remain with the Company beyond the standard railroad retirement age. The RSUs vest three years from the date of grant.

To bring Mr. Eliasson’s compensation to market competitive levels, he received a 10% increase in base pay to $550,000 and a $500,000 increase in his long-term incentive opportunity to $2 million. These changes represent a 24.3% increase in his targeted Total Direct Compensation. The Committee also approved a restricted stock award for Mr. Eliasson with a targeted value of $500,000, which vests at the conclusion of five years.

Ms. Fitzsimmons received a 10% increase in base pay to $550,000 to maintain market competitive compensation levels. Ms. Fitzsimmons’ last change in base pay was in June 2008.

The Company’s compensation philosophy requires that a substantial portion of total compensation should be at-risk and consist of performance-based incentives that link to CSX’s financial and non-financial results. In addition, the Committee strives to strike an appropriate balance between short and long-term compensation. The mix between fixed and variable (performance-based) compensation and short and long-term compensation is designed to align the NEOs’ financial incentives with shareholder interests. In 2013,

approximately 69% of the CEO’s targeted Total Direct Compensation and an average of 64% of the other NEOs’ targeted Total Direct Compensation was at-risk. The at-risk component of executive compensation means that if the Company did not meet or exceed the pre-established threshold financial performance levels, the executive would not receive a payout under the applicable incentive plan.

Short-term Incentive Plan. The short-term incentive plan contains provisions requiring NEOs to repay to the Company portions of any payment received if, within the two-year period following the receipt of the payment, the Company is required to restate its financial statements due to accounting irregularities, and if the payment amount received exceeded the otherwise proper payment based on the restated financials.

Long-term Incentive Plan. Each LTIP contains provisions for Vice Presidents and above (“Senior Management”) that require the repayment to

the Company of portions of any award received if, within the two-year period following the receipt of the award, the employee violates certain conditions including: (i) separation from the Company and working for a competitor in a similar capacity as the participant has functioned during the past five years at the Company; or (ii) engaging in conduct that puts the Company at a competitive disadvantage. In the event the Company is required to restate its financial statements, due to accounting irregularities, the clawback also requires that amounts in excess of the otherwise proper award be repaid to the Company.

Members of Senior Management are required to enter into formal non-compete agreements with the Company as a condition for participation in the LTIP cycles. The non-compete agreements allow the Company to

preclude an employee from working for a competitor. The non-compete conditions are similar to those contained in the clawback provision but extend for a period of 18 months following separation from employment.

The Committee determines a salary for each NEO based on its assessment of the individual’s experience, abilities, performance and contribution to CSX. For purposes of recruiting and retention, base salaries are determined following a review of benchmarked data of salaries paid for similar positions

within the Comparitor Group. Base salary may represent a larger or smaller percentage of Total Direct Compensation if actual performance under the incentive plans discussed below exceeds or falls short of performance targets.

Short-term incentive compensation is designed to reward executives and other members of management for improving financial performance within a 12-month period. The Senior Executive Incentive Plan (“SEIP”) is the Company’s vehicle for providing annual incentive opportunities for the NEOs covered under Section 162(m) of the Code. Under this shareholder-approved plan, the maximum amount payable is equal to the lesser of: (i) 0.3% of operating income for the CEO and 0.2% of operating income for each other NEO; or (ii) $3 million. The Committee may adjust this amount downward in its sole discretion.

In 2013, the Committee exercised its downward discretion with respect to the NEOs by utilizing the same methodology and performance achievement used under the Company’s Management Incentive Compensation Plan (“MICP”). The MICP is the Company’s annual incentive plan for eligible employees other than the NEOs. The MICP is 100% performance-based and requires attainment of both financial and strategic objectives. No payout is made under the MICP unless a pre-set operating income level is achieved, regardless of achievement of strategic goals. Applying the methodology utilized under the MICP, each NEO has an incentive opportunity expressed as a percent of base salary earned during the year (“Target

Incentive Opportunity”). Under the MICP, the Target Incentive Opportunity for the NEOs in 2013 was 120% for Mr. Ward, 90% for Messrs. Munoz, Gooden and Eliasson and 80% for Ms. Fitzsimmons. The actual payout is adjusted to reflect Company and individual performance.

The Committee reviews the Company’s performance against the preapproved performance goals for that year. The performance goals are divided between: (i) the financial measurement—operating income—which is based upon the Company’s business plan and can result in a payment between 0% and 120% of the NEO’s Target Incentive Opportunity; and (ii) the strategic measurements that can result in a payment between 0% and 40% of the NEO’s Target Incentive Opportunity. Therefore, the actual payout can range between 0% and 160% of the NEO’s Target Incentive Opportunity.

The MICP operating income target for 2013 was set at $3.3 billion based on the Company’s business plan. Achievement of this operating income target would have produced a payout of 60% under the financial component. Depending on the level of achievement on the strategic component, which has a maximum payout of 40%, the total target payout could have ranged from 60%—100% of the Target Incentive Opportunity.

The Company achieved a 2013 operating income of $3.473 billion, which resulted in a 95% payout for the financial component of the 2013 MICP. In determining the achievement of the strategic objectives, the Committee considered the Company’s improvements in operating performance and customer service levels. CSX recorded a personal injury frequency rate of 0.86 injuries per 200,000 employee hours, which remains at historically low levels. In addition, the Company’s focus on resource adjustments and asset utilization generated $158 million of productivity savings for the year. Based on these factors, the Committee approved a payout on the strategic component of the MICP of 35%.

The 95% payout for the financial component and the 35% payout of the strategic component resulted in a total overall payout of 130% of Target Incentive Opportunities. In accordance with the Company’s performance management program, actual MICP award payouts were adjusted upward or downward from the 130% based on individual performance.

The Committee annually assesses the individual performance of each NEO and determines payout amounts as reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. As in prior years, the payout for the NEOs was calculated pursuant to the methodology applied to the MICP and, therefore, was substantially less than the maximum available to each individual under the SEIP.

Consistent with MICP practices, awards for the NEOs also varied based on individual performance. The Committee and the full Board evaluated Mr. Ward’s performance for 2013, and concluded that his performance was highly effective and exceeded expectations. Specifically, they emphasized Mr. Ward’s continuing efforts in successfully repositioning the Company in the face of secular changes in the coal business, and his leadership in public policy advocacy, advancement of the Company’s culture and emphasis on customer satisfaction.

Based on these factors and the overall effectiveness of Mr. Ward’s leadership in 2013, the Board approved an annual incentive compensation payout for Mr. Ward of $2.0 million, which was based on the MICP payouts for all eligible employees as adjusted for individual performance.

The payout for each of the other NEOs was 130% of his or her Target Incentive Opportunity.

Long-term incentive compensation is intended to enhance the relationship between executive compensation and the creation of shareholder value. This is accomplished by providing incentives based on performance measures that have historically driven long-term shareholder value, are within management’s direct control and encourage long-term commitment and perspective.

Long-term incentives are granted under the shareholder-approved CSX Stock and Incentive Award Plan (“Stock Plan”). The Stock Plan allows multiple and varying types of awards and provides flexibility in compensation design. Award types can include restricted stock, restricted stock units, performance shares, performance units, stock options and stock appreciation rights.

New LTIP cycles are approved in May of each year when the Committee grants performance units to participants. These grants are made following annual Board review of the Company’s business plan for the applicable upcoming three-year period, upon which the performance targets are set. Each LTIP cycle is designed to emphasize performance while aligning executives’ interests with those of shareholders by linking the payout’s value to share price. The three-year performance cycles run concurrently, so the Company can have up to three active cycles during a given year. The 2011-2013 cycle closed on December 27, 2013. The 2012-2014 and 2013-2015 cycles remain in progress.

Each year, a market competitive annual long-term incentive grant value (in dollars) is identified for each position level and converted into the appropriate number of units based on the value of CSX common stock. Actual payouts for each LTIP cycle, if any, do not occur until January of the year following the last year in the three-year cycle. These payouts can

vary significantly from the target grants in terms of both the number of shares paid out and the market value of CSX common stock at the time of payout. The value of a payout is derived by multiplying the number of performance units earned by the share price of CSX common stock at the time of payout. Based on actual performance, as discussed below, the payouts for the NEOs at the end of the performance cycle can range from 0% to 200% of the target grants. The Executive Team’s awards can be reduced by as much as 30% based upon the Committee’s assessment of the achievement of strategic goals. Dividend equivalents are not paid on performance units for the outstanding LTIP cycles.

Performance units are subject to forfeiture if employment terminates before the end of the performance cycle for any reason other than death, disability, or retirement. If employment terminates due to death, disability, or retirement, participants receive a pro-rata portion of the award based on the number of months completed in the LTIP cycle.

The Committee considers various financial measures for use as the key performance measure, such as OR, free cash flow, ROA and return on invested capital. OR served as the performance measure for the 2011-2013 LTIP cycle. OR is defined as annual operating expense divided by annual operating revenue adjusted by excluding nonrecurring items that are disclosed in the Company’s financial statements. The Company chose OR due to its historically high correlation to Company stock price, alignment with shareholder interests and the ability of employees to understand the impact of their actions in relation to Company performance. It also

motivates employees to support service improvements. For the 2011-2013 LTIP cycle, OR is measured in the final year against the goals set by the Committee at the beginning of the cycle.

OR projections, as set forth in the Company’s three-year business plans, were used to establish the threshold, target and maximum payout goals under the 2011-2013 LTIP cycle. To achieve a payout at target or above, OR in the final year of this cycle required outperforming the Company’s business plan goals.

The LTIP targets for the 2011-2013 LTIP cycle were set to provide incentives to continue growing shareholder value. Under the 2011-2013 LTIP cycle: (i) an OR of 68.0% was needed to achieve a threshold payout; (ii) an OR of 66.0% was needed to achieve a target payout; and (iii) an OR of 64.0% was needed to achieve a maximum payout. The performance levels for

threshold, target and maximum payouts represented a 3.1, 5.1 and 7.1 percentage point improvement, respectively, over the 2010 OR of 71.1%. These performance levels were subject to adjustment based on oil prices as discussed below.

At the time of adoption of the 2011-2013 LTIP cycle, a provision was made for the adjustment of the OR performance goals by a predetermined amount if the per barrel cost of oil varied significantly from the projected price range of $90 to $110 (“Price Range”) per barrel of West Texas

Intermediate Crude (“WTIC”). This adjustment is included in the plan design for each LTIP cycle due to the significant impact volatile fuel prices have on expenses and OR. Based on the price per barrel of WTIC during the cycle, there was no adjustment to the OR goals.

In 2013, the Company continued to provide long-term incentives in the form of both performance units and RSUs in order to provide a stable and balanced long-term incentive portfolio and maintain a strong link to shareholder value. This was achieved by determining a market competitive long-term incentive grant value and allocating 75% of such value to performance units and 25% to time-based RSUs. This approach partially offsets market volatility and other external factors by sustaining a level of value while simultaneously preserving an incentive to meet performance goals.

Performance units are granted at the beginning of the period known as the performance cycle in accordance with the Company’s LTIP. Awards are paid in the form of CSX common stock at the end of the period based on attainment of pre-established performance goals.

RSUs represent a promise to issue shares of common stock if a participant remains employed by the Company for a defined period of time referred to as a restriction period. RSUs granted in 2013 vest three years after the date of grant. Participants receive cash dividend equivalents on

the unvested shares during the restriction period. Unlike performance units, RSUs are not subject to any performance requirements. RSUs are subject to forfeiture if employment terminates before the end of the restriction period for any reason other than death, disability or retirement. If employment terminates due to death or disability, the award fully vests and the shares are distributed to the participant or the participant’s estate. Upon retirement, the participant receives a pro-rata award based on the number of months completed in the restriction period.

In determining the number of units to be granted under each long-term incentive vehicle, a three-month average of CSX’s stock price is used, rather than the stock price on the date of grant. Using the three-month average reduces the impact of daily fluctuations in stock price.

In addition to the grants described above, the Company granted RSUs to Messrs. Ward and Gooden and restricted stock to Mr. Eliasson for purposes of retention, which grants are described in the 2013 Grants of Plan-Based Awards Table.

In May 2013, the Committee approved the 2013-2015 LTIP cycle, which uses OR and ROA as the primary performance measures. In light of the asset-intensive nature of the Company’s business, the Committee chose ROA as an additional long-term performance measure for the 2013-2015 LTIP cycle measure because it serves as an indicator of how efficiently Company assets are being utilized. While OR remains an important measure of success for CSX and the industry, the Committee believes that greater long-term shareholder value can be achieved through the addition of the ROA metric. The 2013-2015 LTIP cycle is designed to motivate employees to maximize asset utilization and drive efficiencies that further increase service and profitability.

ROA will be calculated using tax-adjusted operating income divided by net property excluding nonrecurring items as disclosed in the Company’s financial statements. The tax-adjusted operating income will use a flat 38% tax rate to eliminate volatility of one-time tax issues. Net property is comprised of gross property less accumulated depreciation.

OR and ROA will each comprise 50% of the total payout opportunity for participants, and each will be measured independently of the other.

The threshold, target and maximum payouts for each measure are 10%, 50% and 100%, respectively, generating a target payout of 100% and a maximum possible payout of 200% for the 2013-2015 cycle. While prior plans measured OR in the final year of the LTIP cycle, the 2013-2015 cycle will measure cumulative OR and average ROA over an 11-quarter period from April 2013 to December 2015. The first quarter of 2013 was not included in the performance period due to timing of approval of the LTIP cycle.

In addition to OR and ROA as the primary performance measures, the Committee maintains downward discretion on the payouts for Executive Team members based on relative total shareholder return (“Relative TSR”). The Committee will evaluate Relative TSR performance against the S&P 500, S&P 500 Transportation Industry and peer railroads. If CSX’s 2013-2015 Relative TSR is in the bottom quartile in any of the comparison groups, the Committee may exercise up to 30% downward discretion on the payout to Executive Team members.

After establishing the market competitive annual long-term incentive award value (in dollars) for each NEO, the dollar value was then converted into a number of performance units and RSUs based on the average closing price of CSX stock for February, March, and April 2013, which was $23.42.

The table below indicates the number of performance units granted under the 2013-2015 LTIP cycle and the number of RSUs granted to each NEO on May 7, 2013.

CSX provides the same health and welfare benefits to the NEOs as those available to eligible management employees. The Company also provides basic life insurance and accidental death and dismemberment (“AD&D”) insurance coverage to all management employees, each of which is equal to two times their respective annual salaries. Both life and AD&D benefits were capped at $1,000,000 effective January 1, 2006, but employees who already had coverage in excess of $1,000,000 retained the prior cap of $3,000,000. The Company also provides to the NEOs, on the same

basis as other management employees, salary continuance in the event of short-term or long-term disability, travel accident insurance and vacation based on length of service.

CSX sponsors a post-retirement health and welfare plan for management employees hired before January 1, 2003. The Company stopped providing post-retirement health and welfare benefits for management employees, including executive officers, hired on or after January 1, 2003, as a cost-saving measure.

As of December 27, 2013, all NEOs held amounts of CSX common stock in excess of these ownership guideline requirements. In addition, as part of its stock ownership guidelines, the Company has adopted a one-year holding period for Executive Team members for restricted stock and RSUs following vesting. Accordingly, NEOs must wait one year after the completion of the restriction period before entering into any transaction involving such stock.

As discussed above, a significant portion of each NEO’s direct compensation is based solely on performance. Section 162(m) imposes a $1 million limit on the amount that CSX may deduct for compensation paid to the NEOs. However, performance-based compensation paid under a plan that has been approved by shareholders is excluded from the $1 million limit if, among other requirements, the compensation is payable only if pre-established objective performance goals are achieved and the Committee that establishes and certifies attainment of the goals consists only of outside directors.

While the tax effect of any compensation arrangement is a factor to be considered, the effect is evaluated by the Committee in light of CSX’s overall compensation philosophy and objectives. CSX’s compensation program for NEOs has both objective and discretionary elements. Generally, the Committee wishes to maximize CSX’s federal income tax deductions for compensation expense. Therefore, the Company has structured the short-term and long-term incentive elements of executive compensation to meet the requirements for deductibility under Section 162(m) while retaining the ability

to apply permissible negative discretion in determining the ultimate award payouts. Nonetheless, the Committee does not believe that compensation decisions should be constrained by how much compensation is deductible for federal tax purposes. Moreover, there are circumstances in which the provision of compensation that is not deductible may be more consistent with CSX’s compensation philosophy and objectives and may be in the best interests of CSX and its shareholders. Accordingly, the Committee is not limited to paying compensation under plans that are qualified under Section 162(m) and the Committee’s ability to retain flexibility in this regard may, in certain circumstances, outweigh the advantages of qualifying all compensation as deductible under Section 162(m).

The Committee also considers other tax aspects and the accounting and shareholder dilutive costs of specific executive compensation programs, and seeks to balance the tax, earnings, and dilutive impact of executive compensation plans with the need to attract, retain and motivate highly-qualified executives.