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80 Percent of Norfolk Southern’s Massive Profits Go Into Executives’ Pockets

The railway giant’s corporate practices are under fire after the toxic East Palestine crash.

Alan Shaw, President and CEO of Norfolk Southern Corporation, speaks during a hearing with the Senate Environment and Public Works Committee on Capitol Hill on March 9, 2023 in Washington, D.C.

CLEVELAND — Unions, safety specialists, and — now — the residents of East Palestine, Ohio, have contended that corporate greed drove Norfolk Southern Railway to cut corners on safety inspections and prevention, thus leading to the disastrous February 3 wreck there.

But buried deep in the March 31 federal Justice Department filing, for both itself and the U.S. Environmental Protection Agency, against Norfolk Southern in U.S. District Court in Cleveland, comes confirmation of the extent of that greed — and it’s mind-boggling.

To be precise, “80 percent of the compensation” for Norfolk Southern’s top honchos, including its CEO, depends on how big its profit margin is. The larger the profit, the larger their pay.

That’s an incentive to reduce human safety inspections, let experienced workers go, force remaining workers to shoulder jobs they weren’t trained for, and line up rail cars in an unsafe way, with heavy tank cars in the rear, to satisfy their profit model, precision scheduled railroading, and cut trains to just one crew member, the engineer, rail unions say.

The feds seek millions of dollars in damages from Norfolk Southern, in addition to forcing it to pay for the cleanup costs from the wreck. Fines for violating the Clean Water Act, and CERCLA — more commonly known as the Superfund law, which covers cleaning up toxic waste — would reach $120,000 a day for each day Norfolk Southern doesn’t comply.

Some 38 of the train’s 150 cars derailed, including 11 which carried hazardous chemicals: Vinyl chloride, ethylene glycol monobutyl ether, ethylhexyl acrylate, butyl acrylate, isobutylene, and benzene residue. Five more cars carried oil and another had fuel additives.

“Exposure to these hazardous materials at sufficiently high levels has been associated variously with an increased risk of cancer, risks to fetal development, damage to organs like the liver, kidneys, lungs, and skin, and other health conditions,” DOJ laconically says.

Venting five of those cars, to prevent an even worse disaster, produced widespread air and water pollution in and around the town of 4,700 people just blocks from the Ohio-Pennsylvania border. Runoff of the chemicals polluted the water in the stream that ran through East Palestine, killing at least 3,500 fish. Pets died, too. And a mushroom-like cloud, started by the fires on the derailed cars, hovered over East Palestine.

Residents Evacuated

Residents were evacuated, but state officials let them return after several days. However, 39 members of the Brotherhood of Maintenance of Way Employees/Teamsters, sent to clean up the mess and fix the damaged tracks, told their union of migraine headaches and nausea. It raised hell to Ohio Gov. Mike DeWine (R), demanding he crack down on the railroad — and campaign for tougher federal rules for hazmat trains.

DOJ’s filing explains Norfolk Southern Corporation’s chieftains, who are one and the same as the railroad’s leaders, are judged on “performance metrics” which “focus on measures such as operating ratio and operating income for its subsidiaries.” The railroad, with its 35,000 miles of track nationwide, is the chief subsidiary.

“Operating ratio looks at operating expenses as a percentage of revenue. Operating income looks at operating revenue less operating expenses.

“These financial metrics were selected to motivate and reward NS Corporation’s executives for increasing revenue, improving operating efficiency, and reducing expenses of its railroad subsidiaries. NS Corporation’s executives achieve these metrics by controlling subsidiaries’ operations, which includes the operations of NS Railway.”

“Approximately 80 percent of the compensation for NS Corporation’s executives are based on performance metrics,” the Justice Department asserted.

In plain English, that means the executives get rewarded if they cut costs, and the biggest “cost” is workers. Which leads to cuts in safety.

“Over the past four years, annual reports show a stark contrast between the increases in operating income and the drop in railroad operating costs. The drop…includes reductions in spending to repair, service, and maintain locomotives and freight cars, perform train inspections, and pay engine crews and train crews,” DOJ said.

Fritz Edler, the D.C.-based Senior Safety Representative for Railroad Workers United, which unites rank-and-file rail workers from all safety crafts, said the performance metrics DOJ mentioned extend below the corporate honchos, down to middle management. He also pointed out a lack of accountability at all the Class I freight railroads, not just Norfolk Southern.

“What they do today is important for the future,” he explained in a telephone interview. “They mothball equipment or drive people off” their jobs — a point both RWU and the rail unions have repeatedly made to federal regulators. That drives up profits now, and the pay envelopes of managers, at the cost of safety and service in the future, he elaborated.

And the railroads say they don’t need to justify their cost-cutting. “I heard the Association of American Railroads” — the lobby for all rail carriers, not just the few big freight lines such as NS — “tell the Maryland General Assembly committee that ‘If you want to do the things we’ve done for 150 years,’” such as two-worker crews, “you have to document it’s safer” than what the railroads plan. “But if we want to change things, we don’t have to document” the impact, the railroad lobby’s rep said.

In their prepared statements, neither Attorney General Merrick Garland nor EPA Administrator Michael Regan mentioned corporate greed as an ultimate cause of the cost-cutting which led to the derailment. They focused, instead, on getting the railroad to pay for all the cleanup costs and the threat of fines if it flunks.

“With this complaint, the Justice Department and the EPA are acting to pursue justice for the residents of East Palestine and ensure that Norfolk Southern carries the financial burden for the harm it has caused and continues to inflict on the community,” said Garland.

“From the very beginning, I pledged to the people of East Palestine that EPA would hold Norfolk Southern fully accountable for jeopardizing the community’s health and safety,” said Regan. “No community should have to go through what East Palestine residents have faced. With today’s action, we are once more delivering on our commitment to ensure Norfolk Southern cleans up the mess they made and pays for the damage they have inflicted as we work to ensure this community can feel safe at home again.”

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