The only payday that's really in jeopardy is a hedge fund's.

By Jen Wieczner
April 28, 2017

There has been a lot of controversy over the amount of money CSX will need to pay Hunter Harrison to be the railroad company’s new CEO. It turns out he’ll get that money even if he walks away from the job.

Harrison’s condition for taking the CSX job is an $84 million paycheck to reimburse him for the compensation he ostensibly forfeited when he left Canadian Pacific cp to join CSX, a move orchestrated by activist hedge fund Mantle Ridge. Yet Harrison’s net worth is not actually in any danger; he’s already guaranteed to get all the pay that was coming to him. Rather, the only payday in jeopardy is that of the hedge fund itself.

That’s because Mantle Ridge granted Harrison an “insurance policy” when he resigned as CEO of Canadian Pacific, agreeing to cover any of his lost compensation, the hedge fund’s manager Paul Hilal explained at a conference Thursday. That means Harrison will still collect the full amount even if CSX csx refuses to pay it and he quits, as he has said he would. The money would just come out of Mantle Ridge’s pockets instead.

Harrison became the CEO in March, but shareholders haven’t approved his compensation yet. They’re expected to vote on that sometime over the next year.

Indeed, Mantle Ridge has already deposited $55 million in Harrison’s bank account, Hilal said at the 13D Active-Passive Investor Summit in New York. Most of the compensation that Harrison is demanding from CSX would not even go to him, but to the hedge fund, to reimburse it for what it already shelled out on his behalf.

Of course, if CSX decides not to pay Harrison’s asking price, the railroad company could end up losing even more. Not only would CSX be giving up a legendary executive in the industry, but it stands to lose the more than $13 billion in market value it has gained since Harrison set his transition plan in motion. CSX stock soared 23% the day Harrison quit Canadian Pacific, and is up a total of 40% since then.

For CSX shareholders, the $84 million cost of retaining Harrison is well worth it for the billions of dollars in value he can deliver, Hilal argued.

After all, it’s not the first time Hilal has gone out on a financial limb for Harrison in order to install him in a new job. When Hilal worked at Bill Ackman’s hedge fund Pershing Square, that firm struck a similar deal with Harrison to lure him to be CEO of Canadian Pacific. Because going out for that job would have meant giving up $40 million in remaining stock-based compensation from his former employer, the railroad Canadian National cni , Pershing Square fronted Harrison the money through another “insurance policy.” Ultimately, it was Canadian Pacific that paid the sum to make Harrison whole.

At the conference, Hilal compared the arrangement with Harrison to the deal Spanish football club Real Madrid struck to poach star Cristiano Ronaldo. In 2009, Real Madrid paid Manchester United 94 million euros (almost $132 million at the time) to transfer the Portuguese soccer player.

“It’s really very analogous, because like Ronaldo, Hunter Harrison is a unique and extraordinary talent,” Hilal said. “If CSX were dealing with CP directly the way Real Madrid dealt with Manchester United, Real Madrid, or CSX, would have had to write the check to CP directly.”

Of course, that Real Madrid payment didn’t wind up in Ronaldo’s pocket. And railroad companies aren’t soccer clubs, so in this case there’s a middle man that needs to make the deal happen: the hedge fund Mantle Ridge.

This article has been updated to more accurately portray the deal Harrison struck when he joined Canadian Pacific. It was Pershing Square, the hedge fund Hilal worked for at the time, that extended an insurance policy to Harrison to cover his lost compensation from Canadian National, not Hilal himself.

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