U.S. rail operator CSX Corp said its board has called for a special meeting of its shareholders to discuss requests made by hedge fund Mantle Ridge LP, which is trying to install Hunter Harrison, outgoing chief executive of Canadian Pacific Railway Ltd as the company's chief executive.

CSX said the meeting, on March 16, will allow shareholders to vote on Harrison's proposed pay package, which is estimated to exceed $300 million. Shareholders will also be allowed to vote on mantle Ridge's proposal for substantial representation on the company's board.

"We are pleased that CSX agrees that change is needed," Mantle Ridge said in a statement. The hedge fund added that they have been in constructive dialogue with CSX's board for several weeks.

Activist investor Paul Hilal's Mantle Ridge is seeking six seats on the board, with Hilal as chairman and Harrison as chief executive officer. 

Mantle Ridge LP recently became a CSX shareholder owning less than 5 per cent of the company's stock, CSX said on Tuesday.

 “This is out there for a 5 per cent owner to ask for six seats. That troubles me as an investor,” Lyle Stein, Senior Portfolio and Managing Director, Vestcap Investment Management, told BNN Wednesday.

“I think [CSX] is stuck between a rock and a hard place,” he added. “I don’t think it’s a responsible thing for them to do. To put this in the face of good governance right around the world, this is a big one.”

The hedge fund also proposes that three incumbent CSX directors in addition to current CEO Michael Ward would retire from the board as of the company's 2017 annual meeting.

CSX's board is made up of 12 members, which include Ward who also serves as chairman. Ward has previously signaled he plans to step down.

Last week, CSX extended the director nomination deadline for its board, giving it more time to reach an agreement with Hilal and Harrison.

News of the Hilal-Harrison partnership broke on Jan. 18, when Canadian Pacific announced Harrison was leaving his CEO post early. 

-- With files from BNN