Hertz said that Icahn agreed not to run a proxy contest at its annual shareholder meeting in exchange for the directors-two of whom will be part a search committee to find a new CEO for the company. Three existing directors will be retiring to make way for the new appointments, Hertz said.
"This agreement eliminates distraction and ensures that we stay sharply focused on delivering the significant potential of the business," Linda Fayne Levinson, independent non-executive chair of the Hertz board, said in a press release.
Icahn also weighed in on the announcement.
"Hertz acted responsibly by adding three individuals who in the past have been active in identifying top CEO's in companies like Chesapeake, Navistar, CIT, Motorola, Forest Labs and others, which has greatly enhanced shareholder value in these companies," Icahn told CNBC. "I'm hoping more companies will bring on board members who have proven their willingness and ability to take active roles when necessary."
Shares of Hertz rose nearly 3 percent following the news in after hours trading.
-By CNBC staff. Scott Wapner contributed reporting.