Alaska Airlines and Horizon Air 2009 Annual Report Download - page 58

In addition, all of the Company’s employees,
including the executive officers, participate
in a separate incentive plan called
Operational Performance Rewards, which
pays a monthly incentive payment of an
equal amount to all employees when
particular operational performance targets
are met. Awards are based on operational
performance and customer satisfaction, and
the maximum annual payout for each
employee is $1,200.
Long-Term Equity-Based Pay
An important element of executive
compensation program is long-term equity-
based incentive awards, which link executive
pay to stockholder value. Long-term equity
incentives are awarded annually and are
primarily intended to align Named Executive
Officers’ long-term interests with
stockholders’ long-term interests, although
the Committee believes that by promoting
stock ownership by executives, they also
play a role in helping the Company to attract
and retain top-performing executives who fit
a team-oriented and performance-driven
culture.
Stock Options: The Company makes a
portion of its long-term incentive grants to
Named Executive Officers in the form of
stock options with an exercise price that is
equal to the fair market value of the
Company’s common stock on the grant
date. Thus, the Named Executive Officers
will only realize value on their stock options
if Air Group stockholders realize value on
their shares. The stock options also function
as a retention incentive for executives as
they vest ratably over the four-year period
after the date of grant.
Restricted Stock Units: The Company also
grants long-term incentive awards to Named
Executive Officers in the form of restricted
stock units. Subject to the executive’s
continued employment with the Company,
the restricted stock units vest on the third
anniversary of the date they are granted
and, upon vesting, are paid in shares of
Alaska Air Group common stock. Thus, the
units are designed to link executives’
interests with those of Air Group’s
stockholders (as the units’ value is based
on the value of Air Group common stock)
and to provide a long-term retention
incentive through the vesting period.
Performance Stock Units: In 2007 and
2008, the Company granted the Named
Executive Officers performance stock units
as part of the long-term equity-based
incentive program. The stock units will vest
only if the Company achieves a
pre-determined average pre-tax profit margin
over the course of three years. No
performance stock units were granted in
2009.
Equity Guidelines: The Committee considers
and generally follows equity grant guidelines
that are modeled according to the total
direct compensation levels and pay mix
described above. Target equity grants, when
combined with all other compensation
elements, are designed to achieve total
direct compensation at the 50th percentile
of market consensus for Named Executive
Officers. Named Executive Officers’ equity
grants may be adjusted above or below
target based on:
• the individual’s contribution to the
success of the Company’s financial
performance;
• internal equity;
• the individual’s performance of his job
responsibilities; and
• the accounting impact to the Company
and potential dilution effects of the
grant.
42