Alaska Airlines and Horizon Air 2013 Annual Report Download - page 62

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EXECUTIVE COMPENSATION
Annual target performance measures reflect
financial and operational goals that are
consistent with the strategic plan. Maximum
goals reflect superior performance, while
threshold goals generally reflect an
acceptable but minimal level of improvement
over the prior year’s performance. The 2013
Alaska Air Group profitability target of $500
million corresponded to a forecasted 2013
return on invested capital (ROIC) of 10.5%.
The Company’s goal is to achieve an
average 10% ROIC over the business cycle,
which the Company believes will allow it to
grow profitably. The safety and employee
engagement measures were set at levels
the Committee believes will drive continuous
improvement and maintain the Company’s
reputation as a leader in the industry in
these areas. The cost per available seat
mile excluding fuel and special items
(CASM) metric was similarly chosen to
support the Company’s achievement of its
strategic plan.
The Committee believes that using adjusted
measures, such as CASM (excluding fuel
and special items) and adjusted pre-tax
profit, rather than GAAP measures more
closely ties results to elements of
performance that can be controlled by the
decisions and actions of employees, thereby
providing a more direct link between
performance and reward. In addition, by
removing the short-term impact of certain
business decisions (such as the gain or loss
on disposition of capital assets), the use of
adjusted measures encourages executives
to make decisions that are in the best
interest of the Company over the long term.
Following is an example of the calculation of the 2013 Performance-Based Pay Plan payout for
an Alaska Airlines executive:
2013 Performance-Based Pay Calculation*
Metrics Actual
% of Target
Achieved Weight Payout %
Safety Risk Level 3+ Events 0.5 200.0% 10.0% 20.0%
Employee Engagement/Customer Satisfaction 12 months 200.0% 10.0% 20.0%
CASM 7.54¢ 112.0% 10.0% 11.2%
Alaska Air Group Profitability $724 million 199.0% 70.0% 139.8%
Total Payout % 191.0%
Participation Rate** x 75.0%
Payout asa%ofBase Salary = 143.3%
* Based on Alaska Airlines’ performance.
** Participation rates vary by position. The participation rate used in this example is for one of the Named
Executive Officers.
ŠProxy
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