SkyWest Airlines 2008 Annual Report Download - page 118

industry conditions are also considered in determining the targeted net income targets which are the
basis for determination of the annual bonus. The combination of base pay and annual performance-
based bonuses is intended to result in a cash compensation package that falls within competitive market
standards when the Company meets the performance objectives set by the Compensation Committee.
The targeted annual performance bonus amount for each NEO is expressed as a percentage of the
NEO’s base pay and is established by the Compensation Committee at the beginning of each year. As
in prior years, the target bonus amount for 2008 was set at 80% of base salary. The Compensation
Committee also determines the threshold and maximum annual performance bonus levels for each
NEO. Unless the Compensation Committee elects to pay a discretionary bonus, no performance bonus
is payable if the NEO’s applicable threshold net income target is not attained. Similarly, no additional
performance bonus is payable above the maximum pre-determined bonus level unless the
Compensation Committee elects to pay a discretionary additional bonus.
The full amount of the target level annual bonus is earned by the NEOs only if the Company
meets target net income objectives set by the Compensation Committee. For the Chief Executive
Officer and Chief Financial Officer, the net income target is based on the consolidated net income of
the Company. In the case of the presidents of SkyWest Airlines and ASA, the targets are based on the
net income of the subsidiary for which they have responsibility. The net income targets are set after
considering several factors including: return on equity, contract expectations, Company budgets,
national economic conditions, industry conditions, and special conditions that may affect net income
such as accounting timing differences. The Compensation Committee reserves the discretion to increase
or decrease the amount of the net income targets during the year as it determines necessary to
implement the Company’s compensation objectives and principles. If the Company or applicable
operating subsidiary fails to meet the target level of net income set by the Compensation Committee
for a particular NEO but otherwise attains net income above the predetermined threshold level, the
amount of the annual performance-based bonus payable to the NEO is calculated on a pro-rated basis.
Similarly, if the Company or applicable operating subsidiary exceeds the target level of net income set
by the Compensation Committee for a particular NEO, but the performance of the Company or
applicable subsidiary is lower than the pre-determined maximum net income level, the amount of
annual performance-based bonus otherwise payable to the NEO is determined on a pro-rated basis
between the target and maximum bonus percentages.
Three-fourths of each NEO’s non-discretionary annual performance bonus is determined based
solely on the degree to which the applicable net income target is attained or surpassed. The remaining
one-fourth of each NEO’s annual performance bonus is dependent on both the percentage of the net
income target attained and the degree to which the NEO achieves a combination of additional, specific
individual goals established each year (‘‘Individual Goals’’). For fiscal year 2008, the Individual Goals
were developed by each individual NEO and recommended to the Compensation Committee and, in
the case of NEOs other than the Chief Executive Officer, reviewed and approved by the Chief
Executive Officer. The Individual Goals were then approved by the Compensation Committee. If the
NEO or the Company exceeds or fails to meet the targeted level of Individual Goals set by the
Compensation Committee for a particular NEO, one fourth of the amount of net-income-based annual
bonus otherwise payable to the NEO is increased or decreased, as applicable, within certain
predetermined ranges.
In addition, the Compensation Committee and Board have discretion to depart from the formula
in approving an annual bonus and may exercise discretion to increase or decrease annual bonuses,
including refraining from paying any bonus, after the Company’s operational and financial results for
the applicable period are determined. The payment of annual bonuses to the NEOs is made soon after
the close of the fiscal year to which the bonuses relate, once the Compensation Committee has
determined the bonus amounts actually earned and payable. In the case of the Chief Executive Officer,
the full Board reviews and approves the final calculation of the annual bonus.
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