SkyWest Airlines 2009 Annual Report Download - page 131

The combination of salary and annual bonuses is intended to result in a cash compensation
package for each Named Executive that falls within competitive market standards when the Company
meets the performance objectives
Long-Term Awards. Discretionary long-term awards, in the form of stock options, restricted stock,
and performance units payable in cash are granted to the Named Executives annually. The Company’s
2009 long-term award practices are described below; however, the Compensation Committee has
modified some of those practices for 2010, primarily to increase the percentage of the long-term awards
that are performance-based and to shift from the use of restricted stock to restricted stock units. These
changes are described below under the heading ‘‘2010 Long-Term Compensation Grants.’’
The long-term grants are made to encourage the Named Executives to continue their engagement
with the Company throughout the vesting periods of the awards and to align management and
shareholder interests. In making awards to the Named Executives, the grant size and the appropriate
combination of equity-based and deferred cash awards is considered. The Compensation Committee
generally grants long-term awards at its first meeting of each year. Except in the case of a change in
control of the Company, long-term awards currently vest only if the Named Executive remains
employed by the Company for three years from the date of grant. The Compensation Committee
believes the three-year cliff vesting schedule assists in retaining Named Executives and encourages the
Named Executives to focus on the Company’s long-term performance. In granting stock options and
restricted stock to the Named Executives, the Compensation Committee also considers the impact of
the grant on the Company’s financial performance, as determined in accordance with the requirements
of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC
Topic 718). For long-term equity awards, the Company records expense in accordance with
ASC Topic 718. The amount of expense the Company records pursuant to ASC Topic 718 may vary
from the corresponding compensation value used by the Company in determining the amount of the
awards.
Amount and allocation of grant—The total annual targeted long-term grant value is 125% of salary
and targeted annual bonus for the Chief Executive, and 100% of salary and targeted annual bonus for
the other Named Executives. These targeted amounts were established to provide a competitive pay
package and to ensure that a large portion of each Named Executive’s compensation is based on
continuing long-term service and correlated to the creation of shareholder value. This has been the
Company’s policy for several years, but is subject to review and continuation or modification each year
by the Compensation Committee. The Chief Executive’s long-term target is higher than the other
Named Executives since he has overall responsibility for the long-term success of the Company. Each
Named Executive’s 2009 long-term award was allocated among three types of long-term grants as
follows:
• Stock Options—45% of long-term award value
• Restricted Stock—30% of long-term award value
• Performance Units Payable in Cash—25% of long-term award value
The three types of awards were used in an effort to link the Named Executives’ long-term
compensation with the creation of shareholder value. The value of stock options and restricted stock is
directly related to the value of the Company’s common stock. The Named Executives earn performance
units payable in cash by meeting return on shareholder equity objectives that the Compensation
Committee believes also lead to long-term shareholder value, but are not subject to short-term stock
market volatility.
Stock Options—Options are granted with an exercise price equal to the closing price per share on
the date of grant and vest three years after the date of grant, or on an intervening change in control of
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