SkyWest Airlines 2010 Annual Report Download - page 149

Company can offer comparable grant date compensation value with fewer shares than if the grant were
made solely with stock options. This results in less dilution of the outstanding shares of Common Stock.
The annual award of restricted stock units to each Executive for 2010 consisted of the right to
receive upon future vesting that number of shares of Company stock having a value on the date of
grant equal to one-third of the Executive’s aggregate, targeted level of long-term incentive
compensation for 2010.
Performance Units—The remaining component of each Executive’s 2010 annual long-term incentive
award was a performance unit award payable in cash. The targeted cash amount of each Executive’s
performance unit award was set at one-third of the Executive’s aggregate, targeted level of long-term
incentive compensation for 2010. The purpose of the performance unit awards is to reward
achievement of a financial efficiency goal that supports shareholder value and reflects real performance
without regard to stock market volatility. Under each Executive’s performance unit award, a cash bonus
is payable three years from the date of grant, based on the level of ‘‘Shareholder Return on Equity’’ (as
defined below) earned in the year of grant, relative to the targeted level of Shareholder Return on
Equity, and also subject to the Executive’s continued employment through the date of payment. The
2010 Shareholder Return on Equity target was set as 8.36%, with the actual amount of cash bonus
payable to each Executive to be prorated based upon the extent to which the Company’s actual results
varied from the target level of performance.
The 2010 goal for each Executive (including the Presidents of the Company’s operating
subsidiaries) was based on the Shareholder Return on Equity for the entire Company. The Committee
elected not to establish individual goals for the Presidents of the Company’s operating subsidiaries
because the Committee sought to encourage teamwork and the creation of long-term value for the
Company’s shareholders. For purposes of the 2010 performance equity grants, ‘‘Shareholder Return on
Equity’’ was equal to shareholder return on equity, adjusted to exclude timing differences between
engine overhaul expenses and the related revenue collected from the Company’s major partners.
Earned performance unit awards are paid in cash to reduce share dilution and emphasize the real
economic cost of officer incentives. For each percentage point that the Shareholder Return on Equity is
above or below the established target, the performance unit award is increased or decreased
proportionately. The Company believes that the performance unit grant provides an effective long-term
incentive for the Executives to act in the best interests of shareholders, by focusing on return on
shareholder equity, which the Committee believes is one of the principal contributing factors to
long-term shareholder value.
For 2010, the actual Shareholder Return on Equity was calculated as 8.58%, versus the 8.36%
targeted level of Shareholder Return on Equity. As a consequence, each Executive earned 102.6% of
the targeted level of cash award underlying his performance units, subject to risk of forfeiture if the
Executive terminates his employment (other than in connection with a change in control) prior to the
third anniversary of the date of grant.
The Shareholder Return on Equity target, actual Shareholder Return on Equity, target dollar value
of performance units granted, and the resulting dollar value of performance units earned (subject to
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