SkyWest Airlines 2012 Annual Report Download - page 149

Executive entitle the Executive to receive a designated number of shares of Company common stock
upon completion of a three-year vesting period, measured from the date of grant. Until the vesting
date the shares underlying restricted stock units are not considered issued and outstanding.
Accordingly, the Executive is not entitled to vote or receive dividends on the shares underlying his
restricted stock units unless and until those restricted stock units vest. The purpose of the restricted
stock unit component is to support continued employment through volatile economic and stock market
conditions, to manage dilution overhang, and to align officers’ interests with maintaining shareholder
value already created. The Committee believes this approach mitigates the incentive for Executives to
take unnecessary risks and helps retain the Executives’ expertise through continued employment.
Recipients of restricted stock units do not pay for the underlying shares once the awards vest; however
they must remain employed by the Company for three years to receive the underlying shares.
Restricted stock unit awards provide the Executives with an indirect ownership stake in the Company
and encourage the Executive to continue employment in order to receive the underlying shares. The
compensation value of a restricted stock unit award does not depend solely on future stock price
increases; at grant, its value is equal to the Company’s stock price. Although its value may increase or
decrease with changes in the stock price during the period before vesting, a restricted stock unit award
will likely have value even without future stock price appreciation. Accordingly, restricted stock unit
awards deliver significantly greater share-for-share compensation value at grant than do stock options,
and the Company can offer comparable grant date compensation value with 65% 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 2012 consisted of the right to
receive upon future vesting a number of shares of Company stock. The targeted restricted stock unit
allocation of each Executive’s aggregate, targeted level of long-term incentive compensation for 2012
was 31% for Mr. Atkin, 30% for Messrs. Rich, Childs and Holt and 35% for Mr. Kraupp.
Performance Units—The remaining component of each Executive’s 2012 annual long-term incentive
award was a performance unit award payable in cash under the Company’s 2010 Long-Term Incentive
Plan. The targeted cash allocation of each Executive’s aggregate, targeted level of long-term incentive
compensation for 2012 was 52% for Messrs. Atkin, Rich, Childs and Holt and 50% for Mr. Kraupp.
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 net earnings actually attained for the year of grant, and subject to the
Executive’s continued employment through the date of payment. The 2012 committee-designated
targeted net earnings was set as $47.5 million, with the actual amount of cash bonus payable to each
Executive to be adjusted in proportion to the extent to which the Company’s actual results varied from
the target level of performance.
27