SkyWest Airlines 2013 Annual Report Download - page 161

PROPOSAL 3
RE-APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE
GOALS UNDER THE SKYWEST, INC. 2010 LONG-TERM INCENTIVE PLAN
Introduction
The 2010 Plan is intended to comply with Section 162(m) of the Code. Section 162(m) of the
Code places a limit of $1,000,000 on the amount that the Company may deduct in any one taxable year
for compensation paid to each of its ‘‘covered employees.’’ The Company’s covered employees include
its Chief Executive Officer and each of its other three most highly-paid Executives, other than the
Chief Financial Officer. There is, however, an exception to the $1,000,000 annual limit for
compensation earned pursuant to certain performance-based awards. A performance-based award made
under the 2010 Plan will be eligible for this exception provided certain Code Section 162(m)
requirements are met. One of these requirements relates to shareholder approval (and, in certain cases,
re-approval) of the material terms of the performance goals underlying the performance-based awards.
The 2010 Plan, including the material terms of the performance goals set forth in the 2010 Plan, were
approved by shareholders in 2010.
Treasury Regulations under Section 162(m) of the Code require re-approval of the material terms
of those performance goals after five years if the Compensation Committee has retained discretion to
vary the targets under the 2010 Plan’s performance goals from year to year. Except in the case of
options and stock appreciation rights, the Compensation Committee has retained discretion to vary the
targets under certain 2010 Plan performance goals from year to year. Accordingly, the Company is
seeking re-approval of the performance goals included in the 2010 Plan in order to preserve the
Company’s ability to deduct compensation earned by certain of its Executives pursuant to future
performance-based awards under the 2010 Plan.
The following discussion summarizes the material terms of the performance goals under the 2010
Plan, including a description of (i) the individuals eligible for performance awards under the 2010 Plan,
(ii) the business criteria on which the underlying performance goals are based and measured, and
(iii) the applicable award limits. A description of the 2010 Plan, which is intended merely as a summary
of its principal features and is qualified in its entirety by reference to the provisions of the 2010 Plan, is
attached to this Proxy Statement as Appendix A and incorporated herein by reference. The full text of
the 2010 Plan is attached to this Proxy Statement as Appendix B.
While awards under the 2010 Plan are generally intended to qualify as exempt performance-based
compensation under Section 167(m) of the Code, circumstances may arise under which such awards do
not so qualify.
Material Terms of the 2010 Plan Performance Goals:
Eligibility. Employees and consultants of the Company and its subsidiaries and non-employee
directors of the Company are eligible to receive awards under the 2010 Plan. There are approximately
281 employees and nine non-employee directors currently eligible to receive awards under the 2010
Plan. The limited number of consultants potentially eligible to participate in the 2010 Plan is not
currently determinable. Awards under the 2010 Plan may include grants of options, stock appreciation
rights, restricted stock, restricted stock units, performance units payable in cash, performance shares
and other share-based awards. Eligibility for any particular award is determined by the Compensation
Committee and, in the case of certain awards such as incentive stock options, may be limited by the
Internal Revenue Code.
Business Criteria Underlying Performance Goals. In order to be considered performance-based
compensation, an award under the 2010 Plan must be subject to the accomplishment of one or more
performance goals. In the case of stock options and stock appreciation rights, the sole performance
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