Alaska Airlines and Horizon Air 2007 Annual Report Download - page 53

Methodology for Determining Pay
The Use of Benchmarking
In 2007, the Compensation Committee
reviewed and analyzed total direct compensation
at the executive level. The analysis included the
use of “benchmarking” to provide a review of
total direct compensation as compared to
market data. For this purpose, the Committee
considered air carrier peer group data as well as
general industry data. The data was weighted
2/3 airline and 1/3 general industry to identify a
“market consensus” compensation level for
each executive position. For the analysis of
market consensus, the Committee applied a
greater focus on peer group air carriers because
these are the primary companies that compete
with the Company for key talent, customers, and
stockholder investment. Peer group air carrier
companies also receive greater emphasis
because in our industry the vast majority of our
employees are unionized and have pay that is
often compared to their industry peers. For
2007, the peer group consisted of Air Tran
Holdings, AMR Corporation, Continental Airlines
Inc., Delta Air Lines Inc., Frontier Airline
Holdings, Jet Blue Airways Corporation,
Northwest Airlines Corporation, Southwest
Airlines Corporation, UAL Corporation and US
Airways Group Inc. The Committee also
considered general industry data of companies
with similar revenues because it recognizes that
our executives have opportunities outside the
industry.
The Application of Internal Equity
Considerations
The Committee believes that the appropriate
way to compensate executive officers is to
consider many principles of compensation,
including internal equity and fundamental
fairness. The Committee recognizes that Chief
Executive Officer compensation at many publicly
traded companies in the United States has
dramatically increased over a short period of
time. The Committee recognizes that
compensation data is susceptible to
“ratcheting,” or one-upmanship. This leads the
Committee, with the Chief Executive Officer’s full
support, to not blindly accept “benchmarking”
data to set compensation levels. Thus, while the
Committee has considered peer group data as
described above, it has also applied other
compensation principles such as internal equity
when determining Chief Executive Officer
compensation. As a result, the Committee’s
determination of total direct compensation for
the Chief Executive Officer position reflects a
substantial discount from market consensus. At
current levels, the Chief Executive Officer’s total
direct compensation represents approximately
two times that of the Executive Vice President
level, and approximately four times that of the
Vice President level. By considering internal
equity, the Committee believes that the resulting
data points are more reliable and more insulated
from external ratcheting effects.
The Use of Tally Sheets and Wealth
Accumulation Analysis
Annually, the Committee reviews tally sheets
that show each element of compensation for an
individual. For each Named Executive Officer,
base salaries, benefit values, incentive plan
payments, equity awards, equity exercises,
perquisites and retirement benefits are included
on tally sheets. The Company’s corporate affairs
and human resource departments prepare the
tally sheets. To date, the Committee’s use of
tally sheets has provided verification that
executive compensation is internally equitable
and proportioned according to the Committee’s
expectations with regard to “at risk”
compensation.
The Use of Performance Measures
We use objective performance goals in our
annual incentive program, our “Performance-
Based Pay” plan, and in our long-term equity
incentive program. Annual incentives and long-
term incentives are intended to motivate
executives to achieve superior performance
levels by setting goals that are tied to the Alaska
2010 plan and by linking executives’
compensation to long-term stockholder gain.
Current Executive Compensation Elements
Base Pay
In general, for Named Executive Officers, the
Committee targeted base salary levels in the
25th percentile based on market consensus data
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