Alaska Airlines and Horizon Air 2007 Annual Report Download - page 56

In addition, all of our employees, including
our executive officers, participate in a separate
incentive plan called Operational Performance
Rewards, which pays a monthly incentive
payment to all employees when particular
operational performance targets are met. Awards
are based on operational performance and
customer satisfaction, and the maximum annual
payout for each employee is $1,200.
Long-Term Equity-Based Incentive Awards
An important element of our executive
compensation program is our long-term equity-
based incentive awards, which link executive pay
to stockholder value. Our long-term equity
incentives are primarily intended to align Named
Executive Officers’ long-term interests with
stockholders’ long-term interests, although we
believe that by promoting stock ownership by our
executives, they also play a role in helping us to
attract and retain top-performing executives who
fit a team-oriented and performance-driven
culture.
The Committee issues annual equity grants
to provide incentives to our executives to
increase stockholder value. The Committee
reviews equity grant guidelines that are modeled
according to the total direct compensation levels
and pay mix described above. Target equity
grants achieve total direct compensation at the
50th percentile of market consensus for Named
Executive Officers. Named Executive Officers’
equity grants may be adjusted above or below
target based on:
• the individual’s contribution to the
success of the Company’s financial
performance;
• internal equity;
• the individual’s performance of his or
her job responsibilities; and
• the accounting impact to the Company
and potential dilution effects of the
grant.
For our Named Executive Officers, equity
incentive awards are proportioned according to a
formula that considers the risk inherent in the
various equity vehicles. For 2007, the Named
Executive Officers were awarded equity as
follows:
Equity
Target
as % of
Base
Pay
Equity Mix
Name
Stock
Options
Restricted
Stock
Units
Performance
Shares
Bill Ayer 200% 40% 20% 40%
Brad Tilden 100% 40% 20% 40%
Gregg Saretsky 100% 40% 20% 40%
Kevin Finan 100% 40% 20% 40%
Jeff Pinneo 100% 40% 20% 40%
Stock Options
The Company makes a portion of its long-
term incentive grants to Named Executive
Officers in the form of stock options with an
exercise price that is equal to the fair market
value of our common stock on the grant date.
Thus, the Named Executive Officers will only
realize value on their stock options if our
stockholders realize value on their shares. The
stock options also function as a retention
incentive for our executives as they vest ratably
over the four-year period after the date of grant.
Restricted Stock Units
The Company also grants long-term incentive
awards to Named Executive Officers in the form
of restricted stock units. Subject to the
executive’s continued employment with the
Company, the restricted stock units vest only on
the third anniversary of the date they are granted
and, upon vesting, are paid in shares of our
common stock. Thus, the units are designed to
link executives’ interests with those of our
stockholders (as the units’ value is based on the
value of our common stock) and to provide a
long-term retention incentive through the vesting
period.
Performance Shares
For 2007, the Company granted the Named
Executive Officers performance shares as part of
our long-term equity-based incentive program.
The shares will vest only if the Company
achieves a pre-determined average pre-tax profit
margin over the course of three years. For 2007,
the Compensation Committee set target
performance at 8% adjusted pre-tax profit margin
(referred to as “APM” in the table below), which
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