Alaska Airlines and Horizon Air 2007 Annual Report Download - page 58

Executive Vice President/Strategic Projects and
retired as of January 1, 2008. The full
description of Mr. Finan’s termination
arrangements are set forth in the section
“Potential Payments Upon Change In Control And
Termination” on page 53.
We have change in control agreements with
our other Named Executive Officers. In 2007, the
Committee analyzed the Company’s entire
change in control program by reviewing a market
analysis of change in control programs generally,
and different potential scenarios for the
Company specifically. The Committee concluded
that the Company’s program was competitive at
the senior-most levels of the Company, but that
it was overly broad with regard to participation.
The Committee assessed the market data and
the publicized institutional investor opinions
regarding particular terms of change in control
agreements, including excise tax reimbursement
provisions. The Committee also reviewed
changes necessary for compliance with Internal
Revenue Service Section 409A regulations.
As a result of the review, the Committee
narrowed program participation to a smaller
group of executives. For some positions, the
Committee reduced the severance multiple with
respect to future hires, and the Committee
re-defined the definition of “change in control”
and modified the excise tax reimbursement
provisions for current and future executives.
For the Named Executive Officers (with the
exception of Mr. Finan, who is retired and no
longer subject to a change in control agreement),
the terms of their existing change in control
agreements changed as of February 14, 2008,
the date by which they executed agreements with
the new provisions. For the Named Executive
Officers, the agreements contain a definition of
“change in control” that requires consummation
of a transaction and a modified excise tax
reimbursement provision that requires excise
taxes to exceed a 10% threshold before excise
taxes will be reimbursed by the Company.
We have entered into change in control
agreements because we believe that the
occurrence, or potential occurrence, of a change in
control transaction will create uncertainty and
disruption during a critical transaction time for the
Company. The payment of cash severance benefits
is only triggered by an actual or constructive
termination of employment following a change in
control transaction because we believe that Named
Executive Officers should be entitled to receive
cash severance benefits only if both conditions are
met. Once the change in control event
commences, the Named Executive Officer’s
severance and benefits payable under the contract
begins to diminish with time, until ultimate
expiration of the agreement 36 months later.
In 2007, the Compensation Committee also
revised the Company’s equity award agreements
such that equity will vest on an accelerated basis
only in the event of a change in control plus
actual or constructive discharge of the executive.
Policy with Respect to Section 162(m)
Section 162(m) of the Internal Revenue
Code generally prohibits the Company from
deducting certain compensation over $1 million
paid its chief executive officer and certain other
executive officers unless such compensation is
based on performance objectives meeting certain
criteria or is otherwise excluded from the
limitation. The Company strives whenever
possible to structure its compensation plans
such that they are tax deductible and believes
that a substantial portion of compensation paid
under its current program (including the annual
incentives and stock option grants described
above) satisfies the requirements under
Section 162(m). However, the Company reserves
the right to design programs that recognize a full
range of performance criteria important to its
success, even where the compensation paid
under such programs may not be deductible. For
2007, the Company believes that no portion of
its tax deduction for compensation paid to its
Named Executive Officers will be disallowed
under Section 162(m).
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