Alaska Airlines and Horizon Air 2009 Annual Report Download - page 54

The Use of Benchmarking
Periodically, the Committee reviews and
analyzes total direct compensation at the
executive level. In 2007, the last review of
data relevant to 2009 compensation, 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
two-thirds airline and one-third 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 the
airline industry the vast majority of the
Company’s employees are unionized and
have pay that is often compared to industry
peers. Prior to a review in 2010, the peer
group consisted of Air Tran Holdings, AMR
Corporation, Continental Airlines Inc., Delta
Air Lines Inc., Frontier Airline Holdings,
JetBlue Airways Corporation, Southwest
Airlines Corporation, UAL Corporation and
US Airways Group Inc. For the 2010
compensation review, the peer group has
been updated. Please see the “2010
Compensation Changes” section below for
further discussion.
The Application of Internal Equity
Considerations
The Committee believes that the appropriate
way to compensate Named Executive
Officers is to consider many principles of
compensation, including internal equity. The
Committee recognizes that CEO
compensation at many publicly traded
companies in the United States dramatically
increased over a short period of time and
that compensation data is susceptible to
ratcheting effects resulting from external
comparisons. This leads the Committee,
with the CEO’s full support, to not solely
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, most notably
internal equity, when determining CEO
compensation. At current levels, the CEO’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 link CEO and employee
pay, and are more reliable and more
insulated from external ratcheting effects.
The Use of Tally Sheets
Annually, the Committee reviews tally sheets
that show each element of compensation for
Named Executive Officers. 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 resources 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
executive compensation.
The Use of Performance Measures
The Committee uses objective performance
goals in the “Performance-Based Pay”
annual incentive plan. The Committee also
uses performance measures in long-term
equity awards by utilizing restricted stock
unit, stock option, and performance stock
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