Alaska Airlines and Horizon Air 2010 Annual Report Download - page 69

The Use of Benchmarking
Periodically, the Committee reviews and
analyzes total direct compensation at the
executive level. In analyzing the Named
Executive Officers’ compensation for 2010,
the Committee reviewed the total direct
compensation for executives with a peer
group of air carriers consisting of Air Tran
Holdings, AMR Corporation, Continental
Airlines, Delta Air Lines, ExpressJet, JetBlue
Airways, Hawaiian Holdings, Mesa Air Group,
Republic Airways Holdings, SkyWest,
Southwest Airlines, United Airlines, and US
Airways Group. In general, the Company’s
executive compensation program is
designed to achieve total direct
compensation at the 50th percentile of the
peer group data for Named Executive
Officers.
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 does not solely accept
“benchmarking” data as a basis for setting
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 executive
compensation. At current levels, the CEO’s
total direct compensation represents
approximately two and one-half times that of
the Executive Vice President level, and
approximately five times that of the Vice
President level. By considering internal
equity, the Committee remains mindful of
the ratio of CEO to employee pay and, as a
result, is able to structure executive
compensation in a way that is 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,
incentive plan payments, equity awards,
equity exercises, perquisites, and health
and retirement benefits are included on tally
sheets, which are prepared by the
Company’s corporate affairs and human
resources departments. To date, the
Committee has used the tally sheets to
verify that executive compensation is
internally equitable and proportioned
according to the Committee’s expectations.
The Use of Performance Measures
The Committee uses objective performance
goals in the “Performance-Based Pay”
annual incentive plan. The Committee also
applies performance measures as a basis
for determining long-term equity awards.
Annual incentives and long-term incentives
are intended to motivate executives to
achieve superior performance levels by
setting goals that are tied to the Company’s
strategic plan and by linking executives’
compensation to long-term stockholder gain.
All employee groups at the Company
participated in the Performance-Based Pay
plan during 2010. The Committee believes
having incentive pay tied to shared
performance targets motivates all
employees across the Company to achieve
the same goals.
Current Executive Pay Elements
Base Pay
In general, for Named Executive Officers, the
Committee targets base salary levels at the
25th percentile based on peer group data
identified in the review described in this
discussion. For other vice president-level
executives, the Committee targets base
salary levels at the 50th percentile. The
Committee assesses each executive’s
ŠProxy
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