Alaska Airlines and Horizon Air 2010 Annual Report Download - page 74

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 generally vest on
the third anniversary of the date they are
granted and, upon vesting, are paid in
shares of Alaska Air Group common stock.
Thus, the units are designed to link
executives’ interests with those of Air
Group’s stockholders (as the units’ value is
based on the value of Air Group common
stock) and to provide a long-term retention
incentive through the vesting period.
Performance Stock Units:The Company
also grants the Named Executive Officers
performance stock units as part of the long-
term equity-based incentive program. The
performance stock units vest only if the
Company achieves performance goals
established by the Committee for the
performance period covered by the award.
Beginning in 2010, performance stock units
are tied to total shareholder return (TSR) as
compared to an industry peer group. In
combination with other stock unit awards
described above, the performance stock unit
awards are designed to provide an incentive
to achieve specific performance goals
important to the Company’s success.
The performance stock units granted in
2010 are eligible to vest based on the
Company’s total shareholder return (“TSR”)
relative to the following peer group over the
three-year period commencing January 1,
2010: AirTran Holdings, AMR, Continental
Airlines, Delta Air Lines, ExpressJet
Holdings, JetBlue Airways, Hawaiian
Holdings, Mesa Air Group, Republic Airways
Holdings, SkyWest, Southwest Airlines,
United Airlines and US Airways Group. (The
Committee will adjust the peer group
annually as it deems appropriate if one or
more of the peer airlines ceases to be a
publicly traded company.) The Committee
chose TSR as a performance measure for
these awards to provide additional incentive
for executives to help create shareholder
value. Given the nature of the airline
business, the Committee believes that
measuring TSR on a relative basis against
an industry peer group rather than on an
absolute basis provides a more relevant
reflection of the Company’s performance
due to macro-economic factors that tend to
affect the entire industry and that are largely
not under the control of executives. The
percentage of the performance stock units
that vest may range from 0% to 200% of the
target number of units subject to the award,
depending on the Company’s relative TSR
for the performance period.
Vesting of Prior Performance Grants:In
February 2008, the Company granted
awards of performance stock units to
Messrs. Ayer, Johnson, Tilden, Minicucci,
Pinneo, and Pedersen. The performance
units subject to these awards were eligible
to vest based on the Company’s adjusted
pre-tax profit margin over the three-year
period commencing on January 1, 2008,
with the number of units eligible to vest
ranging from 0% to 200% of the target
number of units subject to the awards.
At the end of 2010, the Committee
determined that 75% of the target number of
units subject to each executive’s award
vested based on the Company’s adjusted
pre-tax profit margin of 5.3% over the
performance period.
Equity Guidelines:The Committee considers
and generally follows equity grant guidelines
that are determined based on the target
total direct compensation levels and pay mix
described above. Target equity grants, when
combined with all other compensation
elements described above, are designed to
achieve total direct compensation at the
50th percentile of the peer group data for
Named Executive Officers. The Committee
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