Alaska Airlines and Horizon Air 2012 Annual Report Download - page 60

EXECUTIVE COMPENSATION
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 Committee chose to include the
companies named above in its peer group
for the following reasons:
• They represent a group of sufficient size
to present a reasonable indicator of
executive compensation levels.
• They are in the airline industry and their
businesses are similar to the Company’s
business.
• The median annual revenue of this group
approximates the Company’s annual
revenue.
• The Company competes with these peer
companies for talent to fill certain key,
industry-related executive positions.
The Application of Internal Equity
Considerations
In addition to benchmarking against an
industry peer group, the Committee believes
it is appropriate to consider other principles
of compensation, and not accept
“benchmarking” data as the sole 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 and
excluding the one-time performance award in
connection with his election, Mr. Tilden’s
total direct compensation represents
approximately two times the average total
direct compensation at the executive vice
president level, and approximately five times
that of the vice president level. Including his
one-time performance award, the CEO’s total
direct compensation for 2012 represents
approximately five times that of the executive
vice president level and eight 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 less
susceptible to sudden, temporary changes in
market compensation levels.
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. 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 Plan
(annual cash incentive plan). The Committee
also applies performance measures as a
basis for determining a significant percentage
of 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 2012. The Committee
believes that tying incentive pay to shared
performance targets motivates all employees
across the Company to achieve the same
goals.
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