Alaska Airlines and Horizon Air 2012 Annual Report Download - page 66

EXECUTIVE COMPENSATION
pays a monthly incentive of $100 to all
employees when certain operational
performance targets are met. Awards are
based on the achievement of on-time
performance and customer satisfaction
goals, and the maximum annual payout for
each employee is $1,200.
Long-Term Equity-Based Pay
Long-term equity incentive awards that link
executive pay to stockholder value are an
important element of the Company’s
executive compensation program. Long-term
equity incentives that vest over three- or
four-year periods are awarded annually,
resulting in overlapping vesting periods. The
awards are designed to discourage short-
term risk taking and are primarily intended
to align Named Executive Officers’ interests
with those of stockholders. In addition,
equity awards help attract and retain top-
performing executives who fit a team-
oriented and performance-driven culture.
Stock Options
The Company grants a portion of its long-
term incentive awards to Named Executive
Officers in the form of stock options with an
exercise price that is equal to the fair
market value of the Company’s common
stock on the grant date. Thus, the Named
Executive Officers will realize value from
their stock options only to the degree that
Air Group stockholders would realize value if
they purchased shares and held them for
the same period the executive holds his or
her stock options. The stock options also
function as a retention incentive for
executives, as they generally vest ratably
over a four-year period on each anniversary
of the grant date.
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 Air Group common stock.
The units provide a long-term retention
incentive through the vesting period that is
not dependent solely on stock price
appreciation. The units are designed to
further link executives’ interests with those
of Air Group’s stockholders, as the value of
the units is based on the value of Air Group
common stock.
Performance Stock Units
The Company also grants the Named
Executive Officers performance stock units
annually 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. Performance stock
units also provide a retention incentive as
the executive generally must be employed
through the performance period for the units
to vest.
Grants were made for the three-year
performance periods beginning in January
2010, 2011 and 2012. In 2010 and 2011,
performance stock units were tied to total
shareholder return (TSR) as compared to an
industry peer group. These performance
stock units help to further link the interests
of executives with those of our stockholders
as the vesting of the units depends on the
Company’s TSR, and the ultimate value of
any portion of the award that vests depends
on the value of the Company’s common
stock. Beginning in 2012, performance
stock unit awards were based 50% on the
Company’s TSR performance relative to
S&P 500 companies and 50% relative to the
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