Westjet 2008 Annual Report Download - page 36

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32 WestJet 2008 Annual Report
merit increases. Stock-based compensation expense
related to pilots’ options is included in fl ight operations and
navigational charges, while the expense related to executives’
and certain non-executive employees’ options is included
in marketing, general and administration expense.
2008 Executive share unit plan
Senior executive offi cers participate in the 2008 Executive
Share Unit Plan, whereby they receive Restricted Share
Units (RSU) and Performance Share Units (PSU). Each
RSU and PSU entitles the executive to receive payment
upon vesting in the form of common shares. We determine
compensation expense for the 2008 RSUs based on the fair
market value of our common shares on the date of grant.
Compensation expense for RSUs is recognized in earnings
on a straight-line basis over the three-year vesting period.
The value of the PSUs is based on the fair market value of
our common shares on the date of grant. PSUs time vest at
the end of a three-year term and incorporate performance
criteria based on achieving the compounded average
diluted earnings per share growth rate targets established
at the time of grant. For 2008, a total of $0.9 million of
compensation expense is included in marketing, general
and administration expense related to the 2008 Executive
Share Unit Plan.
Foreign exchange
We are exposed to foreign currency exchange risks arising
from fl uctuations in exchange rates on our US-dollar
denominated net monetary assets and our operating
expenditures, mainly aircraft fuel, aircraft leasing expense,
certain maintenance costs and a portion of airport
operations costs. The foreign exchange gains and losses
included on our consolidated statement of earnings were
mainly attributable to the effect of the changes in the
value of our US-dollar denominated net monetary assets.
These assets, totalling approximately US $99.5 million at
December 31, 2008 (2007 – US $88.7 million), consist
an average of 14 per cent. We match contributions for every
dollar contributed by employees. Of our eligible employees,
82 per cent participated in the ESPP as at December 31,
2008. Our matching expense for 2008 was $42.9 million,
a 21.1 per cent increase from $35.4 million for 2007. The
additional expense was driven by an increase in the number
of WestJetters since the end of 2007.
Employee profi t share
All employees are eligible to participate in the employee
profi t sharing plan. As the profi t share system is a variable
cost, employees receive larger awards when we are highly
profi table. Conversely, the amount distributed to employees
is reduced and adjusted in less profi table periods. This
philosophy was evidenced during 2008, as employee profi t
share as a percentage of total salaries and benefi ts was
9.3 per cent as compared to 15.2 per cent in 2007. In the
current environment where companies are laying off
employees and instituting wage freezes, we were pleased
that our WestJetters earned a bonus of almost 10 per cent.
Our profi t share expense for the year ended December 31,
2008 was $33.4 million, a 28.4 per cent decrease from $46.7
million for 2007. This decrease was directly attributable to
the lower earnings eligible for profi t share, primarily due to
higher fuel costs in 2008.
Stock options
Pilots, executives and certain non-executive employees
participate in stock option plans. The fair value of these
options, as determined by the Black-Scholes option pricing
model, is expensed over the vesting period. Stock-based
compensation expense related to stock options for 2008
was $12.6 million compared to $19.3 million in 2007,
a decrease of 34.6 per cent. The primary reason for the
decrease in stock option expense relates to the vesting of
options granted under the 2006 pilot agreement in which a
signifi cant number of stock options were granted, which is
partially offset by an increase to salary costs from annual
Being on time and having your baggage arrive
with you, whether you’re travelling for business or
on holiday, matters to our guests. That means it
matters to me.
Chad Eberle, TAC (Turn Around Crew) Crew Chief
Airports Ground Handling
WestJetter since 2005