DEF 14A 1 alk-def14a_20200507.htm DEF 14A alk-def14a_20200507.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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March 27, 2020

 

Dear Stockholders:

 

On behalf of the Board of Directors, we invite you to attend Alaska Air Group’s 2020 Annual Meeting of Stockholders, which will be held on Thursday, May 7, 2020, beginning at 1:30 p.m. Pacific Daylight Time.  This year’s annual meeting will once again be a completely virtual meeting, conducted via live webcast.  You can attend via the Internet at www.proxyvote.com, where you will be able to vote and submit questions electronically prior to and during the meeting.  You will also be able to dial-in via telephone to ask questions during the meeting.  Specific instructions for accessing the meeting are provided in the notice, proxy card or voting instruction form you received.  

 

In addition to the EDGAR version of the 2020 Proxy Statement filed with the SEC, we have produced an interactive proxy statement that is organized to make our governance provisions, executive compensation disclosures, proposals, and other key information easy to find and evaluate.  The interactive proxy statement can be accessed at www.alaskaair.com under About Alaska/Investor Relations.

 

We hope you will join us on May 7 as we discuss Alaska Air Group’s 2019 financial and operational performance as well as our response to COVID-19, and vote on issues of importance to our company and to you. We will also introduce you to our Owner’s Manual, which outlines the Company’s operating principles on how we deliver value to our investors, our employees, guests and the communities we serve.  Whether or not you choose to participate on meeting day, your vote is important, and we encourage you to cast your ballot in one of the ways outlined in this Proxy Statement.

 

Sincerely,

 

 

 

 

Patricia M. Bedient

Bradley D. Tilden

Lead Independent Director

Chairman and Chief Executive Officer

 

 

 

 

 

 


 

 

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

The Board of Directors of Alaska Air Group, Inc. (Air Group or the Company) is soliciting proxies for the 2020 Annual Meeting of Stockholders (the Annual Meeting).  This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting.  Please read it carefully.

 

DATE

 

Thursday, May 7, 2020

TIME

 

1:30 p.m. Pacific Daylight Time

VIRTUAL MEETING ACCESS

 

www.proxyvote.com

MATTERS TO BE VOTED ON

 

1.  Election of the 12 nominees named in this Proxy Statement to the Board of Directors, each for a one-year term

2.  Approval (on an advisory basis) of the compensation of the Company’s Named Executive Officers

3.  Ratification of the appointment of KPMG LLP as the Company’s independent registered public accountants (the independent accountants) for fiscal year 2020

4.  A stockholder proposal regarding the Company’s disclosure of political spending

5.  A stockholder proposal regarding the Company’s disclosure of lobbying activities

6.  Other business as may properly come before the meeting or any postponement or adjournment thereof

The Board of Directors set Monday, March 16, 2020, as the record date for the Annual Meeting. This means that owners of Alaska Air Group common stock as of the close of business on that date are entitled to receive this notice, attend and vote during the Annual Meeting. There were 122,584,631 shares of Air Group common stock outstanding on the record date.

Internet Availability of Proxy Materials.  On or about March 27, 2020, stockholders of record, beneficial owners and employee participants in the Company’s 401(k) plans were mailed a Notice of Internet Availability of Proxy Materials (the Notice) directing them to a website where they can access the Company’s 2020 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2019 (the Annual Meeting Materials).  The Company’s 2019 Form 10-K was filed with the Securities and Exchange Commission (SEC) on February 12, 2020.  If you prefer to receive a paper copy of the proxy materials, please follow the instructions on the Notice and the Annual Meeting Materials will be mailed to you.

Attending the Annual Meeting.  We will host the 2020 Annual Meeting live via the Internet and telephone only.  Any stockholder can listen to and participate in the Annual Meeting.  Whether or not you attend the meeting, we encourage you to vote by Internet or phone or to complete, sign and mail your voting instruction form or proxy prior to the meeting.   

Submit Your Questions.  We invite you to submit any questions of general stockholder interest to the Assistant Corporate Secretary via email at allie.wittenberger@alaskaair.com, or via the Shareholder Forum at www.proxyvote.com. We will include answers to your questions on www.alaskaair.com under About Alaska/Investor Relations following the meeting.  If you encounter issues accessing the website or the virtual meeting, please contact allie.wittenberger@alaskaair.com.

 


 

ALASKA AIR GROUP, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT

TABLE OF CONTENTS

 

 

FROM OUR CHAIRMAN

1

 

 

PROXY STATEMENT SUMMARY

3

 

 

CORPORATE GOVERNANCE

7

 

 

Board Leadership

7

Executive Sessions and Lead Independent Director

8

Risk Oversight

8

Code of Conduct and Ethics

9

Prohibition of Speculative Transactions in Company Securities

9

Environmental and Social Highlights

9

Political Contributions and Engagement

10

Stockholder Communications

10

Virtual Meeting Philosophy

11

 

 

ELECTION OF DIRECTORS

12

 

 

Proposal 1: Election of Directors to One-Year Terms

12

Structure of the Board of Directors

18

Director Independence

22

Director Nomination Policy

23

Certain Relationships and Related Person Transactions

27

2019 Director Compensation

28

Director Stock Ownership Policy

29

 

 

NAMED EXECUTIVE OFFICER COMPENSATION

30

 

 

Proposal 2: Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers

30

Compensation Discussion and Analysis

32

Compensation and Leadership Development Committee Report

46

Compensation and Leadership Development Committee Interlocks and Insider Participation

46

2019 Summary Compensation Table

47

2019 Grants of Plan-Based Awards

49

Outstanding Equity Awards at 2019 Fiscal Year End

50

2019 Options Exercised and Stock Vested

52

Pension and Other Retirement Plans

53

2019 Nonqualified Deferred Compensation

55

Potential Payments Upon Change of Control and Termination

56

CEO Pay Ratio

59

 

 

AUDIT COMMITTEE MATTERS

60

 

 

Proposal 3: Ratification of the Appointment of the Company’s Independent Accountants for Fiscal Year 2020

60

Independent Registered Public Accountants

60

Audit Committee Report

62

 

 

STOCKHOLDER PROPOSALS

63

 

 

Proposal 4: Stockholder Proposal

63

Proposal 5: Stockholder Proposal

66

 

 

SECURITIES OWNERSHIP

70

 

 

Securities Ownership of Management

70

5% or More Beneficial Owners

71

Section 16(a) Beneficial Ownership Reporting Compliance

71

 

 

QUESTIONS AND ANSWERS

72

 

 

 

 


 

FROM OUR CHAIRMAN

 

To Our Shareholders:

 

While we typically use this forum to reflect on the past year, our world is changing very rapidly with the coronavirus pandemic and its economic fallout.  As the situation evolves, we are reminded why the safety of our people and the communities we serve is our number one priority.  Our hearts and prayers go out to all of those who have been personally affected by the virus, and to the many more who will be affected by the economic damage that has been and will be inflicted by it.

 

Our industry has been through other challenges in the past 20 years that have had a significant impact on the demand for air travel, including the September 11th attacks and the financial crisis of 2008 and 2009.  It is sobering to share that, from what we know today, the impacts from this crisis are likely to be far more significant than those two events combined.  However, I believe our industry is better prepared today than it was in any of the previous crisis periods to withstand the impact to air travel demand. Airlines are financially stronger, with generally better balance sheets and better liquidity.  

 

For those readers who are new to Alaska Air Group, we are a large and successful company.  However, we compete every day with airlines many times our size and do so successfully.  Why?  Because we have highly engaged employees who provide great service. That great service and our low fares lead to fantastic customer loyalty.  And finally, we have a low-cost structure and solid balance sheet.   As a smaller carrier, we’ve become skilled at adapting to change and adversity.  For example, after September 11th, we found an opportunity and launched trans-con flying, and that flying now represents approximately 20% of our capacity (this excludes trans-con flying added in the Virgin America acquisition).  And, after the recession of 2008 and 2009, we built our Hawaii and mid-con franchises, each of which now represent nearly 15% of our capacity. Time and time again, we have found a way to turn crisis into opportunity because of our resiliency and the commitment we have to our employees, our guests, our communities and you, our shareholders.  

 

Andy Grove, the transformative leader and CEO of Intel, once said that bad companies are destroyed by crisis, good companies survive them, and great companies are improved by them.  The months ahead will determine exactly what kind of business Alaska is.  If this crisis is anything like the ones before it, and if the fight in our people is anything like what I believe it is, I think we will demonstrate that, by Andy’s definition, we are a great company.

 

It feels strange to shift the spotlight from current events to last year’s results, but we will provide a brief recap of 2019 as a reminder of the platform we have built, the accomplishments of our people, and the opportunity that awaits us once the crisis passes.

 

Some highlights from 2019 include:

 

Award-Winning Service: Once again, the service our people provided was recognized as best in the industry. 2019 marked the 12th consecutive year for which Alaska was named “Highest in Customer Satisfaction Among Traditional Carriers” by J.D. Power. For the second year in a row, Alaska was also named “Best U.S. Airline” by Condé Nast Traveler, following 11 consecutive years of Virgin America holding this honor. These awards highlight the work our employees do every day to provide our guests the genuine and caring service Alaska is known for.

 

Revenue and Network Growth: In 2019, we introduced new products like our Saver Fares that give guests more options to choose the fare that is right for them. We also continued to grow our network, with new service from Paine Field in Everett. Growth and new revenue initiatives resulted in topline revenue growth of approximately $515 million or more than 6%.

 

LIFT: In 2019, we launched LIFT, which is a consolidation of all of our sustainability efforts under one initiative. Highlights include over $15.3 million in cash and in-kind donations to more than 1,200 organizations in the communities we serve, our very successful #FillBeforeYouFly campaign aimed at

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reducing inflight waste, and renewed efforts to reduce our greenhouse gas emissions intensity on the ground and in the air.

 

Strong Financial Results and a Fortified Balance Sheet: We entered 2019 with a plan to improve our profitability, with a goal of eventually and sustainably producing 13% to 15% pretax margins. Our team made solid progress against that goal.  Adjusted pre-tax margin grew by 3.1 points to 12% and return on invested capital grew by 2.8 basis points to 12.2%.  All in, earnings per share grew by 44%. Importantly, and especially in light of what is happening today, we used the improved cash flow to aggressively pay off debt in order to fortify our balance sheet – one of our greatest assets that will help us manage through the crisis we face today.

 

The impact of the coronavirus on our industry has been severe, and the path to recovery could be long.  We’re doing everything we can to control the parts of our business that we can control.  As I write this letter, our industry is also working with Congress and the Administration on legislation that would provide airlines with much needed financial assistance.

 

Air travel has been, and will continue to be, a critical service that connects people, families and businesses.  And the competitive advantages which Alaska has are real and they are durable.  I know I speak for our entire Board and leadership team in saying that, despite the extraordinary and unprecedented current circumstances, we remain confident in our people and we are ultimately optimistic about our future.   

 

Thank you for your support of - and investment in - Alaska Air Group.

 

 

 

 

Bradley D. Tilden

Chairman and Chief Executive Officer

 

2


 

PROXY STATEMENT SUMMARY

 

Matters to be Voted On

 

Item for Business

Board Recommendation

Effect of Abstention

1. Elect 12 Directors

FOR each Director Nominee

None

2. Approve (on an advisory basis) the compensation of the Company’s Named Executive Officers

FOR

A Vote Against

3. Ratify the appointment of KPMG LLP as the Company’s independent registered public accountants for Fiscal Year 2020

FOR

A Vote Against

4. A stockholder proposal regarding the Company’s disclosure of political spending

AGAINST

A Vote Against

5. A stockholder proposal regarding the Company’s disclosure of lobbying activities

AGAINST

A Vote Against

 

Governance Highlights

As part of Air Group’s commitment to high ethical standards, our Board follows sound governance practices.  Many of these practices are described in more detail in our Corporate Governance Guidelines, which are available on the Company’s website at www.alaskaair.com under About Alaska/Investor Relations.

 

Topic

Practice

Independence

   10 out of 12 nominees are independent.

   Board committees are composed exclusively of independent directors.

Lead Independent Director

   The Board has appointed a strong lead independent director who has the specific authority to ensure objective evaluation of management decisions.

Executive Sessions

   Independent directors meet regularly without management.

Annual Election

   All directors are elected annually to one-year terms.

Majority Voting

   In uncontested elections, directors are elected by a majority of votes cast.

Director Evaluations

   The Board and each committee conduct annual self-evaluations and may engage a third party as needed.

Stock Ownership

   Each director is expected to hold shares of Alaska Air Group stock equivalent to six times his or her annual cash retainer.

Other Directorships

   Directors are encouraged to serve on no more than four other public company boards.

Stockholder Communications

   The Board has adopted a protocol to allow those stockholders with long-term significant holdings of our stock to meet directly with board members on appropriate matters.

Poison Pill

   The Company does not have a stockholder rights plan.

Proxy Access

   Stockholders who meet certain requirements may include director nominees in the Company’s proxy statement.

Right to Call Special Meeting

   Stockholders holding 10 percent or more of the outstanding stock have the right to call a special meeting.

Confidential Voting

   Records that identify the vote of a particular stockholder are kept confidential from the Company except in a proxy contest or as required by law.

Single Voting Class

   Common stock is the only class of voting shares outstanding.

Director Tenure

   Directors are subject to term and age limits as described in our Corporate Governance Guidelines.

 

3


 

Our Board

 

All nominees meet the New York Stock Exchange (NYSE) governance standards for director independence, except for Mr. Tilden and Mr. Minicucci, who are not independent due to each nominee’s position as an executive officer.

 

 

Nominee and Principal Occupation

 

 

Age

 

Director

Since

 

Committee Membership

Patricia M. Bedient

Former Executive Vice President and CFO The Weyerhaeuser Company

 

66

 

2004

 

Lead Independent Director

Audit

Governance and Nominating (Chair effective May 2020)

James A. Beer

Chief Financial Officer

Atlassian Corporation

 

59

 

2017

 

Innovation (Chair)

Safety

Marion C. Blakey

Former President and CEO

Rolls-Royce North America

 

72

 

2010

 

Compensation and Leadership Development (Chair)

Safety

Raymond L. Conner

Former Vice Chairman

The Boeing Company

 

64

 

2018

 

Compensation and Leadership Development

Safety

Dhiren R. Fonseca

Partner

Certares LP

 

55

 

2014

 

Audit

Innovation

Kathleen T. Hogan

Chief People Officer and Executive Vice President of Human Resources

Microsoft

 

54

 

2019

 

Compensation and Leadership Development

Susan J. Li

Vice President, Finance

Facebook, Inc.

 

34

 

2018

 

Audit

Innovation

Benito Minicucci

President

Alaska Airlines, Inc.

 

54

 

Nominee

 

 

Helvi K. Sandvik

President, Kidways LLC and Former President

NANA Development Corporation

 

62

 

2013

 

Safety (Chair)

J. Kenneth Thompson

President and CEO

Pacific Star Energy LLC

 

68

 

1999

 

Compensation and Leadership Development

Safety (until May 2020)

Governance and Nominating (effective May 2020)

Bradley D. Tilden

Chairman, President and CEO

Alaska Air Group, Inc.

 

59

 

2010

 

 

Eric K. Yeaman

Founder and Managing Partner,

Hoku Capital LLC

 

52

 

2012

 

Audit (Chair)

Governance and Nominating

 

4


 

Our Board

 

Board Diversity

 

 

5


 

Executive Compensation Practices

 

Our executive compensation program is aligned with our business strategy and is designed to attract and retain top talent and reward the achievement of key business goals.  The following practices ensure alignment of interests between stockholders and executives and are considered good governance by our Compensation and Leadership Development Committee (the Committee) and by the majority of our stockholders.  

 

Topic

Practice

Pay for Performance

   A significant percentage of total direct compensation is based on the achievement of performance-based goals that are challenging, yet attainable, and that drive achievement of the Company’s business strategy.  Goals apply to all employees to encourage alignment.

   The Committee considers Company performance when setting CEO pay.

“Say on Pay”

   Annually, we ask stockholders to provide an advisory vote on our pay practices, which the Committee considers when setting CEO pay.

Stock Ownership Requirements

   Our minimum stockholding requirements are 5 times base salary for the CEO, 4 times base salary for the president and 3 times base salary for the executive vice presidents of Alaska Airlines.

Change-in-Control Provisions

   We have double-trigger change-in-control provisions that require the consummation of a change-in-control transaction and the actual or constructive termination of employment.

Clawback Policy

   Our policy allows recovery of incentive cash or equity compensation that is based on financial statements that were subsequently restated due to the individual’s fraudulent or grossly negligent act or omission.  Our policy was recently expanded to include recovery for legal and compliance violations.

Independent Compensation Consultant

   The Committee retains a compensation consultant that does not provide any other services to the Company.

Hedging of Company Stock

   Executive officers and board members may not engage in transactions that create a hedge against fluctuations in the price of Alaska Air Group stock.

Pledging of Company Stock

   Executive officers and board members may not pledge Alaska Air Group stock as collateral for any obligation.

Severance Tax Gross-Ups

   Our change-in-control and severance arrangements do not provide for tax gross-ups.

Employment Contracts

   None of our Named Executive Officers (“NEOs”) has an employment contract.

Repricing of Stock Options

   Our equity incentive plan does not permit repricing or exchange of underwater stock options without stockholder approval.

 

 

 

6


 

 

CORPORATE GOVERNANCE

 

Board Leadership

The Company’s board leadership generally includes a combined chairman and CEO role with a strong independent lead director role.

In choosing to combine the roles of chairman and CEO, the Board takes into consideration the highly technical nature of the airline business and the importance of deep, industry-specific knowledge along with a thorough understanding of the Company’s business environment. Combining the roles also provides a clear leadership structure for the management team. Because the CEO has a deep understanding of the complexities of the airline business, the regulatory environment and the Company’s strategy – all of which are critically important to the Company’s performance – the Board believes that he or she generally is best suited to serve as chairman and to preside over the majority of the Board’s discussions in a way that focuses those discussions on key matters of strategic importance for the airline.  

By creating an independent lead director role with specific authority, the Board is able to ensure objective evaluation of management decisions, company strategy and performance and to provide independent leadership for director and management succession planning and other governance issues.

The lead independent director’s responsibilities include:

 

presiding at all meetings where the board chairman is not present or where the board chairman could be perceived as having a conflict of interest, including but not limited to periodic meetings of independent directors;

 

approving the board meeting agendas and meeting schedules to ensure sufficient time for discussion, and approving information sent to board members;

 

leading the independent directors’ annual evaluation of the CEO;

 

conducting interviews of independent directors annually, including a discussion of each individual director’s self-assessment of his or her contribution prior to nomination for election at the annual meeting;

 

discussing any proposed changes to committee assignments with each affected director annually in advance of the Governance and Nominating Committee making committee membership recommendations to the Board;

 

being available for consultation and direct communication on appropriate matters if requested by a major stockholder; and

 

performing such other duties as may be described in the Company’s Corporate Governance Guidelines or by the Board, including serving as liaison between the chairman and independent directors and calling meetings of the independent directors or the full Board, if appropriate.

Notwithstanding the Board’s preference for combining the roles of chairman and CEO, the Board may separate the CEO and chairman roles from time to time, at its discretion, and has done so previously on a temporary basis in connection with the transition to a new CEO. In deciding whether to separate the roles, the Board considers, among other things, the experience and capacity of the sitting CEO, the rigor of independent director oversight of financial, operational and safety regulatory issues, the current climate of openness between management and the Board, and the existence of other checks and balances that help ensure independent thinking and decision making by directors.

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Executive Sessions and Lead Independent Director

The Board holds executive sessions of independent directors quarterly, as provided in the Company’s Corporate Governance Guidelines. The lead independent director presides over these executive sessions. Each Committee also holds an executive session of independent directors quarterly (presided over in each case by the respective committee chair) and includes key management personnel on an individual basis in order to ensure full transparency and risk oversight.

Risk Oversight

Air Group has adopted an enterprise-wide risk analysis and oversight program. This program is designed to:

 

identify the various risks faced by the organization,

 

assign responsibility for managing those risks to individual management executives who report directly to the applicable committee, and

 

align those management assignments with appropriate board-level oversight.

The structure and reporting relationships and key areas of responsibility are shown below:

 

Board of Directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit Committee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Responsible for Risk

Oversight Program

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Air Group Risk Matrix

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audit

Committee

 

 

 

 

 

Innovation

Committee

 

Compensation &

Leadership

Development

Committee

 

Safety

Committee

 

Governance &

Nominating

Committee

 

 

 

 

 

 

 

 

 

 

 

Oversees

Enterprise Risk

 

 

 

Oversees

Strategy Execution Risk

 

Oversees Executive

Compensation Risk

 

Oversees Safety

Related Risk

 

Oversees Board &

Governance Risk

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Independent

Accountant

 

Audit Executive

 

Chief Ethics &

Compliance Officer

 

Commercial Officer

 

Independent

Consultant

 

Vice President

Safety

 

Corporate

Secretary

 Review internal controls & procedures

• Review SEC filings

 Provide audit services for annual report

 

 Day to day design & implementation of program

 Identifies risk issues for year ahead

 Reports quarterly & reviews program annually

 

 Corporate compliance program

 Code of Conduct & Ethics

 Corporate investigation program

 

 Discuss and advise on risk tolerance for adopting emerging or disruptive technology

 Monitors overall risk-based strategy and approach

 

 Periodic review and assessment of executive compensation program

 Periodic review of CEO development and succession plan

 

 Monitor and review to reduce risk of security and safety incidents

 Periodic review of health, safety and environmental policies and practices

 

 Annual review and assessment of board & governance practices

 

 

As shown above, responsibility for identified risks has been assigned to appropriate executives, and assignments have been aligned for appropriate board oversight. Responsibility for managing these risks includes strategies related to both mitigation (acceptance and management) and transfer (insurance).

The risk matrix is approved annually by the Audit Committee and regularly reviewed by the Board.  The Audit Committee also receives quarterly updates regarding the program and an annual in-person review of the program’s status by the audit executive. Under the program, the Audit Committee also works with the audit executive and members of the management executive committee to annually identify the most pressing risk issues for the next year. This subset of the risk matrix is then used as a framework for periodic reports by the

8


 

designated management executive to the appropriate board entity for heightened oversight. Furthermore, these areas of emphasis regarding risk are specifically reviewed and discussed with executive management annually and are incorporated into the development of the Company’s strategic objectives for the coming year.

The Company believes that its leadership structure, discussed in detail in the Board Leadership section in this Proxy Statement, supports the risk oversight function of the Board for the same reasons that it believes the leadership structure is most effective for the Company, namely that, while facilitating open discussion and communication from independent members of the Board, it ensures that strategic discussions are led by an individual with a deep understanding of the highly technical and complex nature of the airline business.

Code of Conduct and Ethics

The Company has adopted the Code of Conduct and Ethics, which applies to all company employees, including its CEO, CFO, principal accounting officer and persons performing similar functions, and its Board of Directors. The Code of Conduct and Ethics may be found on the Company’s website at www.alaskaair.com under About Alaska/Investor Relations. Information on the Company’s website, however, does not form a part of this Proxy Statement. The Company discloses on the Company’s website any amendments (other than technical, administrative or non-substantive amendments) to, and any waivers from, a provision of the Code of Conduct and Ethics for directors or executive officers.

Prohibition of Speculative Transactions in Company Securities

The Company’s insider trading policy prohibits the Company’s directors and executive officers, including the Named Executive Officers, as well as employees in the positions of managing director or above and certain other employees, from engaging in certain speculative transactions in the Company’s securities, including short-term trading, short sales, publicly traded options (such as puts, calls or other derivative securities), margin accounts, pledges of Company securities and certain forms of hedging or monetization transactions such as zero-cost collars and forward sale contracts.

Environmental and Social Highlights

One of the Company’s core values, “Do the right thing” – for employees, communities, and the environment – helps the Company achieve its strategic goals, including employee engagement, high guest satisfaction and loyalty, and operational efficiency, all of which contribute to a successful bottom line, and in turn increase stockholder value.

Environmental and social highlights from 2019 include:

 

Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the third consecutive year, receiving top scores for “efficiency” and “reliability.”

 

Maintained one of the industry’s most fuel-efficient fleets and continued to assess and take action on more electronic ground servicing vehicles at airports where we serve – both are initiatives to reduce Alaska’s GHG emissions intensity.

 

Continued our leading in-flight recycling program and having reduced waste to landfill by over 15,000 tons over the past decade.  Alaska was also the first airline to “go strawless,” removing 22 million single-use plastic straws and stir sticks from in-flight and ground use and replacing them with sustainable alternatives in order to reduce waste and improve ocean health.

 

Launched #FillBeforeYouFly campaign encouraging guests to bring their own prefilled water bottles onboard and partnered with the Bonneville Environmental Foundation to plant a tree for every guest that does so.

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Donated over $15.3 million in-kind and cash and contributed more than 41,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

 

Ranked among Forbes’ 2019 “America’s Best Employers” for the fifth year in a row.

 

Received a score of 90% for workplace equality on the 2019 Corporate Equality Index.

 

Reached more than 107,286 youth and members of the workforce since 2014 with educational initiatives to enhance opportunity and expand career choices.

Additional information on the Company’s environmental, social and sustainability initiatives may be found in the Company’s Sustainability Report accessible online at www.flysustainably.com.  Information on the Company’s website, however, does not form a part of this Proxy Statement.

Political Contributions and Engagement

Public policy affects our ability to achieve Company goals, meet customer needs and provide stockholder value. As such, the Company believes it is important to engage in public policymaking processes at the federal, state and local levels, which includes making political contributions where appropriate and permitted by law.

 

The Company is committed to adhering to the highest standards of ethics in engaging in activities that seek to advocate legislative positions that support our business and operations.  To ensure contributions are made in a manner consistent with the Company’s goals and stockholder’s interest, the Company has adopted a Policy on Political Contributions and Engagement.  This policy outlines the implementation responsibilities for management and the oversight processes of the Governance and Nominating Committee.

 

To view this policy in more detail, please visit www.alaskaair.com under About Alaska/Investor Relations then select Governance/Governance Documents.

Stockholder Communications

Any stockholder or interested party who wishes to communicate with the Board or any specific director, including the lead independent director (who presides over executive sessions of the independent directors) or with the independent directors as a group, may write to:

Board of Directors

Alaska Air Group, Inc.

PO Box 68947

Seattle, WA 98168

Depending on the subject matter, management will:

 

forward the communication to the director or directors to whom it is addressed or the applicable director with oversight of the topic (for example, if the communication received deals with questions, concerns or complaints regarding accounting, internal accounting controls and auditing matters, it will be forwarded by management to the chair of the Audit Committee for review); or

 

attempt to handle the inquiry directly (for example, where it is a request for information about the Company’s operations or it is a stock-related matter that does not appear to require direct attention by the Board or any individual director); or

 

not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic.

10


 

At each meeting of the Governance and Nominating Committee, the Corporate Secretary or Assistant Corporate Secretary presents a summary of all communications received since the last meeting of the Governance and Nominating Committee and will make those communications available to any director on request.

The Board has also implemented a protocol for stockholder-director engagement that provides long-term holders of a significant percentage of the Company’s stock a process for communicating directly with the Board in person or by phone.  Investors may request information regarding engagement with stockholders by contacting the Assistant Corporate Secretary at (206) 392-5380 or by email to allie.wittenberger@alaskaair.com.

Each year, the Company reaches out to stockholders that have requested such engagement or that have demonstrated a long-term, significant investment in the Company.  In the past year, the Company sought feedback from stockholders representing approximately 47% of the Company’s common stock on relevant matters related to corporate governance and stockholder value and spoke with every stockholder who expressed an interest in engaging.  In addition, the Chairman, Lead Independent Director and Chair of the Governance and Nominating Committee met by telephone with three of the Company’s largest and longest-term stockholders, the only stockholders that had requested engagement pursuant to the protocol above, to discuss relevant matters directly.  The feedback from those discussions provided a framework for certain disclosures in this Proxy Statement.

Virtual Meeting Philosophy

The Company has held its annual meeting of stockholders as a virtual meeting via the Internet since 2016.  The Company also offers stockholders the option to ask questions live via telephone. The Board believes that holding the annual meeting of stockholders in a virtual format provides the opportunity for participation by a broader group of stockholders, while reducing the costs associated with planning, holding and arranging logistics for in-person meeting proceedings. This balance allows the meetings to remain focused on matters directly relevant to the interests of stockholders in a way that recognizes the value to stockholders of an efficient use of Company resources.

The Board intends that the virtual meeting format provide stockholders a level of transparency as close as possible to the traditional in-person meeting format and takes the following steps to ensure such an experience:

 

providing stockholders with the ability to submit appropriate questions in advance of the meeting to ensure thoughtful responses from management and the Board;

 

providing stockholders with the ability to submit appropriate questions real-time either via telephone or the meeting website, limiting questions to one per stockholder unless time otherwise permits;

 

answering as many questions submitted in accordance with the meeting rules of conduct as possible in the time allotted for the meeting without discrimination;  

 

publishing all questions submitted in accordance with the meeting rules of conduct with answers following the meeting, including those not addressed directly during the meeting; and

 

offering separate engagement opportunities with stockholders on appropriate matters of governance or other relevant topics as outlined under the Stockholder Communications section in this Proxy Statement.

 

11


 

ELECTION OF DIRECTORS

Proposal 1:  Election of Directors to One-Year Terms

The Company’s Bylaws provide that directors shall serve a one-year term. Directors are elected to hold office until their successors are elected and qualified, or until resignation or removal in the manner provided in the Company’s Bylaws. Twelve directors are nominees for election this year and each has consented to serve a one-year term ending in 2021.  There are no family relationships among the directors and our executive officers.

 

Patricia M. Bedient, 66

 

Qualifications:

 

 

 

Former Executive Vice

President and CFO, The

Weyerhaeuser Company

Director of Alaska Air

Group since 2004

Lead Independent Director

Audit Committee

Governance and
Nominating Committee (Chair, effective May 2020)

 

•  Financial Expertise

•  Strategic Planning Experience

•  Public Accounting Experience

•  Mergers and Acquisitions Experience

Professional Highlights:

Ms. Bedient was executive vice president (until July 2016) for The Weyerhaeuser Company, a publicly traded company and one of the world’s largest integrated forest products companies.  She was the company’s CFO until February 2016.  A certified public accountant (CPA) since 1978, she served as managing partner of the Seattle office of Arthur Andersen LLP prior to joining Weyerhaeuser. Ms. Bedient also worked at Andersen’s Portland and Boise offices as a partner and as a CPA during her 27-year career with the firm. She is a member of the American Institute of CPAs and the Washington Society of CPAs.

Current Public Company Board Service:

•  Suncor Energy, Inc.

•  Park Hotels and Resorts

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  Overlake Hospital Medical Center Board of Trustees

•  Oregon State University Board of Trustees

•  University of Washington Foster School of Business Advisory Board

Education:

•  BS, Oregon State University

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

James A. Beer, 59

 

Qualifications:

CFO, Atlassian Corporation

Director of Alaska Air

Group since 2017

 

Innovation Committee (Chair)

Safety Committee

 

•  Financial Expertise

•  Aviation Industry Expertise

•  Strategic Planning Experience

•  Technology Experience

Professional Highlights:

Mr. Beer joined Atlassian Corporation PLC, a publicly traded company, as its CFO in February 2018.  He was executive vice president and CFO for McKesson Corporation from 2013 to 2017, and CFO at Symantec Corp. from 2006 to 2013.  From 1991 to 2006, he held a number of management positions including CFO at AMR Corporation and American Airlines, AMR’s principal subsidiary.

Current Public Company Board Service:

•  ForeScout Technologies, Inc.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

Education:

•  BS, Aeronautical Engineering, Imperial College, London University

•  MBA, Harvard Business School

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12


 

Marion C. Blakey, 72

 

Qualifications:

 

 

 

Former President and

CEO, Rolls-Royce North America

Director of Alaska Air

Group since 2010

Compensation and

Leadership Development

Committee (Chair)

Safety Committee

 

Aviation industry expertise and extensive experience with airline industry government and trade organizations including:

•  Aerospace Industries Association

•  Federal Aviation Administration

•  National Transportation Safety Board

Professional Highlights:

Ms. Blakey was president and CEO of Rolls-Royce North America until June 30, 2018. From 2007 to 2015, she was president and CEO of Aerospace Industries Association, the nation’s largest aerospace and defense trade association.  Prior to that she served as the Administrator of the Federal Aviation Administration from 2002 to 2007 and as chair of the National Transportation Safety Board from 2001 to 2002.  She previously served on the President’s Export Council Subcommittee on Export Administration, the Washington Area Airports Task Force Advisory Board and the International Aviation Women’s Association Advisory Board.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  Noblis Board of Trustees (a non-profit science, technology and strategy organization)

•  Smithsonian National Air and Space Museum

•  Radia Inc. Advisory Board

•  Aireon Advisory Board

•  Sunrise Transportation Advisory Board

•  WINGS Club Foundation

Education:

•  BA, Mary Washington College of the University of Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raymond L. Conner, 64

 

Qualifications:

 

 

 

Former Vice Chairman,

The Boeing Company

Director of Alaska Air Group

since 2018

Compensation and

Leadership Development

Committee

Safety Committee

 

 

•  Public Company CEO Experience

•  Strategic Planning Experience

•  Aviation Industry Experience

•  Community Leadership

Professional Highlights:

Mr. Conner is operating advisor to Clayton, Dubilier & Rice (a private investment firm) since September 2018.  He is the former vice chairman of The Boeing Company.  Prior to his appointment to vice chairman in 2013, Mr. Conner served in a number of positions with Boeing Commercial Airplanes since 1977, including a variety of roles within the sales, finance and materiel divisions.  Most recently, he served as vice president and general manager of the 777 program (2001-2003), vice president of sales for the Americas (2003 to 2007), vice president and general manager of supply chain management and operations (2008 – 2011), vice president sales, marketing and commercial aviation services (2012), and president and CEO (2013-2017).

Current Public Company Board Service:

•  Adient

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  Board of Trustees Central Washington University

Education:

•  BS, Central Washington University

•  MBA, University of Puget Sound

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13


 

 

Dhiren R. Fonseca, 55

 

Qualifications:

 

 

 

Partner, Certares LP

Director of Alaska Air Group

since 2014

Audit Committee

Innovation Committee

 

 

•  Technology/IT/Digital Expertise

•  Business Development Experience

•  Financial Experience

Professional Highlights:

Prior to joining Certares LP as a partner in December 2014, Mr. Fonseca was chief commercial officer at Expedia, Inc., where he served for more than 18 years. He contributed greatly to the online travel company’s growth and success, serving in a host of key roles including co-president of its global partner services group and senior vice president of corporate development. Mr. Fonseca helped found Expedia.com as part of the management team at Microsoft Corporation that brought the online travel company to life in 1995 and subsequently took it public in 1999. Before Expedia, he held multiple roles in product management and corporate technical sales at Microsoft Corporation.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  RentPath, Inc.

•  Rackspace, Inc.

•  Diamond Resorts

 

 

 

 

 

 

 

Kathleen T. Hogan, 54

 

Qualifications:

 

 

 

 

 

 

 

 

 

 

Chief People Officer and Executive Vice President of Human Resources,

Microsoft

Director of Alaska Air Group

since August 2019

Compensation and Leadership Development Committee

 

•  Leadership Development and Culture Expertise

•  Technology Experience

Professional Highlights:

Ms. Hogan is chief people officer executive vice president of human resources for Microsoft Corporation (technology), a publicly traded company.  She previously served as corporate vice president of Microsoft Services.  Prior to joining Microsoft in 2003, Ms. Hogan was a partner at McKinsey & Co. and a development manager at Oracle Corp.  She previously led the finance committee for the Puget Sound affiliate of Susan G. Komen for the Cure.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  National Center for Women & Information Technology

Education:

•  BS, Harvard University

•  MBA, Stanford University Graduate School of Business

 

14


 

 

Susan J. Li, 34

 

Qualifications:

 

 

 

Vice President Finance,

Facebook, Inc.

Director of Alaska Air Group

since 2018

Audit Committee

Innovation Committee

 

•  Financial Expertise

•  Strategic Planning Experience

•  Technology/IT/Digital Experience

Professional Highlights:

Ms. Li currently serves as a vice president of finance at Facebook, Inc., where she leads the finance, business planning and treasury organizations.  Since joining Facebook in 2008, Ms. Li has served in a number of finance positions, including director of finance from 2013 to 2016, leading teams focused on business operations and financial planning and analysis.  Prior to Facebook, she was an investment banking analyst at Morgan Stanley.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

Education:

•  BA and BS, Stanford University

 

 

 

 

 

 

 

Benito Minicucci, 54

 

Qualifications:

 

 

 

 

 

 

 

President,

Alaska Airlines, Inc.

 

Director Nominee

 

 

•  Airline Operations Expertise

•  Mergers and Acquisitions Experience

Professional Highlights:

Mr. Minicucci has been president of Alaska Airlines since May 2016.  He served as chief operating officer from December 2008 until November 2019.  Mr. Minicucci also served as chief executive officer of Virgin America Inc. from December 2016 to July 2018. Prior to this, he held various executive positions at Alaska, including executive vice president of operations, vice president of Seattle operations, and staff vice president of maintenance and engineering.  Before joining Alaska, Mr. Minicucci had a variety of roles at Air Canada and served in the Canadian Armed Forces for 14 years prior to joining the private aviation sector. Mr. Minicucci served on the board of PG&E Corporation (an energy-based holding company) from July 2018 to April 2019.  

Current Non-Public Company Board Service:

•  Silicon Valley Leadership Group

•  University of Washington Michael G. Foster School of Business, Center for Leadership and Strategic Thinking

Education:

•  BS and MS, Royal Military College of Canada

•  Advanced Management Program, Harvard Business School

 

 

15


 

 

Helvi K. Sandvik, 62

 

Qualifications:

 

 

 

President, Kidways LLC

Director of Alaska Air Group

since 2013

Safety Committee (Chair)

 

•  30+ Years of Private and Public Sector Senior Executive Management and Board Experience

•  Intimate Knowledge of the Native Culture and Transportation Requirements in the State of Alaska

•  Community Leadership Experience

 

 

 

Professional Highlights:

 

Ms. Sandvik is president of Kidways LLC (business management consulting). From 1999 to 2016, Ms. Sandvik was president of NANA Development Corporation (NDC), a diversified business engaged in government contracting, oilfield and mining support, professional management services, and engineering and construction.  During this time, she oversaw the growth of the NDC from an oil field support services company with revenues of $50 million into a diverse, multi-sector, global enterprise with revenues of $1.5 billion.  Prior to that, Ms. Sandvik served in a variety of leadership roles within the Alaska Department of Transportation and Public Facilities, including director of statewide aviation and deputy commissioner, as well as a variety of public and non-profit leadership roles.

 

Current Non-Public Company Board Service:

 

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  HDR, Inc.

•  National Center for American Indian Enterprise Development

 

 

Education:

•  BA, Kalamazoo College

•  MBA, University of Alaska Fairbanks

 

 

 

 

 

J. Kenneth Thompson, 68

 

Qualifications:

 

 

 

President and CEO, Pacific

Star Energy LLC

Director of Alaska Air Group since 1999

Compensation and

Leadership Development

Committee

Governance and Nominating

Committee (effective May 2020)

 

 

•  Business Leadership Expertise

•  Experience with Strategic Planning, Engineering, Operations, Technology and Research, and Safety/Environmental/Regulatory Issues

•  Community Leadership Experience

Professional Highlights:

Since 2000, Mr. Thompson has been a co-owner and president and CEO of Pacific Star Energy LLC, a firm that is a passive owner of oil lease royalties in Alaska.  He served from 2004 to 2012 as Managing Director of Alaska Venture Capital Group LLC, a private oil and gas exploration firm in which Pacific Star Energy LLC owns an interest.  Mr. Thompson chairs the environmental, health, safety and social responsibility committee and serves on the governance and nominating committee of Coeur Mining Corporation, serves on the strategy planning and enterprise risk committee and chairs the compensation committee at Tetra Tech, Inc., and serves on the compensation committee, chairs the governance and nominating committee, and the hydrocarbon reserves committee, as well as serving as non-executive chairman of the board of Pioneer Natural Resources Company.  He is also a member and chair of CDF Capital, a non-profit organization.  In 2019, Mr. Thompson was selected as one of the 100  most influential corporate directors by the National Association of Corporate Directors (NACD).

Current Public Company Board Service:

•  Pioneer Natural Resources Company (Non-Executive Chairman)

•  Tetra Tech, Inc.

•  Coeur Mining Corporation

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

Education:

•  BS, Missouri University of Science and Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

 

Bradley D. Tilden, 59

 

Qualifications:

 

 

 

Chairman, President and

CEO, Alaska Air Group, Inc.

Chairman and CEO, Alaska

Airlines, Inc.

Chairman, Horizon Air

Industries, Inc.

Director of Alaska Air Group since 2010

 

•  Deep Airline Experience

•  Strategic Planning Experience

•  Financial Expertise

•  Public Company CEO Experience

•  Community Leadership

 

Professional Highlights:

Mr. Tilden has been chairman of Alaska Air Group, Alaska Airlines and Horizon Air since January 2014. He served as president of Alaska Airlines from December 2008 to May 2016. In May 2012, Mr. Tilden was named president and CEO of Alaska Air Group and CEO of Alaska Airlines, and he was CEO of Horizon Air from May 2012 to May 2016. He served as executive vice president of finance and planning from 2002 to 2008 and as CFO from 2000 to 2008 for Alaska Airlines and Alaska Air Group. Prior to 2000, he was vice president of finance at Alaska Airlines and Alaska Air Group.

 

Current Public Company Board Service:

•  Nordstrom, Inc.

 

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  Airlines for America

•  Boy Scouts of America

•  Washington Roundtable

 

Education:

•  BA, Pacific Lutheran University

•  MBA, University of Washington

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eric K. Yeaman, 52

 

Qualifications:

 

 

 

Founder and Managing Partner,

Hoku Capital LLC

Director of Alaska Air Group

since 2012

Audit Committee (Chair)

Governance and Nominating

Committee

 

 

•  Financial Expertise

•  Public Company CEO Experience

•  Intimate Knowledge of the Culture and Transportation Needs of Hawaii

Professional Highlights:

Mr. Yeaman is currently the founder and managing partner of Hoku Capital LLC, a strategic advisory services and investment firm located in Honolulu, HI.  He was president and COO of First Hawaiian Bank, a wholly owned subsidiary of First Hawaiian Inc., from June 2015 to August 2019.  From 2008 to 2015, he was president and CEO of Hawaiian Telcom, a telecommunications and technology company serving the state of Hawaii.  Prior to that, he was senior executive vice president and COO of Hawaiian Electric Company, Inc. (HECO). Mr. Yeaman joined Hawaiian Electric Industries, Inc. (HEI), HECO’s parent company, in 2003 as financial vice president, treasurer and CFO. Prior to joining HEI, Mr. Yeaman held the positions of chief operating and financial officer for Kamehameha Schools from 2000 to 2003. He began his career at Arthur Andersen LLP in 1989.

Current Public Company Board Service:

•  Alexander & Baldwin, Inc.

Current Non-Public Company Board Service:

•  Alaska Airlines and Horizon Air (subsidiaries of Alaska Air Group)

•  The Harold K.L. Castle Foundation

•  Hawaii Asia Pacific Association

Education:

• BA, University of Hawaii at Manoa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE

ELECTION OF THE 12 DIRECTOR NOMINEES NAMED ABOVE.

17


 

Structure of the Board of Directors

In accordance with the Delaware General Corporation Law and the Company’s Certificate of Incorporation and Bylaws, the Company’s business affairs are managed under the direction of the Board of Directors. Directors meet their responsibilities by, among other things, participating in meetings of the Board and board committees on which they serve, discussing matters with the chairman and CEO and other executives, reviewing materials provided to them, and visiting the Company’s facilities.

Pursuant to the Bylaws, the Board of Directors has established five standing committees, which are the Audit Committee, the Compensation and Leadership Development Committee, the Governance and Nominating Committee, the Safety Committee and the Innovation Committee. Only independent directors serve on these committees. The Board has adopted a written charter for each committee, which they review annually and update as necessary. These charters are posted on and can be accessed at www.alaskaair.com under About Alaska/Investor Relations.

The table below shows the current members and chairs of the standing board committees.

Board Committee Memberships

 

 

 

 

Audit Committee

 

Compensation and

Leadership

Development

Committee

 

Governance and

Nominating

Committee

 

Safety Committee

 

Innovation Committee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patricia M. Bedient (1)

 

 

 

 

Chair

 

 

 

 

 

 

James A. Beer (2)(3)

 

 

 

 

 

 

 

 

Chair

 

 

Marion C. Blakey

 

 

 

Chair

 

 

 

 

 

 

 

Raymond L. Conner

 

 

 

 

 

 

 

 

 

 

Dhiren R. Fonseca (3)

 

 

 

 

 

 

 

 

 

 

Kathleen T. Hogan

 

 

 

 

 

 

 

 

 

 

 

Susan J. Li (3)

 

 

 

 

 

 

 

 

 

 

Helvi K. Sandvik

 

 

 

 

 

 

 

Chair

 

 

 

 

J. Kenneth Thompson (4)

 

 

 

 

 

 

 

 

 

 

Eric K. Yeaman

 

Chair

 

 

 

 

 

 

 

 

 

(1)

In March 2020, Ms. Bedient was appointed chair of the Governance and Nominating Committee effective May 7, 2020.

(2)

Mr. Beer served on the Compensation and Leadership Development Committee until January 2020..

(3)

Mr. Beer, Mr. Fonseca and Ms. Li were appointed to the newly created Innovation Committee in November 2019.

(4)

Mr. Thompson served on the Safety Committee until March 2020, at which time he was appointed to the Governance and Nominating Committee effective May 7, 2020.

 

18


 

Board Committee Functions

The principal functions of the standing board committees, pursuant to their respective charters, are as follows:

 

Audit Committee

  With regard to matters pertaining to the independent registered public accountants:

o  appoint them, approve their compensation and oversee their work;

o  review at least annually a written statement regarding their internal quality-control procedures, any material issues raised by their internal quality-control review, and all relationships between the independent accountants and the Company;

o  maintain ongoing discussions as to their independence;

o  pre-approve all auditing and non-auditing services they are to perform;

o  review annual audited and quarterly financial statements with management and the independent registered public accountants;

o  receive and review communications required from the independent registered public accountants under applicable rules and standards; and

o  establish clear hiring policies for employees and former employees of the independent registered public accountants..

  With regard to matters pertaining to the internal auditors:

o  review and approve the annual internal audit plan;

o  review the results of internal audit activities;

o  review the structure and resources of the internal audit team; and

o  review and approve any changes to the internal audit charter.

  With regard to matters pertaining to controls:

o  discuss with management policies and practices with respect to risk assessment and risk management, including the process by which the Company undertakes risk assessment and enterprise risk management;

o  review with management major financial risk exposure and adequacy and effectiveness of associated internal controls;

o  review procedures with respect to appropriateness of significant accounting policies and the adequacy of financial controls;

o  discuss with management, as appropriate, earnings releases and any information provided to analysts and ratings agencies;

o  develop, monitor and reassess from time to time a corporate compliance program, including a code of conduct and ethics policy, decide on requested changes to or waivers of such program and code relating to officers and directors, and establish procedures for confidential treatment of complaints concerning accounting, internal controls or auditing matters;

o  review any changes to the corporate compliance program charter; and

o  obtain and review at least quarterly a statement from the CEO, CFO and disclosure committee members disclosing any significant deficiencies in internal controls and any fraud that involves management or other employees with significant roles in internal controls.

  Annually review and reassess the adequacy of the Audit Committee’s charter and its performance.

 

19


 

Compensation and Leadership Development Committee

  With regard to executive and director compensation:

o  recommend for approval by the Board changes in compensation and insurance for the Company’s and its subsidiaries’ nonemployee directors;

o  set, review and approve compensation of the CEO and other elected officers of the Company and its subsidiaries; and

o  establish the process for reviewing and approving corporate goals relevant to CEO compensation and for evaluating CEO performance in light of those goals.

  Set annual goals under the broad-based Performance-Based Pay Plan and Operational Performance Rewards Plan and administer the plans.

  Grant stock awards and stock options to elected officers.

•  Administer and review the supplementary retirement plans for elected officers and the equity-based incentive plans.

  Make recommendations to the Board regarding other executive compensation issues, including modification or adoption of plans.

  Fulfill ERISA fiduciary and non-fiduciary functions for tax-qualified retirement plans by monitoring management benefit committees and approving the membership of those committees, and the extension of plan participation to employees of subsidiaries.

  Approve the terms of employment and severance agreements with elected officers and the form of change-of-control agreements.

  Ensure a framework, process and policies are in place for CEO and executive succession, including standards for assessment, and the periodic review of CEO and other management development and succession plans.

  Administer and make recommendations to the Board of Directors with respect to the Company’s equity and other long-term incentive equity plans.

  Administer, review and modify the Company’s policy regarding recoupment of certain compensation payments.

  Produce the report on executive compensation required for the annual proxy statement.

  Annually review and reassess the adequacy of the Committee’s charter and its performance.

Governance and Nominating Committee

  Develop, monitor and reassess from time to time the Corporate Governance Guidelines.

  Evaluate the size and composition of the Board.

  Develop criteria for board membership.

•  Evaluate the independence of existing and prospective members of the Board.

•  Seek and evaluate qualified candidates for election to the Board.

  Evaluate the nature, structure and composition of other board committees.

  Take steps it deems necessary or appropriate with respect to annual assessments of the performance of the Board and each board committee, including itself.

•  Annually review and reassess the adequacy of the Governance and Nominating Committee’s charter and its performance.

20


 

Safety Committee

•  Monitor management’s efforts to ensure the safety of passengers and employees of the Company and its subsidiaries.

  Monitor and assist management in creating a uniform safety culture that achieves the highest possible industry performance measures.

  Review management’s efforts to ensure aviation security and reduce the risk of security incidents.

  Oversee Alaska’s and Horizon’s internal evaluation programs which audit safety-related risks.

  Periodically review with management and outside experts all aspects of airline safety.

  Evaluate the Company’s health, safety and environmental policies and practices and applicable federal and state standards.

  Annually review and reassess the adequacy of the Committee’s charter and its performance.

Innovation Committee

  Review and advise on the Company’s strategy and approach to innovation, including how such innovation improves revenue, guest and employee experiences.

  Ensure the Company applies an appropriate risk-based methodology in defining the innovation strategy and where investments are made.

  Discuss and advise on the Company’s risk tolerance for adopting emerging or disruptive technology to ensure there is commercial viability.

  Review allocation of resources – both financial and human capital – for innovation and to ensure resources are adequate to execute the strategy.

  Review results from the measurement and tracking systems designed to monitor progress towards achieving the innovation strategy.

  Discuss and advise on methods to foster a culture of innovation across the Company.

  Review and discuss technology trends that could significantly affect the Company and the business in which it operates including whether investments in technology partners is required to assist in delivering the Company’s strategy.

  Annually review and reassess the adequacy of the Committee’s charter and its performance.

 

Board and Committee Meetings

In 2019, the Board of Directors held five meetings. The standing board committees held the following number of meetings in 2019:

Audit Committee - 4

Compensation and Leadership Development Committee - 6

Governance and Nominating Committee - 4

Safety Committee - 4

Each director attended at least 75% of all board and applicable committee meetings during 2019. Each director is expected to attend the Company’s Annual Meeting of Stockholders. Last year, all directors attended the annual stockholders meeting.

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Director Independence

The Board of Directors of the Company has determined that all the directors, except Mr. Tilden and Mr. Minicucci (who is a director nominee), and including each member of the Audit Committee, Compensation and Leadership Development Committee, and Governance and Nominating Committee, are independent under the NYSE listing standards and the Company’s independent director standards that are set forth in the Company’s Corporate Governance Guidelines. The Corporate Governance Guidelines are available on the Company’s website at www.alaskaair.com under About Alaska/Investor Relations.  In making its determination, the Board considered the contributions made by the Company to charitable organizations with which any of its directors are affiliated. In this regard, the Board considered the value of charitable contributions made by the Company to an organization with which Ms. Bedient is affiliated in a non-fiduciary capacity as a member of its advisory board. After consideration of these matters and in accordance with the Board’s independent director criteria, the Board affirmatively determined that the matters did not represent material relationships with the Company because the amounts of the contributions were immaterial with respect to the Company’s and the outside organization’s annual revenues.

 

 

Each member of the Company’s Audit Committee meets the additional independence, financial literacy and experience requirements contained in the corporate governance listing standards of the NYSE relating to audit committees or as required by the SEC. The Board has determined that Ms. Bedient and Mr. Yeaman are audit committee financial experts as defined in SEC rules.

The independence standards for members of the Compensation and Leadership Development Committee provide that, in addition to the foregoing standards that apply to directors generally, the Board must consider all factors specifically relevant to determining whether a director has a relationship to the Company that is material to that director’s ability to be independent from management in connection with the duties of a member of the Compensation and Leadership Development Committee, including the source of compensation of such director and whether such director is affiliated with the Company or any of its subsidiaries or affiliates.

Specifically, the Board has determined that independent directors must have no material relationship with the Company, based on all material facts and circumstances. At a minimum, an independent director must meet each of the standards listed below.

1.

The director, within the last three years, has not been employed by and has no immediate family member that has been an executive officer of the Company.

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2.

Neither the director nor any immediate family member has, in any 12-month period during the last three years, received more than $120,000 in direct compensation from the Company other than compensation for director or committee service and pension or other deferred compensation for prior service.

3.

Neither the director nor any immediate family member is a current partner of the Company’s independent accountant’s firm, the director is not a current employee of the independent accountant’s firm, no immediate family member is a current employee of the independent accountant’s firm working in its audit, assurance or tax compliance practice, and neither the director nor any immediate family member was an employee or partner of the independent accountant’s firm within the last three years and worked on the Company’s audit within that time.

4.

Neither the director nor any immediate family member has, within the last three years, been part of an interlocking directorate. This means that no executive officer of the Company served on the compensation committee of a company that employed the director or an immediate family member.

5.

The director is not currently an employee of and no immediate family member is an executive officer of another company that represented at least 2% or $1 million, whichever is greater, of the Company’s gross revenues, or of which the Company represented at least 2% or $1 million, whichever is greater, of such other company’s gross revenues in any of the last three fiscal years. Charitable contributions are excluded from this calculation.

For the purposes of these standards, “Company” includes all Alaska Air Group subsidiaries and other affiliates. “Immediate family member” includes the director’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and anyone sharing the director’s home. The independence standards for the members of the Audit Committee provide that, in addition to the foregoing standards, they may not receive any compensation other than director’s fees for board and audit committee service and permitted retirement pay, or be an “affiliate” of the Company apart from their capacity as a member of the Board as defined by applicable SEC rules.

Director Nomination Policy

Identification of Candidates

1.

Internal Process for Identifying Candidates

The Governance and Nominating Committee (referred to in this section as the Nominating Committee) has two primary methods for identifying candidates (other than those proposed by the Company’s stockholders, as discussed below):

 

On a periodic basis, by soliciting ideas for possible candidates from a number of sources including, but not limited to, members of the Board, senior-level Company executives, individuals personally known to the members of the Board, and research.

 

From time to time, using its authority under its charter to retain at the Company’s expense one or more search firms to identify candidates (and to approve any such firms’ fees and other retention terms). If the Nominating Committee retains one or more search firms, those firms may be asked to identify possible candidates who meet the minimum and desired qualifications established by the Nominating Committee and to undertake such other duties as the Nominating Committee may direct.

This process has routinely resulted in the identification of candidates with diverse qualifications, backgrounds, geography, ethnicity, gender and age who have been re-elected by the majority of stockholders each year.

2.

Candidates Proposed by Stockholders

Stockholders who meet the qualifications outlined below may nominate up to two director candidates for inclusion in the Company’s proxy statement (see Proxy Access Right of Stockholders below). Stockholders who do not meet those qualifications or do not wish to have their director nominees included in the Company’s proxy materials may nominate director candidates and file their own proxy statement to solicit proxies for the election of their director nominees at an annual meeting if they comply with the requirements outlined in the Company’s Bylaws and as generally described below under General Nomination Right of All Stockholders.  

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For more information, see How can I submit a proposal for next year’s annual meeting? in the Questions and Answers section of this Proxy Statement including the deadlines applicable to the submission of director nominations for next year’s annual meeting of stockholders.  

Stockholders who wish to propose director candidates for board consideration may do so according to the process outlined in this section under Consideration of Director Candidates Recommended by Stockholders.  

The Corporate Secretary will send a copy of the Company’s Bylaws to any interested stockholder upon request. The Company’s Bylaws are also available on the Company’s website at www.alaskaair.com under About Alaska/Investor Relations.

 

a.

Proxy Access Right of Stockholders

In December 2015, the Board amended the Company’s Bylaws to provide a “proxy access” right to stockholders.  The Company’s proxy access bylaw is consistent with the prevailing market practice and satisfies the majority of stockholders. Under this proxy access right, a stockholder or a group of up to 20 stockholders owning at least 3% of the Company’s shares continuously for three years may nominate directors constituting up to 20% of the Board, or two nominees, whichever is greater, for election as a director of the Company at an annual meeting of stockholders and inclusion in the Company’s proxy materials.  This right is subject to certain conditions, including complying with the notice, information and consent provisions contained in Article II, Section 10 of the Company’s Bylaws.  The provisions generally require that written notice of a stockholder’s nomination of one or more persons for election to the Board and inclusion in the Company’s proxy materials be received by the Corporate Secretary of the Company no later than the close of business on the 120th day, and no earlier than the close of business on the 150th day, prior to the first anniversary of the date the Company’s proxy statement was released to stockholders for the previous year’s annual meeting.  Other specifics regarding the foregoing proxy access right, including the required content of the notice and certain other eligibility and procedural requirements, are set forth in Article II, Section 10 of the Company’s Bylaws.

 

b.

General Nomination Right of All Stockholders

Any stockholder of the Company may nominate one or more persons for election as a director of the Company at an annual meeting of stockholders if the stockholder complies with the notice, information and consent provisions contained in Article II, Section 9 of the Company’s Bylaws. The provisions generally require that written notice of a stockholder’s intent to make a nomination for the election of directors be received by the Corporate Secretary of the Company no later than the close of business on the 90th day, and no earlier than the close of business on the 120th day, prior to the first anniversary of the prior year’s annual meeting. The written notice submitted by a stockholder must also satisfy the additional informational requirements set forth in Article II, Section 9 of the Bylaws

 

c.

Consideration of Director Candidates Recommended by Stockholders

The Nominating Committee will evaluate candidates recommended by a single stockholder, or group of stockholders, that have beneficially owned more than 5% of the Company’s outstanding common stock for at least one year and that satisfies the notice, information and consent provisions set forth below (such individual or group is referred to as the Qualified Stockholder).

The Nominating Committee will evaluate candidates recommended by Qualified Stockholders in accordance with the procedures described below.

Qualified Stockholders may propose a candidate for evaluation by the Nominating Committee by delivering a written notice to the Nominating Committee satisfying each of the requirements described below (the Notice). The Notice must be received by the Nominating Committee not less than 120 calendar days before the anniversary of the date that the Company’s proxy statement was released to stockholders in connection with the previous year’s annual meeting.  No such notice was received in connection with the 2020 Annual Meeting.

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Any candidate recommended by a Qualified Stockholder must be independent of the Qualified Stockholder in all respects (i.e., free of any material relationship of a personal, professional, financial or business nature from the nominating stockholder), as determined by the Nominating Committee or by applicable law. Any candidate submitted by a Qualified Stockholder must also meet the definition of an “independent director” under applicable NYSE rules. The Notice shall also contain or be accompanied by the information or documentation described below.

 

o

Proof of stock ownership (including the required holding period) of the stockholder or group of stockholders is required. The Nominating Committee may determine whether the required stock ownership condition has been satisfied for any stockholder that is the stockholder of record. Any stockholder that is not the stockholder of record must submit such evidence as the Nominating Committee deems reasonable to evidence the required ownership percentage and holding period.

 

o

A written statement that the stockholder intends to continue to own the required percentage of shares through the date of the annual meeting with respect to which the candidate is nominated is required.

 

o

The name or names of each stockholder submitting the proposal, the name of the candidate, and the written consent of each such stockholder and the candidate to be publicly identified is required.

 

o

Regarding the candidate, such person’s name, age, business and residence address, principal occupation or employment, number of shares of the Company’s stock beneficially owned, if any, a written resume or curriculum vitae of personal and professional experiences, and all other information relating to the candidate that would be required to be disclosed in a proxy statement or other filings required in connection with the solicitation of proxies for election of directors pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder (the “Exchange Act”) shall be provided.

 

o

Regarding the candidate, information, documents or affidavits demonstrating to what extent the candidate meets the required minimum criteria, and the desirable qualities or skills established by the Nominating Committee shall be provided. The Notice must also include a written statement that the stockholder submitting the proposal and the candidate will make available to the Committee all information reasonably requested in furtherance of the Nominating Committee’s evaluation of the candidate.

 

o

Regarding the stockholder submitting the proposal, the person’s business address and contact information and any other information that would be required to be disclosed in a proxy statement or other filings required in connection with the solicitation of proxies for election of directors pursuant to Section 14(a) of the Exchange Act is required.

 

o

The signature of each candidate and of each stockholder submitting the proposal is required.

The Notice shall be delivered in writing by registered or certified first-class mail, postage prepaid, to the following address:

Board of Directors

Alaska Air Group, Inc.

PO Box 68947

Seattle, WA 98168

The Corporate Secretary will promptly forward the Notice to the Lead Independent Director and to the Chair of the Nominating Committee.

If, based on the Committee’s initial screening of a candidate recommended by a Qualified Stockholder, a candidate continues to be of interest to the Nominating Committee, the Chair of the Committee will request that the CEO interview the candidate, and the candidate will be interviewed by one or more of the other Committee members. If the results of these interviews are favorable, the candidate recommended by a Qualified Stockholder will be evaluated as set forth below. Except as may be required by applicable law, rule or regulation, the Nominating Committee will have no obligation to discuss the outcome of the evaluation process or the reasons for the Nominating Committee’s recommendations with any Qualified Stockholder who made a proposal.

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The Nominating Committee’s policy on the evaluation of candidates recommended by stockholders who are not Qualified Stockholders is to evaluate such recommendations, and establish procedures for such evaluations, on a case-by-case basis. This policy allows the Nominating Committee to devote an appropriate amount of its own and the Company’s resources to each such recommendation, depending on the nature of the recommendation itself and any supporting materials provided. All candidates (whether identified internally or by a stockholder) who, after evaluation, are then recommended by the Nominating Committee and approved by the Board, will be included in the Company’s recommended slate of director nominees in its proxy statement.

Evaluation of Candidates

As to each recommended candidate that the Nominating Committee believes merits consideration, the Nominating Committee will cause to be assembled information concerning the background, qualifications and appropriate references of the candidate, including information concerning the candidate required to be disclosed in the Company’s proxy statement under the rules of the SEC and any relationship between the candidate and the person or persons recommending the candidate. The Nominating Committee will then (i) determine if the candidate satisfies the qualifications set forth under Policy on Minimum Qualifications for All Directors below; (ii) conduct interviews with the candidate as it deems necessary and appropriate; and (iii) consider the contribution that the candidate can be expected to make to the overall functioning of the Board. The Nominating Committee will then meet to consider and finalize its list of recommended candidates for the Board’s consideration.

The Nominating Committee will consider incumbent candidates based on the same criteria used for candidates recommended by Qualified Stockholders, provided that incumbents will also be considered on the basis of the Nominating Committee’s annual evaluations of the effectiveness of the Board, its committees and their members.

Policy on Minimum Qualifications for All Directors

While there is no formal list of qualifications, the Nominating Committee considers, among other things, the prospective nominee’s relevant experience, intelligence, independence, commitment, ability to work with the CEO and within the Board culture, prominence, diversity, and age. The Nominating Committee may also consider a nominee’s CEO experience, senior-level international experience, senior-level regulatory or legal experience, and relevant senior-level expertise in one or more of the following areas: finance, accounting, sales and marketing, safety, organizational development, information technology, digital marketing, and government and public relations. Different substantive areas may assume greater or lesser significance at particular times, in light of the Board’s present composition and the Nominating Committee’s (or the Board’s) perceptions about future issues and needs.

For a candidate to serve as an independent director, an independent and questioning mindset is critical. The Nominating Committee also considers a prospective candidate’s workload and whether he or she would be able to attend the vast majority of Board meetings, be willing and available to serve on Board committees, and be able to devote the additional time and effort necessary to keep up with Board matters and the rapidly changing environment in which the Company operates.

Board diversity is considered broadly, not merely with regard to race, gender, or national origin, but also with regard to general background, geographical location, and other factors. The consideration of diversity permeates all discussions at the Nominating Committee. In addition, on an annual basis, as part of the Board’s self-evaluation, the Board assesses whether the mix and diversity of board members is appropriate for the Company.

 

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Certain Relationships and Related Person Transactions

Policies and Procedures for Approval of Related Person Transactions

The Board of Directors has adopted a written policy for review, approval or ratification of any transaction, arrangement or relationship in which the Company was, is or will be a participant, the aggregate amount involved exceeds $120,000 in any calendar year, and a related person has or will have a direct or indirect material interest (other than solely as a result of being a director or the beneficial owner of less than 10% of another entity). For purposes of the policy, a related person is any person who is, or at any time since the beginning of the last fiscal year was, (i) one of the directors or executive officers or a nominee to become a director, or (ii) any beneficial owner of more than 5% of the Company’s common stock, or any immediate family member of any of these persons.

Under the policy, once such a transaction by a related person has been identified, the Audit Committee (or, for transactions that involve less than $1 million in the aggregate, the chair of the Audit Committee) must review the transaction for approval or ratification. Members of the Audit Committee or the chair of the Audit Committee, as applicable, will review all relevant facts regarding the transaction in determining whether to approve or ratify it, including the extent of the related person’s interest in the transaction, whether the terms are comparable to those generally available in arm’s-length transactions, and whether the transaction is consistent with the best interests of the Company. The related person involved in the transaction will not participate in the approval or ratification process except to provide additional information as requested for the review. Once initially approved or ratified, all transactions with related persons will be reviewed at least annually.

The policy does not require review or approval of the following transactions: employment by the Company of an executive officer unless he or she is an immediate family member of another related person; any compensation paid by the Company to a director; and a transaction in which a related person’s interest arises solely from the ownership of equity securities and all holders of the securities receive the same benefit on a pro-rata basis.

Certain Transactions with Related Persons

The Company and its subsidiaries have transactions in the ordinary course of business with other corporations of which the Company’s executive officers or directors or members of their immediate families are directors, executive officers, or stockholders. The amounts involved in these transactions are below the disclosure thresholds set by the SEC, or the executive officer or director or his or her family member does not have a direct or indirect material interest, as that term is used in SEC rules, in the transaction. Since January 1, 2019, the Company has not participated in, nor is there currently planned any transactions required to be disclosed pursuant to SEC Regulation S-K Item 404(a).

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2019 Director Compensation

The following table presents information regarding the compensation paid for 2019 to members of the Board of Directors who are not also the Company’s employees (non-employee directors). The compensation paid to Mr. Tilden, who is also an employee, is presented in the Summary Compensation Table and the related explanatory tables. Mr. Tilden does not receive additional compensation for his service as a director.

 

 

Name (a)

 

Fees

Earned

or Paid

in Cash (1)

($)

 

Stock

Awards (3)

($)

 

 

All Other

Compensation (4)

($)

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patricia M. Bedient

 

102,523

 

 

99,977

 

 

 

1,494

 

 

203,994

 

 

James A. Beer

 

75,023

 

 

99,977

 

 

 

3,883

 

 

178,883

 

 

Marion C. Blakey

 

95,023

 

 

99,977

 

 

 

3,169

 

 

198,169

 

 

Phyllis J. Campbell

 

90,023

 

 

99,977

 

 

 

17,239

 

 

207,239

 

 

Raymond L. Conner

 

75,023

 

 

99,977

 

 

 

5,553

 

 

180,553

 

 

Dhiren R. Fonseca

 

75,023

 

 

99,977

 

 

 

18,431

 

 

193,431

 

 

Kathleen T. Hogan (2)

 

56,510

 

 

75,290

 

 

 

1,021

 

 

132,821

 

 

Susan J. Li

 

75,023

 

 

99,977

 

 

 

5,315

 

 

180,315

 

 

Helvi K. Sandvik

 

90,023

 

 

99,977

 

 

 

2,919

 

 

192,919

 

 

J. Kenneth Thompson

 

75,023

 

 

99,977

 

 

 

10,801

 

 

185,801

 

 

Eric K. Yeaman

 

100,023

 

 

99,977

 

 

 

18,670

 

 

218,670

 

 

(1)

Directors received an annual cash retainer of $75,000 and an annual stock retainer valued at $100,000. In addition, the compensation for non-employee directors included the following:

 

an annual retainer of $27,500 to the Lead Independent Director; and

 

an annual retainer of $25,000 to the Audit Committee chair, $20,000 to the Compensation and Leadership Development chair, and $15,000 each to the Governance and Nominating Committee and Safety Committee chairs.

Following a market review in late 2019, the directors’ annual stock retainers were scheduled to increase to $105,000 and the annual cash retainers were scheduled to increase to $80,000, effective May 7, 2020.  However, in light of the coronavirus pandemic, directors have rescinded the increases approved in 2019 and have elected to forego 2020 annual cash retainers until September 30, 2020, at which time the Board will reassess the environment and consider prorated payments for the remainder of the service year.  Subsequently, upon the creation of the Innovation Committee in November 2019, the annual retainer paid to the Innovation Committee chair was set at $15,000, consistent with retainers for the Governance and Nominating and Safety Committee chairs.  There were no changes to the annual retainers paid to the Audit, Compensation and Leadership Development, Governance and Nominating or Safety Committee chairs.

(2)

Ms. Hogan received a prorated cash and stock retainer upon her appointment to the Board in August 2019.

(3)

Under the terms of the Company’s Stock Deferral Plan for Non-Employee Directors each board member may elect in the prior year to receive his or her annual stock retainer in the form of fully vested shares at the time of grant or to defer payment of all or a portion of the award until his or her termination of service on the Board. If no election is made the year prior to payment, common stock is issued.

In May 2019, Mr. Beer was granted 1,658 deferred stock units (DSUs), based on his election to defer made in 2018. Ms. Bedient, Ms. Blakey, Ms. Campbell, Mr. Conner, Mr. Fonseca, Ms. Li, Ms. Sandvik, Mr. Thompson, and Mr. Yeaman were each issued 1,658 shares of Alaska Air Group common stock. Ms. Hogan was issued a prorated stock retainer of 1,193 common shares upon her appointment to the Board in August 2019.  See discussion of these awards in Note 12 (Stock-Based Compensation Plans) to the Company’s Consolidated Financial Statements included as part of the Company’s 2019 Annual Report filed on Form 10-K with the SEC and incorporated herein by reference.

The non-employee directors do not hold any outstanding stock options.

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Alaska Air Group directors do not participate in any non-equity incentive compensation plans, nor do they participate in a nonqualified deferred compensation plan. Directors do not receive pension benefits for their service.

(4)

As part of each director’s compensation, the non-employee director and the non-employee director’s spouse and eligible dependents were provided transportation on Alaska Airlines, and Horizon Air. Included in the All Other Compensation column for each non-employee director is the incremental cost to the Company of providing the benefit. Positive-space travel is a benefit unique to the airline industry. By providing this travel without tax consequences to non-employee directors, the Company is able to deliver a highly valued benefit at a low cost, and believes this benefit encourages non-employee directors to experience and engage with Alaska Airlines products and services. The All Other Compensation column also includes the value of reimbursements for taxes on the transportation benefits provided to each director.

Director Stock Ownership Policy

The Company expects directors to act in the Company’s best interests regardless of the number of shares they own. Each non-employee director is expected to hold shares of Company stock having a value equal to at least six times the director’s annual cash retainer, such ownership to be achieved within six years of joining the Board. Deferred stock units held by directors, which are 100% vested at grant, will count toward the holding requirement even though they will not be issued until the director resigns from the Board.

 

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NAMED EXECUTIVE OFFICER COMPENSATION

Proposal 2:  Approval (on an Advisory Basis) of the Compensation

of the Company’s Named Executive Officers

The Company is providing its stockholders with the opportunity to cast a non-binding, advisory vote on the compensation of the Company’s Named Executive Officers as disclosed pursuant to the SEC’s executive compensation disclosure rules and set forth in this Proxy Statement (including the compensation tables and the narrative discussion accompanying those tables as well as in the Compensation Discussion and Analysis).

As described more fully in the Compensation Discussion and Analysis (CD&A) section of this Proxy Statement, the structure of the Company’s executive compensation program is designed to compensate executives appropriately and competitively and to drive superior performance. For the Named Executive Officers, a high percentage of total direct compensation (defined as base salary, actual short-term incentive pay and the grant date fair value of equity awards as determined for accounting purposes) is variable and tied to the success of the Company because they are the senior leaders primarily responsible for the overall execution of the Company’s strategy. The Company’s strategic goals are reflected in our incentive-based executive compensation programs so that the interests of executives are aligned with stockholder interests. Executive compensation is further structured to be internally equitable, to reward executives for responding successfully to business challenges facing the Company, and to drive high performance, and to take into consideration the Company’s size relative to the rest of the industry.

The CD&A section of this Proxy Statement describes in more detail the Company’s executive compensation programs and the decisions made by the Compensation and Leadership Development Committee (referred to in this section as the Committee) during 2019. Highlights of these executive compensation programs include the following:

Base Salary

In 2019, the Committee set base salary for the CEO at or about the 25th percentile and set base salaries for the other Named Executive Officers at or about the 50th percentile of the airline peer group identified in the CD&A.

Annual Incentive Pay

The Company’s Named Executive Officers are eligible to earn annual incentive pay under the broad-based Performance Based Pay Plan, in which all employees participate, and which is intended to motivate all participants to achieve certain Company financial and operational goals. Annual performance goals are set at the beginning of the performance period by the Committee to reflect near-term financial and operational goals that are consistent with the strategic plan.

Long-term Incentive Pay

Equity-based incentive awards that link executive pay to stockholder value are an important element of the Company’s executive compensation program and comprise the largest portion of pay for our Named Executive Officers. Long-term equity incentives that vest over three- or four-year periods are awarded annually, including performance stock units (PSUs), stock options and restricted stock units (RSUs).  The Committee grants equity awards annually which results in overlapping vesting periods that discourage short-term risk taking and align Named Executive Officers’ long-term interests with those of stockholders while helping the Company attract and retain top-performing executives who fit a team-oriented and performance-driven culture.

In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, the Board of Directors will request your advisory vote on the following resolution at the 2020 Annual Meeting:

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RESOLVED, that the compensation paid to the Named Executive Officers, as disclosed in this Proxy Statement pursuant to the SEC’s executive compensation disclosure rules (which disclosure includes the Compensation Discussion and Analysis, the compensation tables and the narrative discussion that accompanies the compensation tables), is hereby approved.

This proposal regarding the compensation paid to the Named Executive Officers is advisory only and will not be binding on the Company or the Board, nor will it be construed as overruling a decision by the Company or the Board or as creating or implying any additional fiduciary duty for the Company or the Board. However, the Committee, which is responsible for designing and administering the Company’s executive compensation program, values the opinions expressed by stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for the Named Executive Officers. Consistent with the results of an advisory vote at the Company’s 2017 annual meeting concerning the frequency of the advisory vote regarding the compensation paid to the Named Executive Officers, stockholders are given an opportunity to cast an advisory vote on named executive compensation annually, with the next opportunity expected to be in connection with the Company’s annual meeting in 2021.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL (ON AN ADVISORY BASIS) OF THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE SEC’S EXECUTIVE COMPENSATION DISCLOSURE RULES.

 

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Compensation Discussion and Analysis

Executive Summary

This CD&A contains a discussion of the material elements of compensation earned during 2019 by the Company’s chief executive officer, its chief financial officer, and its three other highest paid executive officers. Specifically, the Named Executive Officers (the NEOs) include: Bradley D. Tilden, chairman, president and chief executive officer of Alaska Air Group; Brandon S. Pedersen, executive vice president finance and chief financial officer of Alaska Air Group; Benito Minicucci, president of Alaska Airlines; Andrew R. Harrison, executive vice president and chief commercial officer of Alaska Airlines; and Shane R. Tackett, executive vice president planning and strategy of Alaska Airlines. Mr. Tackett assumed the role of executive vice president finance and chief financial officer of Alaska Air Group, effective upon Mr. Pedersen’s retirement from those positions on March 3, 2020.

2019 Company Performance Highlights

Alaska Air Group had numerous financial and operational achievements in 2019. For the year ended December 31, 2019, Alaska Air Group:

 

 

Reported net income of $769 million, or $6.19 per diluted share.

 

Paid a $0.35 per share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2019 to $173 million.

 

Repurchased a total of 1,192,820 shares of common stock for approximately $75 million.

 

Generated approximately $1.7 billion of operating cash flow, and used approximately $696 million for capital expenditures, resulting in approximately $1 billion of free cash flow, representing free cash flow conversion of 133%.

 

Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2019 by J.D. Power for the 12th year in a row.

 

Named "Best U.S. Airline" by Condé Nast Traveler in their 2019 Readers Choice Awards for the second consecutive year, a continuation of the ten consecutive years that Virgin America received the recognition.

 

Ranked among Forbes’ 2019 global list for “World’s Best Employers” for the fifth year in a row.

 

Launched LIFT, Alaska's newly renamed social and environmental impact program, complete with a week of employee volunteer events in eight cities across our network.

 

Donated over $15 million and contributed more than 41,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

2019 Compensation Program Overview

The Company’s executive compensation program is designed to compensate executives appropriately and competitively and to drive superior performance relative to other commercial airlines. Because the NEOs are primarily responsible for the overall execution of the Company’s strategy, a high percentage of their total direct compensation is variable and tied to Company performance, thereby providing incentives to achieve goals that help create value for stockholders.

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Highlights of the program include:

 

For 2019, the Committee approved target-level total direct compensation for Mr. Tilden that is 86% performance-based and/or has a value tied to the Company’s stock price. With respect to the other NEOs, the Committee approved target total direct compensation that is, on average, 79% performance-based and/or has a value tied to the Company’s stock price. Performance-based compensation includes the target value of both our annual and long-term incentive programs.

 

The NEO’s annual incentive program, the PBP, is the same program in which all Company employees participate.  The funding of any earned PBP payout is based on the achievement of specific performance objectives that are established at the beginning of the fiscal year by the independent members of the Committee. As more fully described below the 2019 PBP funded at 140.9% of target as a result of strong profitability and excellent guest loyalty program scores.  The PBP payout for NEOs and other executives was reduced as the result of a safety related incident that occurred in 2019.  See the 2019 Performance-Based Pay Calculation table for further details.

 

In 2019, the equity incentive awards granted to our NEOs consisted of a combination of stock options, service-based RSU awards, and PSU awards that vest only if specified performance levels of relative total shareholder return (TSR) and return on invested capital (ROIC) are achieved.  Similar to prior years, 50% of the total equity award value was granted in PSUs, 25% of the value in stock options and 25% of the value in RSUs.  The PSUs granted in 2019 have a three-year performance period and are eligible to vest based 25% on total shareholder return relative to an airline industry peer group, and 75% based on ROIC against pre-established performance targets. We believe these awards help align an executive’s incentives with the creation of long-term value for stockholders.

 

The Committee approved payouts of 79% of target for our 2017 PSUs based on our performance against TSR and ROIC goals for the 2017-2019 performance period.  See the performance stock unit section for more details on the earned awards.  

 

The Committee approved payouts of 200% of target for a prorated portion of special PSUs awarded in 2017 related to the acquisition of Virgin America to each of the NEOs other than Mr. Tilden (who did not receive an award) as the cash flow goal applicable to the award was achieved at the maximum level. See Performance-Based Annual Pay for more details on the earned awards.

Consideration of Say-on-Pay Advisory Vote

Stockholders have an opportunity annually to cast an advisory vote in connection with our executive compensation program.  At the 2019 annual meeting, 97.18% of the votes were cast in favor of the advisory say-on-pay proposal in connection with the Company’s 2018 compensation. The Committee believes that voting results indicate that stockholders approve of the structure of executive compensation at Alaska Air Group. Therefore, the Committee structured executive compensation for 2019 in a way that is generally consistent with that of 2018.

Objectives of the Company’s Executive Compensation Program

The objectives of the executive compensation program are as follows:

 

to attract and retain highly qualified executives who share the Company’s values and are committed to its strategic plan by designing the total compensation package to be competitive with an appropriate peer group;

 

to motivate executives to provide excellent leadership and achieve Company goals by linking incentive pay to the achievement of specific targets that are reflected in the short-term incentive Performance-Based Pay Plan and the Company’s strategic plan;

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to align the interests of executives and stockholders by tying a large portion of executives’ total direct compensation (defined as base salary, actual short-term incentive pay and the grant date fair value of equity awards) to the achievement of objective goals related to the Company’s financial performance, safety record, cost structure, and guest satisfaction; and

 

to provide executives with reasonable security to motivate them to continue employment with the Company and achieve goals that will help the Company remain competitive and thrive for the long term.

Compensation Philosophy

The Committee generally targets the CEO’s base salary at or about the 25th percentile of the Company’s airline peer group. However, the Committee may decide to set the CEO’s salary above or below the 25th percentile after taking into consideration other relevant factors. The CEO’s compensation arrangements are generally structured so that he or she has the opportunity to earn total direct compensation up to approximately the 50th percentile of the target total direct compensation of chief executive officers with the peer companies if the applicable annual and long-term incentive targets are reached, and to surpass the 50th percentile if those targets are exceeded.  

For the other NEOs, the Committee generally targets base salary at or about the 50th percentile of base salaries for comparable positions with the airline peers and provides executives an opportunity to achieve total direct compensation at the 50th percentile of the target total direct compensation for comparable positions with the peer companies if annual and long-term incentive targets are reached, and to surpass the 50th percentile if those targets are exceeded.

The Committee does not target a specific percentile but rather uses market data as one reference point when making pay decisions.  Other factors, such as Company performance, individual performance, tenure, retention goals, and internal equity influence the Committee’s executive compensation-setting philosophy and practice from year to year.

How Executive Compensation is Determined

The role of the Committee and the independent consultants with respect to determining executive compensation includes the following:

Executive Compensation. The Committee determines and approves the compensation of NEOs, taking into account the CEO’s recommendations for all NEOs excluding himself.  The Committee determines the CEO’s compensation with the assistance of its independent compensation consultant.

Independent Consultants. The Committee again retained Meridian Compensation Partners, LLC (Meridian) to assist the Committee with its responsibilities related to the Company’s executive and board of directors’ compensation programs. The Committee considered the following facts in assessing Meridian’s independence as an advisor:

 

Meridian does not provide other services to Alaska Air Group or its subsidiaries. Meridian’s services are limited to providing the Committee with advice and information solely on executive and director compensation and related corporate governance matters.

 

The amount of fees paid by the Company during the 12-month period ended December 31, 2019 represents less than one percent of Meridian’s total annual revenues for the 2019 calendar year.

 

Meridian maintains policies designed to prevent conflicts of interest, which policies were detailed to the Committee.

 

No Meridian partner, consultant or employee who serves the Committee has any business or personal relationship with any member of the Committee.

 

No Meridian partner, consultant or employee who serves the Committee, or any of their immediate family, owns any shares of stock of the Company.

 

No Meridian partner, consultant or employee who serves the Committee, or any of their immediate family, has any business or personal relationship with any executive officer of the Company.

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Based on its review, the Committee has determined that no conflicts of interest exist between the Company and Meridian (or any individuals working on the Company’s account on Meridian’s behalf).

How the Elements of the Company’s Executive Compensation Program Were Selected

The Committee conducts periodic reviews of the Company’s executive compensation to assess its alignment with the Committee’s objectives. The Committee considers how each component of compensation motivates executives to help the Company achieve its performance goals and execute its strategic plan and how it promotes retention of executives who share the Company’s values. The compensation structure is designed to promote initiative, resourcefulness and teamwork by key employees whose performance and responsibilities directly affect the performance of the business. The Committee uses both fixed compensation (i.e. base salary) and variable performance-based compensation to achieve a program that we believe is balanced, competitive and provides appropriate incentives. Base salaries, benefits, perquisites, retirement benefits, and change-in-control benefits are intended to attract and retain highly qualified executives and, in the case of salary and benefits, are generally paid out on a short-term or current basis. Annual incentives and long-term equity-based incentives are intended to motivate executives to achieve specific performance objectives.

The Committee believes that this mix of short-term and long-term compensation allows it to achieve dual goals of attracting and retaining highly qualified executives and providing meaningful performance incentives for those executives.

Deterrents to Excessive Risk-Taking

The Committee believes it has designed the overall compensation program in such a way as to deter excessive risk-taking, to encourage executives to focus on the long-term success of the Company and to align the interests of executives with those of stockholders by:

 

encompassing several different financial and operational goals that are directly tied to the Company’s strategy;

 

setting financial and operational goals that are reviewed and approved by the Committee, all members of which are independent;

 

overlapping the performance periods of awards;

 

incorporating short-term and long-term performance periods of varying lengths;

 

maintaining and monitoring compliance with executive stock ownership requirements;

 

capping the payout of short-term cash incentives and PSUs;

 

allowing the Committee discretion to reduce amounts otherwise payable under certain awards;

 

referencing market compensation practices of the airline industry;

 

maintaining a recoupment policy that allows the Committee to recover compensation in certain situations;

 

considering internal equity among Company executives; and

 

reflecting the current business challenges and opportunities facing the Company.

The Company does not believe that its compensation programs encourage unnecessary risk-taking that could have a material adverse effect on the Company as a whole.

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Executive Pay Mix and the Emphasis on Variable Pay

The Committee believes that emphasis on variable, performance-based compensation for the NEOs is a key element in achieving a pay-for-performance culture and in aligning management’s interests with those of the Company’s stockholders. At the same time, the Committee believes that the executive compensation program provides meaningful incentives for executives while balancing risk and reward.

 

Total direct compensation for the Company’s NEOs is tailored to place a substantial emphasis on variable pay, that is, pay linked to the achievement of specific, measurable performance objectives and subject to variation depending on the degree to which such objectives are achieved. For 2019, the Committee approved target-level total direct compensation for Mr. Tilden that is 86% variable and tied to stockholder value creation. With respect to the other NEOs, the Committee approved target total direct compensation that is on average 79% variable and tied to stockholder value creation.

Total Direct Compensation

 

 

The Use of Benchmarking Against a Peer Group

The Committee reviews and analyzes total direct compensation for the NEOs annually against the compensation provided by a peer group of airline companies to executives in similar positions. In analyzing the information for 2019, the Committee reviewed the total direct compensation for executives of a peer group of airlines as identified below.

The following companies represent the airline peer group selected by the Committee as a comparator for determining appropriate compensation levels for 2019 (the same peer group as used to evaluate 2018 compensation):

 

Air Canada

 

American Airlines Group

 

Delta Air Lines

 

Hawaiian Holdings

 

JetBlue Airways

 

SkyWest

 

Southwest Airlines

 

Spirit Airlines

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United Continental Holdings

 

WestJet Airlines

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; and

 

the Company competes with these peer companies for talent to fill certain key, industry-related executive positions.

In the aggregate, 2019 target total cash and target total pay for the NEOs other than the CEO fell between approximately the 25th and 75th percentiles for comparable positions at companies in the airline peer group. For Alaska Air Group’s CEO, target total cash compensation was below the 25th percentile and total direct compensation was set at approximately the 50th percentile for chief executive officers within the airline peer group. The varying range of company revenues was considered when reviewing market data results from the airline peer group.

In setting 2019 executive compensation, the Committee also reviewed data for 18 companies in the broader transportation industry having median annual revenue similar to the Company’s annual revenues as an additional reference point to assess the Company’s executive compensation program. The companies in this transportation industry peer group include: Air Canada, AMERCO, Avis Budget Group, CH Robinson Worldwide Inc., Expedia, Expeditors International of Washington Inc., Hertz Global Holdings, Hub Group, JB Hunt Transport Services, JetBlue Airways, Landstar System Inc., Norfolk Southern Corporation, Norwegian Cruise Line Holdings Ltd., Royal Caribbean Cruises Ltd., Ryder System Inc., Knight-Swift Transportation Holdings Inc., Union Pacific Corporation, and XPO Logistics Inc.

In the aggregate, target total cash compensation for the NEOs fell below the median for comparable positions at companies in the transportation industry peer group, and target total direct compensation was between approximately the 25th and 50th percentiles. For Alaska Air Group’s CEO, target total cash compensation and target total direct compensation fell below the 25th percentile for chief executive officers within the transportation industry peer group.

The Application of Internal Equity Considerations

In addition to benchmarking against airline and industry peer groups, the Committee and the CEO believe it is appropriate to consider other principles of compensation, and not accept benchmarking data as the sole basis for setting compensation. Thus, while the Committee has considered peer group data as described above, it has also applied other compensation principles, including internal equity, when determining executive compensation. By also considering internal equity, the Committee is able to structure executive compensation in a way that ensures appropriate compensation in light of atypical internal or external pressures or compensation considerations.

The Use of Tally Sheets

Annually, the Committee reviews tally sheets that show each element of compensation for the NEOs. Base salaries, incentive plan payments, equity awards, option exercises, perquisites, and health and retirement benefits are included on tally sheets, which are prepared by the Company’s corporate affairs and people departments. The Committee uses the compensation tally sheets to verify that executive compensation is internally equitable and proportioned according to the Committee’s expectations.

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Current Executive Pay Elements

Base Pay

The Committee assesses each executive’s duties and scope of responsibilities, past performance and expected future contributions to the Company, the market demand for the individual’s skills, the individual’s influence on long-term Company strategies and success, the individual’s leadership performance, and internal equity considerations.

In February 2019, the Committee approved a base salary of $590,000 for Mr. Tilden, which was at or about the 25th percentile of salaries for CEOs in the airline peer group. The chart below depicts CEO base salaries at airline peer group companies in 2019.

CEO Base Salary Comparisons (1)

(Airline Peer Group)

 

 

(1)

Amounts are based on the most recent compensation data available as of February 3, 2020.  In most cases, this is the base salary as reported in the respective company’s 2019 proxy statement.

(2)

Base salary is converted from Canadian Dollars to US Dollars using a rate of 0.7533 (exchange rate on February 3, 2020).

(3)

The CEO does not receive a base salary.

In February 2019, the Committee also approved base salaries for the other NEOs as follows:  Mr. Pedersen -- $475,000; Mr. Minicucci -- $550,000; Mr. Harrison -- $475,000; and Mr. Tackett -- $400,000, which was increased to $425,000 in September 2019 based on a stepped approach to his total compensation in connection with his 2018 promotion.

In light of the significant financial impact of the coronavirus pandemic on the Company, Mr. Tilden and Mr. Minicucci waived their base salaries for the period from March 6 to September 30, 2020.  The Company’s NEOs are anticipated to receive base salary cuts of 30% effective on or about April 1 to September 30, 2020, while other officers are expected to receive base salary cuts of 20-30% in the same period.  The extent and duration of these reductions will be approved and reassessed by the Committee as the situation evolves.

Performance-Based Annual Pay

The Company’s NEOs are eligible to earn annual incentive pay under the PBP Plan, in which all eligible company employees participated in 2019. The PBP Plan is intended to motivate executives and other employees to achieve specific company goals. The Committee aligns executive compensation with the

38


 

Company’s strategic plan by choosing a target performance level for each operational or financial goal (outlined in the 2019 Performance-Based Pay Metrics table below) that is consistent with the Company’s strategic plan goals.

Target payout opportunities are established for each NEO as a percentage of base salary.  These percentages are approved by the Committee after considering market data, performance, tenure, and internal pay parity, among other factors as it deems appropriate.

The long-term success of the Company is highly dependent on running a safe and reliable operation, meeting or exceeding the expectations of guests, keeping unit costs in check, and generating financial returns well above our cost of capital. Each of these key strategic objectives is reflected in the goals of the PBP Plan. For the NEOs, the 2019 target participation levels were as follows:

2019 Performance-Based Pay Plan Participation Rates

 

 

Name

Target Participation

as % of Base Salary

 

 

 

 

 

 

 

 

Bradley D. Tilden

 

130%

 

 

 

Benito Minicucci (1)

 

110%

 

 

 

Brandon S. Pedersen

 

85%

 

 

 

Andrew R. Harrison

 

85%

 

 

 

Shane R. Tackett

 

80%

 

 

 

(1)

Based on a market review and individual performance, Mr. Minicucci’s target bonus percentage was increased to 110% from 100% in February 2019.

Incentive award payments under the PBP range from 0% to 200% of the NEO’s target based on the achievement of performance goals set by the Committee at the beginning of each year. For each performance metric, performance at the target level will generally result in a 100% payout of the target amount for that metric, while the payout percentage would be 200% for performance at or above the maximum level and 25% for performance at the threshold level. The payout percentages are interpolated for performance between the levels identified below, but if performance for a particular metric is below the threshold level, no payment will be made as to that metric. The Committee retains discretion to reduce bonus amounts below the level that would otherwise be paid.  

For 2019, the Performance-Based Pay Plan metrics for Alaska Airlines employees were set as follows:

2019 Performance-Based Pay Metrics

 

 

Goal

 

Weight

 

 

Threshold

 

Target

 

Maximum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational Performance

 

 

 

 

 

 

 

 

 

 

 

 

Safety (1)

 

10%

 

 

 

 

 

 

 

 

 

The number of safety goals met.

 

 

 

 

 

1 of 4

 

2 of 4

 

4 of 4

 

 

Brand Strength

 

10%

 

 

 

 

 

 

 

 

 

Average score of guests' preferences of Alaska over other airlines as well as their rating of Alaska's overall performance.

 

 

 

 

 

72% or higher

 

74% or higher

 

76% or higher

 

 

CASM ex. Fuel

 

10%

 

 

 

 

 

 

 

 

 

Cost per available seat mile excluding fuel and special items

 

 

 

 

 

8.10¢

 

8.00¢

 

7.90¢

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alaska Air Group Profitability

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Pretax Profit (2)

 

70%

 

 

$750 million

 

$1.10 billion

 

$1.35 billion

 

 

(1)

Goals set for Alaska are related to events that present risk to that airline’s operation, including such things as inadvertent slide deployments, loss time injuries, aircraft ground rolls and minimum equipment list incidents.

(2)

Adjusted pre-tax profit means the net income of Alaska Air Group as computed by Generally Accepted Accounting Principles (GAAP) and adjusted for “Excluded Items” and “Alternative Accounting Treatments.” “Excluded Items”

39


 

means (a) income taxes, (b) pretax expense under any Alaska Air Group (or subsidiary) profit sharing, performance-based pay, operational performance rewards, variable pay, or similar programs as determined in the discretion of the Committee, and (c) special income or expense items that, in the discretion of the Committee, should be excluded because recognizing them would not appropriately serve the goals of the PBP Plan. These special items may include, without limitation, merger-related costs, gain or loss on disposition of capital assets, impairments or other fleet exit costs, expenses from voluntary or involuntary severance programs, government refunds or assistance, and the cumulative effect of accounting changes. “Alternative Accounting Treatments” means expense or income items that, for purposes of calculating adjusted pre-tax profit, the Company (or any subsidiary) will account for based on non-GAAP methods because, in the discretion of the Committee, using GAAP accounting methods would not appropriately serve the goals of the Plan. These may include, without limitation, fuel hedge accounting on an as-settled basis.

As noted above, annual target performance measures reflect financial and operational goals that are generally consistent with the strategic plan that is approved by the Board. Maximum goals correlate to superior performance, while threshold goals generally correlate to what the Committee believes is an acceptable, but minimal, level of performance as compared to the prior year. The 2019 Alaska Air Group profitability target was set at $1.1 billion to align with the Company’s annual budget.

The Company is one of two major airlines in the U.S. that includes a safety metric in its annual incentive plan.  The Committee believes this reflects the Company’s unwavering commitment to safety and reinforces its message that every employee ‘owns safety’. The safety goals are focused on the highest risk areas that could negatively impact our operations, our employees and our guests. The Safety Committee has authority to recommend changes to the goals and overall payout rates each year.

The brand strength measure was set at a level the Committee believed would build loyalty and increase revenue over time. The CASM (cost per available seat mile excluding fuel and special items) metric was similarly chosen to support the Company’s achievement of its strategic plan.

The Committee believes that using adjusted non-GAAP measures, such as CASM and adjusted pre-tax profit, rather than GAAP measures, more closely ties results to elements of performance that can be controlled by the decisions and actions of employees, thereby providing a more direct link between performance and reward.  In addition, by removing the short-term impact of certain business decisions (such as the gain or loss on disposition of capital assets), we believe the use of adjusted measures encourages executives to make decisions that are in the best interest of the Company over the long term.

Following is a summary of actual results of the 2019 performance goals and an example of the calculation of the 2019 PBP Plan payout for one of the NEOs (assuming an 85% participation rate):

2019 Performance-Based Pay Calculation (1)

 

 

Metrics

 

Actual

 

% of Target

Achieved

Weight

Payout %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety (2)

 

2 of 4

 

 

100.0

%

 

10.0

%

 

%

 

 

AAG Brand

 

75.48

 

 

174.0

%

 

10.0

%

 

17.4

%

 

 

CASM (3)

 

8.00¢

 

 

99.3

%

 

10.0

%

 

9.9

%

 

 

Alaska Air Group Profitability

 

$1.22 billion

 

 

147.9

%

 

70.0

%

 

103.6

%

 

 

Total Payout %

 

 

 

 

 

 

 

 

 

 

130.9

%

 

 

Participation Rate

 

 

 

 

 

 

 

 

x

 

85.0

%

 

 

Payout as a % of Base Salary

 

 

 

 

 

 

 

 

=

 

111.3

%

 

 

(1)

Based on the results that apply to an Alaska Airlines NEO.

(2)

Due to a passenger fatality on Alaska Flight 3296, operated by PenAir, the Committee exercised its discretion to reduce the payout to NEOs and other executives and no amount was awarded under the safety component.  The table above gives effect to that decision.

(3)

Under the terms of the 2019 PBP Plan, CASM calculations exclude fuel costs and may be adjusted for certain excluded items and alternative accounting treatments.

In addition, all the Company’s employees, including the NEOs, participate in a separate annual incentive plan called Operational Performance Rewards, which pays a monthly incentive of up to $150 to all employees when

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certain operational performance targets are met. Awards are based on the achievement of on-time performance and guest satisfaction goals, and the maximum annual payout for each employee is $1,800. In 2019, each Alaska Airlines employee, including the NEOs, received $900 under the Operational Performance Rewards program.

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 align NEOs’ 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. The Company’s current equity grant practices are described below.

Stock Options. The Committee grants 25% of each NEO’s annual long-term incentive award 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. The NEOs will realize value from their stock options only to the degree that Alaska Air Group’s stockholders realize value, provided the stockholder had purchased shares and held them for the same period as the option remains outstanding. 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 and have a ten-year term that may be shortened if the executive’s employment terminates.

Restricted Stock Units.  The Committee also grants 25% of each NEO’s annual long-term incentive awards to the NEOs in the form of RSUs. Subject to the executive’s continued employment with the Company, the RSUs 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. The units provide a long-term retention incentive through the vesting period that requires continued service to the Company. The units are also designed to further link executives’ interests with those of Alaska Air Group’s stockholders, as the value of the units is based on the value of Alaska Air Group common stock. The Company does not issue dividend equivalents on unvested RSUs.

Performance Stock Units. The Committee also grants 50% of each NEO’s annual long-term incentive award in PSUs.  The PSUs vest only if the Company achieves performance goals established by the Committee for the three-year performance period covered by the award. PSUs also provide a retention incentive as the value of the award received is prorated based on both the executive’s status as an employee during the performance period and the achievement of performance goals. Like RSUs, the PSUs help align the executives’ interests with those of stockholders as their value depends on the value of Alaska Air Group common stock.  The Company does not issue dividend equivalents on unvested PSUs.

PSUs Granted in 2019.  For the PSU awards granted to the NEOs in February 2019 with a January 1, 2019 through December 31, 2021 performance period, the vesting of 25% of the stock units subject to the award will be determined in accordance with the chart below based on the Company’s TSR rank versus the same airline peer group as that used for the 2018 awards with the exception of Allegiant Travel Co.  The vesting of 75% of the stock units subject to the award will be determined based on the Company’s ROIC performance for the three-year period as measured against goals set by the Committee.

The Committee chose relative TSR as a performance measure for the PSU awards to provide additional incentive for executives to support and drive long-term stockholder value. Given the nature of the airline business, the Committee believes that measuring TSR on a relative basis rather than on an absolute basis provides a more relevant reflection of the Company’s performance by mitigating the impact of various macro-economic factors, such as rising fuel costs, that tend to affect the entire industry. The Committee also believes that measuring the Company’s performance relative to other major airlines and the use of appropriate ROIC goals encourages executives to manage the Company in such a way as to maintain sustainable growth and to attract a broader range of investors.

The percentage of the PSUs that vest may range from 0% to 200% of the target number of units subject to the award, depending on the results of the Company’s goals for the performance period. The payout percentages

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are interpolated for performance results falling between the levels identified below. The Committee retains discretion to reduce bonus amounts below the level that would otherwise be paid. The Company does not issue dividend equivalents on unvested PSUs.

2019 Performance Stock Unit Award Metrics (2019-2021 Performance Period)

 

 

Airline Peer Group

 

Alaska Air Group ROIC (1)

 

 

TSR Rank Among the

Airline Peer Group

 

Percentage of Peer

Group Stock Units

that Vest

 

Average ROIC

 

Percentage of ROIC

Stock Units that Vest

 

 

 

 

 

 

 

 

 

 

 

1st or 2nd

 

200%

 

15% and above

 

200%

 

 

3rd

 

170%

 

11%

 

100%

 

 

4th

 

140%

 

Below 8%

 

0%

 

 

5th

 

120%

 

 

 

 

 

 

6th

 

90%

 

 

 

 

 

 

7th

 

65%

 

 

 

 

 

 

8th

 

45%

 

 

 

 

 

 

9th

 

20%

 

 

 

 

 

 

10th, 11th or 12th

 

0%

 

 

 

 

 

 

(1)

Payout percentages will be linearly interpolated for performance between the levels identified above.

PSUs Granted Before 2019.  In February 2016, the Committee approved grants of PSUs to the NEOs for the January 1, 2016 through December 31, 2018 performance period. In February 2019, the Committee approved a payout of these PSUs at a rate of 114.5%.  Such performance stock awards were based 50% on the Company’s TSR performance relative to the following airline peer group (excluding certain companies that ceased being publicly traded during the performance period): Air Canada, Allegiant Travel Co., American Airlines Group, Delta Air Lines, Hawaiian Holdings, JetBlue Airways, Republic Airways Holdings, SkyWest, Southwest Airlines, Spirit Airlines, United Continental Holdings, Virgin America, and WestJet Airlines.  The Company’s TSR performance ranked 9th among these 13 peers, resulting in a 40% payout for that metric. The PSU awards granted in 2016 were also based 50% on achievement of the Company’s ROIC goals set by the Committee (maximum payout if ROIC was 20% or above, target payout for ROIC of 13%, and threshold payout for ROIC of 10% or below).  The Company’s average ROIC during the 2016-2018 performance period was 14.47%, resulting in a 189% payout for that metric.

The Committee also made grants in 2017 and 2018 with three-year performance periods beginning in January of each respective year.  

For the PSU awards granted in February 2017 to NEOs with a January 1, 2017 through December 31, 2019 performance period, the vesting of 25% of the stock units subject to the award will be determined based on the Company’s TSR rank versus the same airline peer group as that used for the 2016 awards, except that Virgin America was excluded as it was acquired during the performance period.  The vesting of 25% of the stock units subject to the award will be determined based on the Company’s TSR rank relative to S&P 500 companies. The vesting of 50% of the stock units subject to the award will be determined based on the Company’s ROIC performance for the three-year period as measured against goals set by the Committee.

The PSU awards granted in 2018 are scheduled to vest at the end of the January 1, 2018 through December 31, 2020 performance period and are based 25% on the Company’s TSR performance relative to the same airline peer group as that used for the 2017 awards except that Republic Airways Holdings was excluded as it ceased being a publicly traded company during the performance period.  The PSU awards granted in 2018 were also based 25% on the Company’s TSR performance relative to S&P 500 companies and 50% on the Company’s ROIC goals set by the Committee.  

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Equity Award Guidelines. The Committee considers and generally follows equity grant guidelines that are based on the target total direct compensation levels and pay mix described above. Target equity grants, when combined with the base salary and annual target incentive opportunity described above, are designed to achieve target total direct compensation for the NEOs at or about the 50th percentile of the peer group data for executives in comparable positions. The Committee may adjust equity grants to the NEOs by 25% above or below these target levels based on the Committee’s general assessment of:

 

the individual’s contribution to the success of the Company’s financial performance;

 

internal pay equity;

 

the individual’s performance of job responsibilities; and

 

the accounting impact to the Company and potential dilution effects of the grant.

The Committee believes that stock options, RSUs and PSUs each provide incentives that are important to the Company’s executive compensation program as a whole. Therefore, the Committee generally allocates the grant-date value (based on the principles used in the Company’s financial reporting) of each executive’s total equity incentive award among these three types of awards.  

2019 Equity Awards. For 2019, the target long-term incentive guidelines as applied to the NEOs are noted in the table below:

Equity Award Mix

 

 

 

 

Equity Target as a % of Base

Pay

 

Stock

Options

 

Restricted

Stock Units

 

Performance

Stock Units