DEF 14A 1 alk-def14a_20210506.htm DEF 14A alk-def14a_20210506.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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March 26, 2021

 

Dear Stockholders:

 

On behalf of the Board of Directors, we invite you to attend Alaska Air Group’s 2021 Annual Meeting of Stockholders, which will be held on Thursday, May 6, 2021, beginning at 1 p.m. Pacific Daylight Time.  This year’s annual meeting will be conducted via live webcast only.  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.  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 2021 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 6 as we discuss Alaska Air Group’s 2020 financial and operational performance as well as our response to COVID-19, and vote on issues of importance to our company and to you. 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 CEO

 

 

 

 

 

 


 

 

NOTICE OF 2021 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 2021 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 6, 2021

TIME

 

1 p.m. Pacific Daylight Time

VIRTUAL MEETING ACCESS

 

www.proxyvote.com

MATTERS TO BE VOTED ON

 

1.  Election of the 13 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 2021

4.  Approval of the amendment and restatement of the Company’s 2016 Performance Incentive Plan

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

The Board of Directors set Friday, March 12, 2021, 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 124,388,615 shares of Air Group common stock outstanding on the record date.

Internet Availability of Proxy Materials.  On or about March 26, 2021, 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 2021 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2020 (the Annual Meeting Materials).  The Company’s 2020 Form 10-K was filed with the Securities and Exchange Commission (SEC) on February 26. 2021.  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 2021 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

 

 

TO OUR SHAREHOLDERS

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

ESG Highlights

9

Political Contributions and Engagement

11

Stockholder Communications

13

Virtual Meeting Philosophy

14

 

 

ELECTION OF DIRECTORS

15

 

 

Proposal 1: Election of Directors to One-Year Terms

15

Structure of the Board of Directors

22

Director Independence

26

Director Nomination Policy

27

Certain Relationships and Related Person Transactions

31

2020 Director Compensation

32

Director Stock Ownership Policy

33

 

 

NAMED EXECUTIVE OFFICER COMPENSATION

34

 

 

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

34

Compensation Discussion and Analysis

36

Compensation and Leadership Development Committee Report

55

Compensation and Leadership Development Committee Interlocks and Insider Participation

55

2020 Summary Compensation Table

56

2020 Grants of Plan-Based Awards

59

Outstanding Equity Awards at 2020 Fiscal Year End

61

2020 Options Exercised and Stock Vested

64

Pension and Other Retirement Plans

65

2020 Nonqualified Deferred Compensation

67

Potential Payments Upon Change of Control and Termination

68

CEO Pay Ratio

71

 

 

AUDIT COMMITTEE MATTERS

72

 

 

Proposal 3: Ratification of the Appointment of the Company’s Independent Accountants for Fiscal Year 2021

72

Independent Registered Public Accountants

72

Audit Committee Report

74

 

 

2016 PERFORMANCE INCENTIVE PLAN AMENDMENT AND RESTATEMENT

75

 

 

Proposal 4: Approval of the Amendment and Restatement of the Company’s 2016 Performance Incentive Plan

75

 

 

SECURITIES OWNERSHIP

86

 

 

Securities Ownership of Management

86

5% or More Beneficial Owners

87

Delinquent Section 16(a) Reports

87

 

 

QUESTIONS AND ANSWERS

88

 

 

EXHIBIT A

97

 

 

 

 


 

TO OUR SHAREHOLDERS

 

2020 is behind us, and it was a year like no other. The coronavirus pandemic forced nearly all of us to change our daily lives, and for many it resulted in the loss of loved ones. On top of the tragedy of the coronavirus, we encountered senseless racial violence and experienced deep political division in our country. Any one of these events on its own would have been challenging but having them all in one year was harrowing. The resulting uncertainty and financial hardship were unlike anything we have experienced in our 88-year history.

 

In the very early days of the pandemic, we focused our attention on two critical priorities: maintaining the health and safety of our employees and guests, and ensuring our airlines come out of this crisis strong.  The people of Alaska and Horizon delivered on both fronts, and our company is well prepared for the future because of it.

 

In April, we launched our Next-Level Care initiative, drawing on the expertise of medical and health care professionals with insights from employees and guests to change the travel experience with safety and comfort in mind. The layers of safety we created were instrumental in helping our guests and employees stay healthy and for rebuilding guest confidence in travel. We know these measures are working, as guest post-flight surveys indicate the vast majority experienced a safe and healthy environment when travelling with us.  

 

Financially, our 2020 results were both sobering and a source of optimism. While our revenues declined a staggering $5.2 billion, our teams managed to reduce our cash burn to less than $4 million per day by the end of the year. This result was among the best in the industry and was integral to our preserving our balance sheet strength through this crisis.  Our adjusted net debt, which factors in debt and lease obligations and backs out cash, was essentially unchanged from 2019. Having a strong balance sheet and operating with low costs have been the cornerstone of our management philosophy for many years, they will continue to be critically important as we navigate the recovery ahead.

 

It has been inspiring to watch our employees rally behind the company as we faced these challenges. Employees helped our guests connect to our health and safety messaging in creative ways, like our Safety Dance video which featured several talented crew members. They also helped inspire guests to get back to travelling with our Friends and Family promotion.  And, incredibly, thousands of employees took voluntary or incentive leaves and early retirements, which were instrumental for preserving cash and reducing the need to furlough as we navigated this crisis.  We could not have accomplished all that we did this year without these incredible contributions.

 

In 2020 we spent time learning about systemic racism, listening to our employees and taking a hard look at the work we must do to advance racial equity at Alaska and Horizon and in our communities. We have recently published our 2025 diversity, equity and inclusion goals which will hold us accountable to our commitments to increase racial diversity, increase our employee engagement scores around inclusion related topics, and create career pathways for at least 175,000 young people by supporting programs that empower and enable opportunity through a lens of racial equity.

 

Signs of brighter days to come have recently begun to emerge. After slow and choppy recovery in 2020, the vaccine roll out is gaining momentum and we’ve experienced several weeks of encouraging bookings improvement. From a longer-term perspective, we’ve recently announced our plans to streamline our fleet.

1


 

Earlier this month we marked the 40-year anniversary of Alaska operating Boeing 737 aircraft and we put our first 737 MAX-9 into service. Under a new deal with Boeing, we will be taking more MAX aircraft to replace outgoing Airbus leases in our fleet. And, in the weeks ahead our guests can look forward to our entry into the oneworld alliance, which will bring fantastic global connectivity and more value to our loyalty program.

There are exciting changes on deck for our leadership team as well. On March 31, Brad will retire from his role as CEO and Ben will assume the responsibilities. This succession has been several years in the making and the groundwork is in place for a smooth and seamless transition. Brad will continue as Board Chair.

 

Crises present unique opportunities to see what we are made of. We are incredibly proud of the results that Alaska and Horizon delivered in such daunting circumstances. Our competitive advantages remain as strong as ever, and we are prepared to seize opportunities that will undoubtedly arise in the recovery ahead. The Board and our leadership team want to thank you for your support of our business, and for your investment in Alaska Air Group.

Benito Minicucci

CEO Elect, Alaska Air Group

 

 

 

Bradley D. Tilden

Chairman, Alaska Air Group

2


 

PROXY STATEMENT SUMMARY

 

Matters to be Voted On

 

Item for Business

Board Recommendation

Effect of Abstention

1. Elect 13 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 2021

FOR

A Vote Against

4. Approve the amendment and restatement of the Company’s 2016 Performance Incentive Plan

FOR

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

   11 out of 13 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

 

67

 

2004

 

Lead Independent Director

Audit

Governance and Nominating (Chair)

James A. Beer

Chief Financial Officer

Atlassian Corporation

 

60

 

2017

 

Innovation (Chair)

Safety

Raymond L. Conner

Former Vice Chairman

The Boeing Company

 

65

 

2018

 

Compensation and Leadership Development (Chair effective February 2021)

Safety

Daniel K. Elwell

President

Elwell & Associates, LLC

 

61

 

2021

 

Audit

Innovation

Dhiren R. Fonseca

Partner

Certares LP

 

56

 

2014

 

Audit

Innovation

Kathleen T. Hogan

Chief People Officer and Executive Vice President of Human Resources

Microsoft

 

55

 

2019

 

Compensation and Leadership Development

Governance and Nominating (effective May 2021)

Jessie J. Knight, Jr.

Managing Director

Knight Angels LLC

 

70

 

2020

 

Compensation and Leadership Development

Safety (effective May 2021)

Susan J. Li

Vice President, Finance

Facebook, Inc.

 

35

 

2018

 

Audit

Innovation

Benito Minicucci

President (and CEO effective March 31, 2021)

Alaska Airlines, Inc.

 

55

 

2020

 

 

Helvi K. Sandvik

President, Kidways LLC and Former President

NANA Development Corporation

 

63

 

2013

 

Safety (Chair)

Compensation and Leadership Development

(effective May 2021)

J. Kenneth Thompson

President and CEO

Pacific Star Energy LLC

 

69

 

1999

 

Compensation and Leadership Development

Governance and Nominating

Bradley D. Tilden

Chairman, President and CEO (Executive Chair effective March 31, 2021)

Alaska Air Group, Inc.

 

60

 

2010

 

 

Eric K. Yeaman

Founder and Managing Partner,

Hoku Capital LLC

 

53

 

2012

 

Audit (Chair)

Governance and Nominating

4


 

Board Diversity

 

The Board recognizes that diversity brings unique perspectives, leads to more effective risk management and better alignment with guests, employees, and the communities in which the Company serves.  The Board’s nomination process, detailed in the Director Nomination Policy section below, has routinely resulted in the identification of candidates with diverse qualifications, backgrounds, geography, race, ethnicity, gender and age. Currently, 60% of board leadership positions are held by female and/or racially/ethnically diverse directors, including the Lead Independent Director and Board committee chairs.

 

Independent Director Gender Diversity

 

 

Independent Director Racial/Ethnic 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 also permits 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.

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 chair and CEO role with a strong independent lead director role; however, for 2021 the Board has approved the temporary separation of the roles of chair and CEO in connection with the recent transition to a new CEO.

In choosing generally to combine the roles of chair 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 chair 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 chair is not present or where the board chair 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;

 

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 chair 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 chair and CEO, the Board may separate the CEO and chair roles from time to time, at its discretion, as it has recently done in connection with Mr. Minicucci’s transition to CEO and consistent with its previous temporary separation of these roles in connection with the transition of Mr. Tilden to CEO in 2012-2013. 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.

7


 

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

 

Compliance Officer & Chief Information Security 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

 Information security

 

 

 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

 ESG goals and initiatives

 

 

 

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

8


 

issues for the next year. This subset of the risk matrix is then used as a framework for periodic reports by the 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 to the extent required by applicable NYSE listing standards and SEC rules.

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.

Approach to Environmental, Social and Governance Matters (ESG)

The Company’s purpose is “creating an airline people love” and its leaders believe that the best path to creating long-term value is to deliver for the Company’s four primary stakeholders -- employees, customers, shareholders, and communities. The Company believes its success depends on the ability to provide safe air transportation, develop relationships with guests by providing exceptional customer service and low fares, and maintain a low-cost structure to compete effectively. Leaders strive to achieve these objectives as a socially responsible company that values not only performance but also people, communities, and the environment.

Air Group’s roots are in connecting rural Alaskan villages with essential services like food, medical supplies, and mail delivery – and those values are with us today.  We recognize there is much work needed to address impact on the globe, to expand opportunity equitably, and to ensure that all people are and truly feel safe, respected, and equal.

The Company’s values are to Own Safety, Do the Right Thing, Be Kind-Hearted, Deliver Performance, and Be Remarkable. These guide our daily business, operations, governance, and stewardship of impact on the environment, people, and communities. ESG efforts are balanced across areas of impact and the issues most important to those we serve, focused on: (1) reducing carbon emissions and (2) advancing racial equity and opportunity inside the Company and across communities.

The four pillars that are woven throughout this work are the following:

 

-

we’re all about people,

 

-

we fly greener,

 

-

we invest for strong communities, and

 

-

we make flying matter.

9


 

The Company was recently recognized among Barron’s 100 Most Sustainable Companies and brings an orientation of continuous learning and improvement to this work as in everything we do.

ESG Governance and Oversight

The Governance and Nominating Committee of the Board is responsible for overseeing the Company’s practices and reporting with respect to voluntary ESG goals and disclosure, annual reporting, and environmental and climate impacts. The Governance and Nominating Committee includes members with deep experience in energy and environmental impact from multiple industries, as well as in governance, safety, and risk.

In addition to the annual reporting cycle, the Governance and Nominating Committee reviews a quarterly dashboard on progress to goals, and management commentary on milestones and trends. The Board has directed that sustainability and ESG be leading parts of the Company’s strategy and has regular discussions about this work including topics specific to climate impact and diversity, equity and inclusion.

The Safety Committee receives regular updates on environmental risk, and the Compensation and Leadership Development Committee is responsible for oversight of human capital matters, including advancing diversity, equity, and inclusion such as through recruitment, hiring, retention, development, and culture building.  

At a management level, a member of our Executive Committee has formal responsibility for driving progress and disclosure in Sustainability and ESG. And because this work is inherently cross-functional, the Company has also formalized governance and oversight of ESG at the management level. An ESG Executive Steering Committee meets monthly for oversight of performance and work toward the goals and is responsible for ensuring progress. Additional Steering Committees dedicated to Reducing Carbon Emissions and Advancing Racial Equity bring explicit focus in those two areas. Finally, a group dedicated to ESG Goals and Disclosure ensures appropriate stewardship and transparency in data to the breadth of ESG matters. These groups are staffed by senior executives across all areas of accountability for delivering on ESG – including operations, finance, human resources, legal, commercial divisions, government affairs and philanthropy.

ESG Disclosure

Air Group voluntarily reports progress annually on ESG goals. The 2019 report, including data per the Sustainability Accounting Standards Board (SASB) framework for aviation, can be found by visiting http://www.flysustainably.com/wp-content/uploads/2020/07/2019-Alaska-Air-LIFT-Report.pdf. The Company’s 2020 report, to be published in the second quarter 2021, will report our progress on our 2020 goals and share the new goals through 2025.

2025 goals and commitments are established with input from stakeholders across the Company and externally, and will cover areas of carbon, waste, water, racial equity, community involvement, labor practices, safety, crisis management, privacy and data security, and responsible political engagement. Additionally, the Company will keep financial management principles visible in this disclosure. The Company will present quarterly progress reports on these goals and commitments to the Board as described above, will report annually to the public, and will publicly report in accordance with leading reporting frameworks such as SASB, the Carbon Disclosure Project and Task Force on Climate Related Financial Disclosure.

Climate Strategy

Climate change is a threat to the future and is already impacting communities including those in which we operate. The Company believes deeply in the transformational benefits of air travel to connect people with one another, help people understand one another, and enable communities to grow, thrive, create jobs and economic benefits. Air Group is committed to reducing our climate impact, with a principal focus on carbon emissions alongside broader focus on other climate impacts, waste, and water.

The Company is committed to improve in three primary ways: (1) increasing the efficiency of operations, (2) increasing use of sustainable aviation fuels, and (3) transforming the technology and infrastructure of aviation long-term. When we are unable to reduce our impact enough through increased efficiency and using sustainable fuels, we consider high-quality carbon offsets and facilitate customers’ purchase of such offsets.

In 2020, the Company began using sustainable aviation fuel at San Francisco International Airport, and announced a partnership with Microsoft to use sustainable aviation fuel at Los Angeles International Airport to

10


 

create “carbon-neutral flights” for Microsoft employees traveling from Seattle to San Francisco, San Jose and Los Angeles now and into the future.

The Company also announced a major investment in our fleet, transitioning many of our aircraft to the 737-9 MAX which is 22% more efficient on a seat-by-seat basis than the aircraft we will replace. And for the first time in 2021, a carbon emissions target is part of the all-employee goals-based incentive pay program, underscoring a company-wide commitment to efficiency and sustainability.

Diversity, Equity, and Inclusion

The Company values the importance of diversity and inclusion in the workplace and believes that our airlines should be places where everyone feels they belong – employees and guests alike. We believe every person should be treated with respect regardless of race, ethnicity, capability, age, gender or sexual orientation and that guests should always feel welcome on board our aircraft. Employees deserve to feel safe and have a sense of belonging when they come to work. This means racism and discrimination have no place in our workplace or onboard our aircraft.

The Company believes that aviation can enable opportunity; and we are committed to advancing equity in all forms, with a current focus on racial equity. Building on feedback and input from employees, we have set specific commitments and goals to advance racial equity through diverse leadership and employee representation, an inclusive culture, and public leadership. Our focus is on creating opportunities for employment, engagement and advancement for diverse employees throughout the organization.  We will achieve this by supporting education pipelines that create career pathways for diverse talent, and by focusing on attracting and retaining diverse talent through leadership development and sponsorship programs.

Community Involvement

The Company is involved in the communities where we live and fly through corporate philanthropy, community engagement, employee volunteerism, and grants from the Alaska Airlines Foundation. A core area of focus, and the mission of the Alaska Airlines Foundation, is to inspire, equip, and enable young people to imagine and reach career opportunities, in aviation and beyond. In the last several years, this work is done through the lens of advancing racial equity.

The Company’s corporate philanthropy includes using our core asset of flight to transport people for school, to needed medical care, to respond to crisis and urgent needs, or to make a wish come true. This makes flying matter. Additionally, through Alaska’s LIFT Miles program, guests can contribute their miles to organizations that are aligned with their passions.  

2020 was a unique year for our community involvement, but the Company turned to virtual engagement to reach kids with airport tours and “ask a pilot”, wrote letters to homebound elders, and transported medical providers and critical supplies. The Company also launched the Million Meals Challenge to combat the growing challenge of food insecurity as a result of the COVID-19 pandemic, contributing fresh and packaged food directly to food banks across the country and galvanizing the giving power of guests and employees to amplify the impact.

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.

In response to the lobbying disclosure proposal that received support from 52% of votes cast at the 2020 meeting, the Company enhanced the Policy on Political Contributions and Engagement.  Details of the engagement, research, policy updates and program oversight are included below:

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Engagement and Research

The approach to increase transparency around political and lobbying contributions was informed by the proponent of the proposal, Proposal 4 around Political Contributions submitted in the 2020 proxy, several institutional shareholders, our proxy solicitor, and peer group companies with high marks on their political disclosures. We believe our approach is clear and transparent while balancing shareholder expectations, administrative complexity, and business demands.

Changes to the existing Policy on Political Contributions and Engagement make the content more user-friendly as it is now available as a subsite on alaskaair.com at:  

https://investor.alaskaair.com/policy-political-contributions

Policy Overview

In the revised Policy on Political Contributions and Engagement, the Company describes its interests in advocating for policies in support of its business and industry, including through, among other things, participating in trade associations and making political contributions where appropriate and permitted by the law.

The policy includes detailed procedures for making political contributions and expenditures, directly and indirectly, including with respect to candidates for public office, political parties, referenda and ballot initiatives. Among other things, the Company’s policy sets forth the following:

 

The Company’s policy describes that the Company complies with all federal, state and local laws and requirements associated with political engagement, including the Company’s lobbying activities.

 

 

The policy indicates that, consistent with federal campaign finance laws, the Company does not make corporate political contributions to federal candidates, political parties or political committees, but notes that some state and local jurisdictions permit the Company to contribute directly to state and local candidates, political parties, referenda and ballot initiatives and that political contributions may be made indirectly by the AAG Political Action Committee (AAG PAC) as permitted by applicable state and local laws and that federal contributions may also be made indirectly through the AAG PAC.

 

 

The policy provides detailed information regarding the AAG PAC, describing that it is nonpartisan and organized on a strictly voluntary basis with participation only by eligible employees. The policy further describes how the AAG PAC is overseen, noting that all checks drawn from the AAG PAC must be approved by two AAG PAC Board members.

Dues and Contributions Disclosures

Through active links included in the Company’s Policy on Political Contributions and Engagement posted on the Company’s website (at the link referenced above), the Company discloses its direct and indirect political contributions through lobbying activities. The Company updates these disclosures semi-annually (generally, August and February of each year). Specifically, the Company discloses:

 

All contributions by the Company to state and local candidates, political committees and political organizations and in regard to ballot measures. This list identifies the recipient (and his/her title, if applicable), the jurisdiction the recipient represents, and the amount paid.

 

 

All contributions made by the AAG PAC. The list identifies the candidate, the state and district represented and the candidate’s office, the committee or political action committee to which the contribution was directed, the party affiliation and the amount paid.

 

 

Payments to trade associations for which the Company paid dues or payments of more than $25,000 and who spend 10 percent or more of their revenues lobbying. The amount reported by the Company is the non-deductible portion of the payment.  

The Company also provides through its website (at the link referenced above) links to the Company’s publicly available lobbying disclosures required to be submitted quarterly to the Secretary of the U.S. Senate and the Clerk of the U.S. House under the Lobbying Disclosure Act.

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Process and Oversight

As detailed above, the Company’s Policy on Political Contributions and Engagement provides detailed information about the decision-making process for its political contribution and lobbying activity and the person(s) responsible. For example, as stated in the Company’s policy:

 

Any political contribution made by the Company must be approved by the Company’s General Counsel, Vice President of Public Affairs, or a designee.

 

 

The policy describes the Company’s interest in participating in certain trade associations and provides that the Company’s Vice President of Public Affairs and Government Affairs Department is responsible for oversight of the Company’s trade association participation.

 

 

The budget for corporate political contributions to the AAG PAC is determined annually by the Vice President of Public Affairs, in consultation, as appropriate, with the Company’s Chief Executive Officer and legal counsel to ensure compliance with corporate policy and applicable federal, state and local laws.

 

 

The AAG PAC is overseen by a five-person board of directors, and its members include the Vice President of Public Affairs and the Company’s Chief Executive Officer. The Company’s Vice President of Public Affairs and its Government Affairs Department is responsible for oversight of the Company’s participation in trade associations, and the Vice President of Public Affairs is responsible for annually reviewing the Company’s participation in these associations and other public advocacy efforts.

 

 

The Company’s General Counsel and Vice President of Public Affairs are responsible for oversight and implementation of the Company’s Policy on Political Contributions and Engagement and for establishing effective reporting and compliance procedures with respect to the Company’s political activities.

 

 

The Governance and Nominating Committee of the Board of Directors remain responsible for monitoring compliance, as well as any changes or updates to the process or policy.

The Board approved these changes on November 6, 2020 and the new Policy on Political Contributions and Engagement was published on November 13, 2020.  

 

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

13


 

 

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

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 Chair, 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 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.

 

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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. Thirteen directors are nominees for election this year and each has consented to serve a one-year term ending in 2022.  There are no family relationships among the directors and our executive officers.

 

Patricia M. Bedient, 67

 

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)

 

•  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, 60

 

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.

•  DocuSign 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 


15


 

Raymond L. Conner, 65

 

Qualifications:

 

 

 

Former Vice Chairman,

The Boeing Company

Director of Alaska Air Group

since 2018

Compensation and

Leadership Development

Committee (Chair)

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 plc

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel K. Elwell, 61

 

Qualifications:

 

 

 

 

President, Elwell & Associates, LLC

Director of Alaska Air Group

since 2021

Audit Committee

Innovation Committee

 

 

• Aviation Industry Expertise

• Extensive Experience with Government, including the Federal Aviation Administration

Professional Highlights:

Mr. Elwell served as Deputy and Acting Administrator of the Federal Aviation Administration (FAA) from June 2017 to November 2020, where he was responsible for the safety and efficiency of the largest aerospace system in the world.  He also had oversight of the FAA’s multibillion-dollar Next Gen air traffic control modernization program to accelerate the shift from ground-based radar to state-of-the-art satellite technology.  Mr. Elwell also served as Senior Vice President for Safety, Security and Operations at Airlines for America (A4A) from 2013-2015 and was Vice President of the Aerospace Industries Association (AIA) from 2008 to 2013.  He is also a former military and commercial pilot.  

Current Non-Public Company Board Service:

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

Education:

•  BS, U.S. Air Force Academy


16


 

Dhiren R. Fonseca, 56

 

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 Public Company Board Service:

•  Rackspace Technology, Inc.

 

Current Non-Public Company Board Service:

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

•  RentPath, Inc..

•  Diamond Resorts

 

 

 

 

 

 

 

Kathleen T. Hogan, 55

 

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

Governance and Nominating Committee (effective May 2021)

 

•  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

 

17


 

Jessie, J. Knight, Jr., 70

 

Qualifications:

 

 

 

 

Managing Director,

Knight Angels LLC

Director of Alaska Air

Group since 2020

Compensation and

Leadership Development

Committee

 

Safety Committee (effective May 2021)

 

 

•  Brand Marketing Experience

•  Energy Markets Expertise

•  Economic Development Expertise

•  Business, Political and International Experience

 

Professional Highlights:

Mr. Knight has been managing director of Knight Angels LLC (private equity investments) since 2015.  From 2006 to 2015, he was executive vice president of external affairs and chief sustainability officer of Sempra Energy and, from 2010 to 2014, was chief executive officer of San Diego Gas and Electric Company.  Mr. Knight previously served on the Alaska Air Group, Inc. board of directors from 2002 to 2017 during which time he served on several board committees, including compensation, governance and nominating, and safety.  He was chair of the safety committee from 2014 to 2017.

Current Non-Public Company Board Service:

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

•  Timken Museum of Art in San Diego

•  University of California San Diego Foundation

•  U.S. Chamber of Commerce

Education:

•  BA, St. Louis University

•  MBA, University of Wisconsin

 

Susan J. Li, 35

 

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

 

 

 

 

 

 

 


18


 

Benito Minicucci, 55

 

Qualifications:

 

 

 

 

 

 

 

President

Alaska Airlines, Inc.

 

President and CEO

Alaska Air Group, Inc. and Alaska Airlines, Inc. (effective March 31, 2021)

 

Director of Alaska Air Group since 2020

 

 

•  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:

•  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

 

 

Helvi K. Sandvik, 63

 

Qualifications:

 

 

 

President, Kidways LLC

Director of Alaska Air Group

since 2013

Safety Committee (Chair)

Compensation and

Leadership Development

Committee (effective May 2021)

 

 

•  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

 

 

 

 

 


19


 

J. Kenneth Thompson, 69

 

Qualifications:

 

 

 

President and CEO, Pacific

Star Energy LLC

Director of Alaska Air Group since 1999

Compensation and

Leadership Development

Committee

Governance and Nominating

Committee

 

 

•  Business Leadership Expertise

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

•  Community Leadership

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 Inc., 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, Inc.

Current Non-Public Company Board Service:

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

Education:

•  BS, Missouri University of Science and Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

Bradley D. Tilden, 60

 

Qualifications:

 

 

 

Chairman and CEO, Alaska Air Group, Inc. and Alaska Airlines, Inc., and Horizon Air Industries, Inc.


Executive Chair, Alaska Air Group, Inc., Alaska Airlines, Inc. and Horizon Air Industries, Inc. (effective March 31, 2021)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 


20


 

Eric K. Yeaman, 53

 

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

•  Community Leadership Expertise

Professional Highlights:

Mr. Yeaman is currently the founder and managing partner of Hoku Capital LLC, a strategic advisory services 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

•  Friends of Hawaii Charities, Inc.

Education:

• BA, University of Hawaii at Manoa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE

ELECTION OF THE 13 DIRECTOR NOMINEES NAMED ABOVE.

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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, 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

 

 

 

 

Chair

 

 

 

 

 

 

James A. Beer

 

 

 

 

 

 

 

 

Chair

 

 

Marion C. Blakey (1)

 

 

 

 

 

 

 

 

 

 

Raymond L. Conner (2)

 

 

 

Chair

 

 

 

 

 

 

 

Daniel K. Elwell (3)

 

 

 

 

 

 

 

 

 

 

Dhiren R. Fonseca

 

 

 

 

 

 

 

 

 

 

Kathleen T. Hogan (4)

 

 

 

 

 

 

 

 

 

 

 

Jessie J. Knight, Jr. (5)

 

 

 

 

 

 

 

 

 

 

 

Susan J. Li

 

 

 

 

 

 

 

 

 

 

Helvi K. Sandvik (6)

 

 

 

 

 

 

 

Chair

 

 

 

 

J. Kenneth Thompson

 

 

 

 

 

 

 

 

 

 

Eric K. Yeaman

 

Chair

 

 

 

 

 

 

 

 

 

(1)

Ms. Blakey was chair of the Compensation and Leadership Development Committee until February 9, 2021.

(2)

Mr. Conner was appointed chair of the Compensation and Leadership Development Committee effective February 9, 2021.

(3)

Mr. Elwell was appointed to the Audit and Innovation Committees in January 2021.

(4)

In February 2021, Ms. Hogan was appointed to the Governance and Nominating Committee effective May 6, 2021 and subject to her election at the 2021 Annual Meeting.

(5)

Mr. Knight was appointed to the Compensation and Leadership Development Committee in October 2020. In February 2021, Mr. Knight was appointed to the Safety Committee effective May 6, 2021 and subject to his election at the 2021 Annual Meeting.

(6)

In February 2021, Ms. Sandvik was appointed to the Compensation and Leadership Development Committee effective May 6, 2021 and subject to her election at the 2021 Annual Meeting.

 

22


 

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 information security risk oversight:

oreview and discuss technology, information security (cybersecurity) and data privacy risks and effectiveness of related security controls.

  With regard to matters pertaining to risk oversight, compliance and 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.

 

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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, taking into account CARES Act requirements and other legal considerations; 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.

  Oversight over human capital matters, including advancing diversity, equity and inclusion.

  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.

•  Review and assess ESG goals, initiatives and performance.

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

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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 2020, the Board of Directors held 10 meetings. The standing board committees held the following number of meetings in 2020:

Audit Committee – 4

Compensation and Leadership Development Committee – 7

Governance and Nominating Committee – 4

Safety Committee – 4

Innovation Committee -- 4

Each director except one attended at least 75% of all board and applicable committee meetings during 2020. 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, and including each member of the Audit Committee, Compensation and Leadership Development Committee, Governance and Nominating Committee, Safety Committee and Innovation 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.

 

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.

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.

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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. 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.

 

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

27


 

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.  

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 2021 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 Notice, 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 Notice 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 Notice, 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 Notice 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

29


 

Committee’s recommendations with any Qualified Stockholder who made a director candidate recommendation.

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, 2020, 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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2020 Director Compensation

The following table presents information regarding the compensation paid for 2020 to members of the Board of Directors who were not also the Company’s employees (non-employee directors). The compensation paid to Mr. Tilden and Mr. Minicucci for 2020 is presented in the Summary Compensation Table and the related explanatory tables. Mr. Tilden and Mr. Minicucci did not receive additional compensation for their service as directors.

 

 

Name (a)

 

Fees

Earned

or Paid

in Cash (1)

($)

 

Stock

Awards (2)(3)

($)

 

All Other

Compensation (4)(

($)

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patricia M. Bedient

 

70,201

 

 

99,977

 

 

540

 

 

170,718

 

 

James A. Beer

 

61,257

 

 

99,977

 

 

3,908

 

 

165,142

 

 

Marion C. Blakey

 

56,763

 

 

99,977

 

 

545

 

 

157,285

 

 

Raymond L. Conner

 

44,818

 

 

99,977

 

 

1,666

 

 

146,460

 

 

Dhiren R. Fonseca

 

44,818

 

 

99,977

 

 

10,356

 

 

155,151

 

 

Kathleen T. Hogan

 

44,818

 

 

99,977

 

 

2,228

 

 

147,022

 

 

Jessie K. Knight, Jr. (5)

 

40,713

 

 

54,217

 

 

545

 

 

95,475

 

 

Susan J. Li

 

44,818

 

 

99,977

 

 

4,469

 

 

149,264

 

 

Helvi K. Sandvik

 

53,777

 

 

99,977

 

 

4,781

 

 

158,535

 

 

J. Kenneth Thompson

 

44,818

 

 

99,977

 

 

4,469

 

 

149,264

 

 

Eric K. Yeaman

 

59,749

 

 

99,977

 

 

7,274

 

 

167,000

 

 

(1)

Following a market review in late 2019, the Board approved an increase in annual stock retainers to $105,000, and annual cash retainers were scheduled to increase to $80,000, effective May 7, 2020.  However, in light of the coronavirus pandemic, directors rescinded these increases and elected to forego 2020 annual cash retainers on a temporary basis.  In August 2020, the Board approved the resumption of payments of 2020 board, committee chair and lead director cash retainers, on a prorated basis, effective October 1, 2020.

 

In May 2020, the Board further directed that the cash retainers for both the Lead Independent Director and the Governance and Nominating Committee chair be paid to an individual who serves in both roles.

Following a market review in early 2021, the Board reinstated the increases in annual stock retainers to $105,000 and the annual cash retainers to $80,000, to be effective May 6, 2021.  In addition, the compensation for non-employee directors beginning May 6, 2021 will include the following

 

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

 

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

(2)

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, full vested shares are issued.

In May 2020, Mr. Beer, Ms. Hogan and Ms. Li were each granted 3,539 deferred stock units (DSUs), based on their 2019 elections to defer their 2020 stock retainers. Ms. Bedient, Ms. Blakey, Mr. Conner, Mr. Fonseca, Ms. Sandvik, Mr. Thompson, and Mr. Yeaman were each issued 3,539 shares of Alaska Air Group common stock. Mr. Knight was issued a prorated stock retainer of 1,366 common shares upon his appointment to the Board in October 2020.  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 2020 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. They also do not participate in any non-equity incentive compensation plans, nor do they participate in a nonqualified deferred compensation plan. Non-employee directors do not receive pension benefits for their service.

 

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(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 this 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.

(5)

Mr. Knight received a prorated cash and stock retainer upon his appointment to the Board in October 2020.

 

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 (NEOs) 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 NEOs, who are primarily responsible for the overall execution of the Company’s strategy, a high percentage of total direct compensation (meaning base salary, actual short-term incentive pay plus the grant date fair value of equity awards as determined for accounting purposes) is variable and tied to the success of the Company. 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 2020. We also discuss the compensation actions taken by the Company in response to the unprecedented impact of the COVID-19 pandemic on the Company, its guests, employees, and the communities in which it operates.

Our 2020 executive compensation program includes three core elements:

Base Salary

In February 2020, the Committee set base salary for the CEO at or about the 25th percentile of the airline peer group identified in the CD&A.  The Committee set base salaries for the other NEOs at or about the 50th percentile of corresponding positions in the same peer group. In March 2020, in light of the anticipated impact of the COVID-19 pandemic on the Company’s operations and at the request of the two highest paid NEOs, the Committee rescinded these increases and, at the requestion of the two highest paid NEOs, further reduced base pay by 100% (to zero base salary) for these two NEOs. The Committee also rescinded the February 2020 increases and further reduced base pay by 30% for the other NEOs. Base pay for these executives was generally restored to 2019 levels in October 2020.

Annual Incentive Pay

The NEOs are eligible to earn annual incentive pay under our Performance Based Pay (PBP) Plan, in which all employees participate with the same performance goals shared by all eligible employees.  The PBP Plan is intended to motivate all participants to achieve specified Company goals. Performance goals for 2020 were set at the beginning of the period and prior to the COVID-19 pandemic to include financial, operational and marketing goals that were consistent with the Company’s strategic plan.  Seventy percent of the target award value under the PBP Plan was based on adjusted pretax profit.  Several months into the COVID-19 crisis, it became clear that participants would likely receive no payout on the adjusted pretax profit metric.  

In June 2020, the Committee approved a supplemental incentive pay program for all employees, the COVID-19 Business Recovery Incentive Pay (CBRP) Plan, to support and encourage key elements of the Company’s recovery. The CBRP Plan is a one-time performance plan tied to business recovery goals measured over the

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last six-months of 2020.  The goal of the CBRP Plan is to retain and motivate employees at all levels and to ensure that experienced talent remained in place to help the Company emerge from the impacts of COVID-19.  Refer to the CD&A for more detailed information on the structure and payout of the PBP and CBRP Plans.

Long-term Incentive Pay

Equity-based incentive awards that link executive pay to stockholder value generation are an important element of the Company’s executive compensation program and comprise the largest portion of pay for our NEOs. 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).  Consistent with the equity mix granted in prior years, the NEOs’ 2020 equity grant was allocated approximately 50% to PSUs and approximately 25% to each of stock options and RSUs (based on the grant date fair value of the awards). The Committee typically grants equity awards annually which results in overlapping vesting periods that discourage short-term risk taking and align NEOs 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 November 2020, the Committee approved special, service-contingent equity grants to retain and motivate the Company’s leaders, including the NEOs, as it became evident that PSUs awarded in 2018, 2019 and 2020 would have little or no value due to the impacts of the COVID-19 pandemic, and that their realizable total compensation had dropped significantly below target in light of a 45% decrease in the value of the Company’s stock since the beginning of the year (compared to a 4% rise in the S&P 500).  The CD&A provides more detail on these special retention grants.

Annual Advisory Say-on-Pay Proposal

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 2021 Annual Meeting:

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 NEOs 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 NEOs, stockholders are given an opportunity to cast an advisory vote on NEOs annually, with the next opportunity expected to be in connection with the Company’s annual meeting in 2022.

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

This CD&A contains a discussion of the material elements of compensation earned during 2020 by its named executive officers (NEOs):

Bradley D. Tilden, chairman, chief executive officer (CEO) and president of Alaska Air Group;

Shane R. Tackett, executive vice president finance and chief financial officer (CFO) of Alaska Air Group since March 3, 2020; previously executive vice president planning and strategy of Alaska Airlines;

Benito Minicucci, president of Alaska Airlines;

Andrew R. Harrison, executive vice president and chief commercial officer (CCO) of Alaska Airlines;

Gary L. Beck, executive vice president and chief operating officer (COO) of Alaska Airlines; and

Brandon S. Pedersen, retired as the Company’s executive vice president finance and CFO on March 3, 2020 and was succeeded by Mr. Tackett.  

2020 Overview

 

The outbreak of COVID-19 had an immense impact on the Company, its employees, guests, and the communities in which it operates.  Travel restrictions, event cancellations, social distancing guidelines, and other public health measures that undermined confidence in air travel drove unprecedented declines in demand and revenues.  The airline industry was particularly hard hit by the pandemic.  The West Coast, where Alaska Airlines and Horizon Air predominantly operate, was disproportionately impacted by local quarantine restrictions.  Despite these challenges, the Company’s Board of Directors and executive leaders took decisive action to mobilize employees around safety measures, cost reduction and liquidity.  The Company’s executive compensation actions occurred in an environment of uncertainty, urgency and strong commitment to the Company’s future.  As in prior years, the Company’s philosophy was to be conservative in setting compensation levels and fundamentally focused on aligning executives’ interests with those of our stockholders.    

 

Financial Results and Liquidity Highlights

 

 

Reported net loss for the full year 2020 of $1.3 billion, or a loss of $10.72 per diluted share. These results compare to net income of $769 million, or a gain of $6.19 per diluted share in 2019.

 

 

Accessed approximately $5 billion in new liquidity, including $1.2 billion raised in the capital markets approximately $600 million in bank funding, $1 billion in government grants under Coronavirus Aid, Relief, and Economic Security (CARES) Act and $1.9 billion in government loans under the CARES Act.

 

 

Reported adjusted net debt of $1.7 billion in December 2020, flat from December 2019 in spite of a 59% decline in operating revenues for the year.

 

 

Reported a debt-to-capitalization ratio, including certain short-term borrowings, of 61%.

 

 

Reported an adjusted net debt to net invested capital ratio of 36% at December 31, 2020, compared to 28% at December 31, 2019.

 

 

Held $3.3 billion in unrestricted cash and marketable securities as of December 31, 2020.

 

Operational and Guest Safety Highlights

 

 

Eliminated change fees and extended the flexible travel policy for tickets purchased through March 31, 2021.

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Introduced Next-Level Care, involving nearly 100 measures designed to create a safe experience for guests and employees, and broadcast the Alaska Airlines Safety Dance commercial.

 

 

Named the safest U.S. Airline in www.airlineratings.com’s 2021 Top 20 Safest Airlines report.

 

 

Partnered with healthcare providers to offer rapid and standardized COVID-19 pre-departure testing for guests, as well as a pre-clearance program for guests traveling to Hawaii.

 

 

Received diamond level certification from the Airline Passenger Experience Association for traveler health and safety standards.

 

 

Announced a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain air travel.

 

Executive Transitions

On November 5, 2020, the Company announced Mr. Tilden will retire as CEO of the Company and Alaska Airlines effective March 31, 2021 and remain as Board Chair as part of a long-planned succession process.

The Company also announced that Mr. Minicucci, currently the president of Alaska Airlines, will assume the CEO role at the Company and Alaska Airlines effective March 31, 2021.  Mr. Minicucci, has served as president of Alaska Airlines since May 2016.  He served as Alaska Airlines’ chief operating officer from December 2008 until November 2019. 

In keeping with actions taken during the Company’s last CEO succession in 2012, the Committee approved a special equity award to Mr. Minicucci in November 2020.  The purpose of the grant was to recognize his heightened responsibilities as the next CEO, to acknowledge his instrumental leadership role during the COVID-19 crisis, to sustain his engagement, and to align his long-term compensation with the Company’s long-term performance as it emerges from the pandemic.  Refer to the Special Equity Awards section below for the terms of this special grant.

On February 25, 2021, the Committee approved the compensation arrangements for Mr. Minicucci when he assumes the CEO role on March 31, 2021.  See the CEO Transition Grant section below for a summary of Mr. Minicucci’s compensation.

On March 22, 2021, the Company announced the Mr. Beck will retire as executive vice president and COO of Alaska Airlines effective April 3, 2021, and remain as Special Advisor to the CEO under an employment agreement which expires on February 12, 2022.  Mr. Beck will be succeeded as COO by Ms. Constance von Muehlen, currently senior vice president maintenance and engineering at Alaska Airlines.  See the Employment Agreement with Mr. Beck section below for a summary of his employment terms.

As previously disclosed in the 2020 proxy statement, Mr. Tackett assumed the role of executive vice president finance and chief financial officer effective upon Mr. Pedersen’s retirement on March 3, 2020.

Compensation Philosophy and Actions pre-dating COVID-19

The Committee began the annual cycle of reviewing and setting executive compensation in January 2020.  The philosophy of the Company’s executive compensation program was consistent with that of prior years: to be conservative stewards of stockholder resources while compensating executives appropriately and competitively and driving superior performance relative to other airlines in North America.  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 to help create value for stockholders.

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In this spirit, the Committee took the following steps in February 2020:

 

Approved target total direct compensation for Mr. Tilden that is 86% performance-based and/or has potential long-term value tied to the Company’s stock price.  For the other NEOs, the Committee approved target total direct compensation that is, on average, 79% performance-based and/or has potential long-term value tied to the Company’s stock price.  Both our short-term and long-term incentive programs contain performance-based goals that we believe would contribute to the long-term success of the Company.

 

Established 2020 performance goals and participation rates for the PBP Plan.  All employees of Alaska Airlines and Horizon Air participate in this annual incentive pay plan.  The NEOs have target participation rates ranging from 85% to 140% of the NEO’s base salary.

 

Approved annual long-term incentive equity awards to NEOs.  The grant 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.  

Consistent with the equity mix granted in prior years, 50% of the total award value was in PSUs, 25% in stock options and 25% in RSUs.  The PSUs have a three-year performance period and, for the 2020 grants, 25% of the award vests based 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 align executives’ incentives with the creation of long-term value for stockholders.

Compensation Actions related to COVID-19; CARES Act Impacts

At the outset of the COVID-19 pandemic, the Committee took immediate steps to aid the Company’s cash preservation goals, approving:    

 

NEO Base Salary Reductions.  The Committee rescinded executive salary increases that had been approved in February to take effect in April.  Mr. Tilden and Mr. Minicucci took a reduced compensation package that included no base salary from March 6 through October 3, 2020.  The other NEOs took a 30% base pay reduction from April 4 through October 3, 2020.  

 

Director Retainer Reductions.  The board of directors rescinded cash and equity retainer increases that had been approved in November 2019 to take effect in May 2020.  Directors waived the portion of their cash retainers correlated to service from May 7, 2020 to October 1, 2020.

In April 2020, Alaska Airlines and Horizon Air received the first round of government aid under the payroll support program (PSP) of the U.S. Coronavirus Aid, Recovery and Economic Support (CARES) Act.  A second round of PSP support would be authorized in December 2020 and funded the following month.  In September 2020, the Company received the right to draw up to $1.9 billion in secured loans under the loan program of the CARES Act.  The CARES Act imposes limits or caps on the compensation that may be paid to a recipient’s executives in a prescribed period.  Consistent with these requirements, the Company agreed to cap total compensation for Mr. Tilden and Mr. Minicucci at $3 million plus one half of their 2019 total compensation exceeding $3 million, and to cap total compensation for other executives (including the NEOs other than Mr. Tilden and Mr. Minicucci) at 2019 levels, through at least October 2022 and as long as May 2027.  The Act also imposes caps on executive severance payable to NEOs and other executives for the same duration, Therefore, it is possible that our NEOs and other executives may not realize the full value of their intended compensation packages as long as these restrictions remain in place.

As the pandemic continued into the summer months, and as a thriving Seattle technology market drove attrition of Company personnel, the Committee began to consider the implementation of a supplemental bonus plan to reengage and motivate employees and retain leaders critical to navigating the Company through the impact of the COVID-19 pandemic.  As it became clear that participants would likely receive no payout under the largest component of the annual bonus plan, with the input of its independent compensation consultant, the Committee adopted the COVID-19 Business Recovery Incentive Pay (CBRP) Program in June 2020.  

 

COVID-19 Business Recovery Incentive Pay (CBRP) Plan.  All employees, including NEOs, participate in this one-time bonus plan based on the achievement of cash preservation and COVID-specific guest and employee safety goals over the last six-months of 2020.  This plan supplemented the Company’s broad-based Performance Based Pay (PBP) Plan and capped the maximum payout under the CBRP

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when combined with the PBP payout at 100% of PBP target.  Refer to the PBP Plan and CBRP Plan discussions below for goal and award details.

Based on encouraging signs of recovery and progress on cash preservation goals, the Committee took further action in the summer of 2020 to engage and retain key executives whose compensation had been reduced when the COVID-19 pandemic began.

 

Restored NEO Base Salaries. In August 2020, the Committee restored NEO base salaries (other than Mr. Tackett) to their 2019 levels, effective in October 2020.

In the fall of 2020, with the Company’s revenues, enplanements and share price at depressed levels, the Committee observed that NEOs’ realized total target compensation was significantly lower than the target levels intended when these arrangements were approved at the beginning of the year, a gap driven largely by a 45% decrease in the value of the Company’s shares since the beginning of the year (compared to a 4% rise in the S&P 500) combined with a highly competitive Seattle job market.  Furthermore, unvested PSU awards granted in 2018, 2019 and 2020 that were based on achievement of certain return-on-invested-capital (ROIC) targets were deemed unlikely to vest and, therefore, given the substantial loss in 2020 as a result of the COVID-19 pandemic on demand for air travel, we have reduced their value to $0 in accordance with generally accepted accounting principles (GAAP).  The Committee therefore approved special equity awards to help ensure experienced talent remained in place to guide the business through the challenges presented by the COVID-19 crisis, a CEO succession and beyond, and to recognize leaders for the work they did throughout the year to position the Company for recovery.  These special grants marked a rare but, in the Committee’s view, appropriate departure from the Company’s history of maintaining a share burn rate that is lower than the ISS industry benchmark of 2% and the three-year .99% median burn rate of peer transportation companies. The Company’s share burn rate was .86% in 2019 and 1.83% in 2020 (including these special grants).

 

Special Grant:  In November 2020, the Committee approved one-time, service-vesting equity awards to NEOs and other Company executives.  Refer to the Special Equity Awards section for terms of these special grants.

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 2020 annual meeting, 97.35% of the votes were cast in favor of the advisory say-on-pay proposal in connection with the Company’s 2019 compensation. The Committee believes that voting results indicate that stockholders approve of the structure of executive compensation at Alaska Air Group.  

As described above, the Committee deemed that the best interests of the Company and its shareholders were served by executive compensation adjustments (including the temporary reductions in NEO base salaries, implementation of a supplemental bonus plan for the second half of 2020, and the special equity grants awarded in November 2020) made during this unprecedented year.  

Objectives of the Company’s Executive Compensation Program

The fundamental objectives of the executive compensation program have remained in place despite the uncertainties of the year and 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 set in the PBP Plan, the CBRP Plan and the Company’s strategic plan;

 

to align the interests of executives and stockholders by tying a large portion of executives’ total direct compensation (meaning base salary, actual short-term incentive pay and the grant date fair value of

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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 has historically followed a conservative compensation philosophy, generally targeting the CEO’s base salary at or about the 25th percentile of the Company’s airline peer group identified below. The Committee may decide to set the CEO’s salary above or below the 25th percentile after considering 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 peer companies’ chief executive officers 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, succession considerations, and internal equity influence the Committee’s executive compensation-setting philosophy and practice from year to year.

How Executive Compensation is Determined

The Committee’s Role. 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, 2020 represents less than one percent of Meridian’s total annual revenues for the 2020 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:

 

using several different financial and operational metrics 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.

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

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depending on the degree to which such objectives are achieved. For 2020, the Committee approved pre-pandemic target-level total direct compensation for Mr. Tilden that is 86% variable and/or 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 2020, 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 2020 (the same peer group as used to evaluate 2019 compensation except for WestJet Airlines which became a private company in 2019):

 

Air Canada

 

American Airlines Group

 

Delta Air Lines

 

Hawaiian Holdings

 

JetBlue Airways Corporation

 

SkyWest

 

Southwest Airlines

 

Spirit Airlines

 

United Continental Holdings

 

WestJet Airlines

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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, 2020 target total cash compensation 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 our CEO, target total cash compensation was below the 25th percentile and target 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 2020 executive compensation, the Committee also reviewed data for 21 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 Group, Inc., Expeditors International of Washington, Inc., Hertz Global Holdings, Inc., Hub Group, Inc., Hilton Worldwide Holdings, Inc., JB Hunt Transport Services, Inc., JetBlue Airways Corporation, Landstar System, Inc., Marriott International, Inc., Norfolk Southern Corporation, Norwegian Cruise Line Holdings Ltd., Royal Caribbean Cruises Ltd., Ryder System, Inc., Knight-Swift Transportation Holdings, Inc., Union Pacific Corporation, Wyndham Destinations, Inc., 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 our 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 transportation industry peer groups, the Committee believes 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 can 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 2020, 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 and flat with his 2019 base pay. The chart below depicts CEO base salaries at airline peer group companies in 2019.

Mr. Tilden accepted a 100% reduction of his base salary from March 6 through September 2020 in light of the COVID-19 crisis.  In October 2020, his base salary was restored to $590,000.

CEO Base Salary Comparisons (1)

(Airline Peer Group)

 

 

(1)

Amounts are based on the most recent compensation data available as of October 30, 2020.  In most cases, this is the base salary as reported in the respective company’s FY2019 proxy statement.

(2)

Base salary is converted from Canadian Dollars to US Dollars using an exchange rate of 0.75 (which was the rate in effect on October 30, 2020).

(3)

The CEO does not receive a base salary; direct compensation is provided in the form of long-term equity incentives.

In February 2020, the Committee also approved base salaries for the other NEOs as follows: Mr. Tackett -- $490,000; Mr. Minicucci -- $570,000; Mr. Harrison -- $490,000; and Mr. Beck -- $440,000.  In anticipation of Mr. Pedersen’s announced retirement in March 2020, the Committee did not adjust his base pay from its 2019 level ($475,000).  

Similar to Mr. Tilden, Mr. Minicucci accepted a 100% reduction of his base salary from March 6 through October 2, 2020 due to the COVID-19 crisis.  In addition, the Committee rescinded the above referenced salary increases approved in February 2020 and reduced other NEOs’ base pay by 30%.  

The Committee restored these NEOs’ base salaries at the following rates effective October 3, 2020: Mr. Tackett -- $490,000; Mr. Minicucci -- $550,000; Mr. Harrison -- $475,000; and Mr. Beck -- $425,000.  (Mr. Tackett’s salary was increased in March 2020 in connection with his promotion to CFO.)

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Performance-Based Pay (PBP) Short-Term Incentive Pay Plan

The Company’s NEOs are eligible to earn annual incentive pay under the PBP Plan, in which all eligible company employees participated in 2020. The PBP Plan is intended to motivate executives and other employees to achieve specific company goals. The Committee aligns executive compensation with the Company’s strategic plan by choosing a target performance level for each operational or financial goal (outlined in the 2020 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.

For the NEOs, the 2020 target participation levels were as follows:

2020 Performance-Based Pay Plan Participation Rates

 

 

Name

Target Participation

as % of Base Salary

 

 

 

 

 

 

 

 

Bradley D. Tilden

 

140%

 

 

 

Shane R. Tackett

 

85%

 

 

 

Benito Minicucci

 

110%

 

 

 

Andrew R. Harrison

 

85%

 

 

 

Gary L. Beck

 

85%

 

 

 

Brandon R. Pedersen (1)

 

85%

 

 

 

(1)

Mr. Pedersen retired from the Company effective March 2, 2020.

Incentive award payments under the PBP Plan 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 adjust bonus amounts that would otherwise be paid.  

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, enhancing brand strength 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.

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For 2020, the PBP Plan metrics for Alaska Airlines employees were set as follows:

2020 Performance-Based Pay Metrics

 

 

Goal

 

Weight

 

 

Threshold

 

Target

 

Maximum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational Performance

 

 

 

 

 

 

 

 

 

 

 

 

Safety (1)

 

10%

 

 

 

 

 

 

 

 

 

The number of safety goals met.

 

 

 

 

 

1 of 3

 

2 of 3

 

3 of 3

 

 

Brand Strength

 

10%

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

74% or higher

 

75% or higher

 

76% or higher

 

 

CASM ex. Fuel

 

10%

 

 

 

 

 

 

 

 

 

Cost per available seat mile excluding fuel and special items (Alaska)

 

 

 

 

 

8.25¢

 

8.15¢

 

8.05¢

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alaska Air Group Profitability

 

 

 

 

 

 

 

 

 

 

 

 

Pre-Tax Profit Margin Percentage of Alaska Air Group, Inc. (2)

 

70%

 

 

5%

 

10%

 

15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit Margin Modifier

 

 

 

 

 

 

 

 

 

 

 

 

Ranking in Industry

 

 

 

 

 

Third

 

Second

 

First

 

 

Modifier Based on Ranking Pre-Tax Profit Margin Compared to Other Airlines (3)

 

 

 

 

 

1 pt

 

2 pts

 

3 pts

 

 

(1)

Goals set for Alaska are related to events that present risk to that airline’s operation, including such things as inadvertent slide deployments, aircraft perimeter safety 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” 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.

(3)

The airlines used for this modifier include Delta Air Lines, United Airlines, American Airlines, Southwest Airlines, JetBlue Airlines, and Hawaiian Airlines.

As noted above, annual target performance measures reflect financial, operational and marketing 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 Committee believes the use of a safety metric in the PBP 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 rate on the safety metric 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

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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.

2020 COVID-19 Business Recovery Incentive Pay (CBRP) Plan

Several months into the COVID-19 crisis, it became clear that participants would likely receive no payout on the adjusted pretax profit metric of the PBP Plan.  In June 2020, the Committee approved a supplemental incentive pay program, the CBRP Plan.  The CBRP Plan is a one-time performance plan tied to business recovery goals measured over the last six months of 2020.  The goal of the CBRP Plan is to retain and motivate employees at all levels and to ensure that experienced talent remained in place to help the Company emerge from the impacts of COVID-19.  The plan was developed specifically to incentivize participants to achieve performance-based goals tied to the Company’s response to unanticipated and unpredictable impacts of the COVID-19 pandemic.   All eligible employees (including each of the NEOs then employed with us) participated in the CBRP Plan.

We believe the financial recovery of the Company depends on the ability to reduce cash burn and instill confidence in employees and guests by taking steps to adequately address personal health safety concerns in workspaces and on planes.  Accordingly, the CBRP Plan allocated 50% weight to a cash preservation goal and 50% weight to employee and guest safety goals.

The CBRP Plan target participation rates for NEOs are the same as those in the PBP Plan.  However, payout under the CBRP Plan ranges from 0% to 60% (subject to the maximum cap described below) and is contingent on the achievement of performance goals set by the Committee in June 2020.  For each performance metric, performance at the target level generally results in 100% payment of the weighted value of that metric (for example, performance at target of the cash preservation goals results in a 30% payout), while the payout percentage is 25% of the weighted value for achievement of threshold performance and 200% of the weighted value for achievement at or above maximum performance. The payout percentages are interpolated for performance between these levels, but if performance for a particular metric is below the threshold level, no payment is made as to that metric.  The maximum combined payout any employee may receive under the CBRP Plan when combined with the PBP Plan results or payout is 100% of target.  

Following is a summary of actual combined results of the 2020 PBP and CBRP performance goals and an example of the calculation of the payout for one of the NEOs (assuming an 85% participation rate):

2020 PBP and CBRP Pay Calculation (1)

 

 

PBP Metrics

 

Actual

 

% of Target

Achieved

Weight

Payout %

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Safety

 

3 of 3

 

 

200.0

%

 

10.0

%

 

20.0

%

 

 

Brand Strength

 

76.1