2014 Performance Based Pay Plan Goals and Measures Annex for Alaska Air Group

Summary

This document outlines the 2014 goals for Alaska Air Group's Performance Based Pay Plan, which determines employee bonuses based on operational and financial performance. Operational goals (30%) include safety, employee engagement/customer satisfaction, and cost per available seat mile, each with specific targets. Financial performance (70%) is based on the company's adjusted pre-tax profit, with defined thresholds for payouts. The plan specifies how results are measured and allows the Compensation Committee discretion in certain calculations and exclusions.

EX-10.2 3 a2014pbpannex.htm 2014 PBP ANNEX 2014 PBP ANNEX

ANNEX 1

PERFORMANCE BASED PAY PLAN GOALS AND MEASURES FOR 2014

This Annex sets forth the goals for the Alaska Air Group Performance Based Pay Plan for the 2014 Plan

year.

The performance goals for 2014 are divided into two groups: Operational Performance and Financial

Performance. The Operational Performance goals, which are based on safety, employee engagement

and cost per available seat mile (CASM) measures, represent 30% of the total weight. The Financial

Performance goal is based on the Company’s profitability and represents 70% of the total weight.

a. Operational Performance. Operational Performance is equally divided into three categories:

1. Safety (10%)

No award for Safety will be earned by any Alaska or Horizon employee if there is

an on-the-job employee fatality or operation-related passenger fatality. The

Compensation and Leadership Development Committee retains discretion to

determine whether a passenger fatality is operation-related.

A Safety payout requires the attainment of stated goals for “Level 3” safety

events.

For Alaska:

Threshold 1.0 or fewer “Level 3” safety events*

Target 0.7 or fewer “Level 3” safety events*

Maximum 0.4 or fewer “Level 3” safety events*

For Horizon:

Threshold 1.0 or fewer “Level 3” safety events*

Target 0.7 or fewer “Level 3” safety events*

Maximum 0.4 or fewer “Level 3” safety events*

* Per 10,000 departures.

2. Employee Engagement/Customer Satisfaction (10%)

Employee Engagement/Customer Satisfaction will be measured by the number of

times each airline meets or exceeds the monthly Operational Performance

Rewards (OPR) Customer Satisfaction goal. The OPR goal is measured through

online surveys of recent customers and is based 50% on employee attitude,

courtesy and helpfulness, 25% on satisfaction on the most recent flight, and 25%

on satisfaction over the past 12 months.

For Alaska:

Threshold Total of 6 months with OPR score of 80% or higher

Target Total of 8 months with OPR score of 80% or higher

Maximum Total of 11 months with OPR score of 80% or higher

For Horizon:

Threshold Total of 6 months with OPR score of 82% or higher

Target Total of 8 months with OPR score of 82% or higher

Maximum Total of 11 months with OPR score of 82% or higher

3. CASM (cost per available seat mile) ex. fuel (10%).

CASM calculations exclude fuel costs and may be adjusted for certain Excluded

Items and Alternative Accounting Treatments (as defined below), as appropriate

at the discretion of the Compensation Committee.

Alaska CASM ex. fuel:

Threshold 7.65¢

Target 7.55¢

Maximum 7.45¢

Horizon CASM ex. fuel:

Threshold 12.5¢

Target 12.3¢

Maximum 12.1¢

b. Financial Performance. (70% of the total). Financial Performance is measured by the

Company’s Profitability.

Alaska Air Group Profitability (70% of the total).

The Profitability measure is the Adjusted Pre-Tax Profit of the Company, as

defined below.

Threshold $ 350 million

Target $ 550 million

Maximum $ 750 million

“Adjusted Pretax Profit” means the net income of Alaska Air Group, Inc. as computed

under Generally Accepted Accounting Principles (GAAP), 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 plan, or similar

such programs as determined in the discretion of the Compensation Committee, and (c)

special income or expense items that, in the discretion of the Compensation Committee,

should be excluded because recognizing them would not appropriately serve the goals of

the Plan. These may include, without limitation, gain or loss on disposition of capital

assets, impairments or other fleet exit costs, expenses from voluntary or involuntary

severance programs, the impact of changes in accounting principle, government refunds

or assistance and cumulative effect of accounting changes. “Alternative Accounting

Treatments” means expense or income items that, for purposes of calculating Adjusted

Pretax Profit, the Company (or any subsidiary) will account for based on non-GAAP

methods because, in the discretion of the Compensation 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.