Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
April 3, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Alaska Air Group at 2 p.m. on May 16, 1995, in the William M. Allen
Theater at the Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington.
Information about the individuals who have been nominated for election
to the Board is included in the following Notice of Meeting and Proxy
Statement.
We encourage you to participate at this meeting. Regardless of how
many shares you hold or whether you attend the meeting in person, your
opinion is important to us. Please review the Proxy Statement and sign and
return your proxy card as soon as possible to ensure that your vote is
counted. If you attend the meeting and prefer to vote in person, your
proxy can be revoked at your request.
We appreciate the confidence you have shown in the Company by your
investment, and we look forward to visiting with you at the meeting and
addressing your questions and comments.
Sincerely,
John F. Kelly
Chairman, President and
Chief Executive Officer
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 16, 1995
To the Stockholders:
The Annual Meeting of Stockholders of Alaska Air Group, Inc. will be
held in the William M. Allen Theater at the Museum of Flight, 9404 East
Marginal Way South, Seattle, Washington, at 2 p.m. on May 16, 1995, for the
following purposes:
1. To elect four directors for terms of three years each.
2. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only stockholders of record on March 10, 1995, will be entitled to
vote at the meeting.
By Order of the Board of Directors,
Marjorie E. Laws
Vice President/Corporate Affairs
and Corporate Secretary
April 3, 1995
Seattle, Washington
YOUR VOTE IS IMPORTANT. If you do not expect to attend the meeting in
person, please sign and return the proxy in the enclosed envelope so your
stock can be voted. The envelope requires no postage if mailed in the
United States.
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Alaska Air Group, Inc. ("Air Group"
or "the Company") to be used at the 1995 Annual Meeting of Stockholders
(the "Annual Meeting"), at 2 p.m. on May 16, 1995, at the Museum of Flight,
9404 East Marginal Way South, Seattle, Washington. This Proxy Statement is
being mailed to stockholders on about April 3, 1995.
PROXIES
The shares represented by the enclosed proxy, when properly executed,
will be voted in accordance with directions given by the stockholder.
Where a choice is available and the stockholder has provided no
instructions, the shares will be voted in favor of the election of the four
nominees for director and in support of management on any other matters
that properly come before the meeting. A stockholder has the right to
revoke, withdraw or change the proxy at any time before it is voted by
contacting the Vice President/Corporate Affairs and Corporate Secretary of
the Company. Other than the election of four directors, the Company is not
aware of any other matters to be presented at the meeting.
STOCKHOLDER PROPOSALS
The Company's Bylaws outline procedures, including minimum notice
requirements, for bringing matters before the stockholders. For a
stockholder proposal to be included in the proxy statement for the 1996
Annual Stockholders Meeting, it must be received by the Company at its
corporate headquarters, P.O. Box 68947, Seattle, Washington 98168, by
December 4, 1995.
VOTING SECURITIES
The Company's voting stock consists solely of common stock. On March
10, 1995, the record date for stockholders entitled to vote at the Annual
Meeting, the Company had outstanding 13,400,086 shares of $1.00 par Common
Stock ("common stock"). Each share of common stock is entitled to one vote
on any matter brought before the meeting.
A majority of the outstanding shares must be present in person or by
proxy to constitute a quorum for the transaction of business at the Annual
Meeting. If a quorum is present, the affirmative vote of three-fourths of
the shares present shall be required to act on any matter before the
stockholders, including election of directors. Abstentions or, in the case
of the election of directors, withheld votes, will be included in the
number of shares present and will have the effect of voting against any
matter before the meeting. Shares not voted by brokers will not be
included in the number of shares present and therefore will have no effect
on the voting.
On December 31, 1994, the Company's 40l(k) Plans held 1,072,544
shares, or 8% of the outstanding common stock, in trust for participants.
The Alaska 401(k) Plan includes Employee Stock Ownership Plan ("ESOP")
features. Included in the total shares held by the 401(k) Plans are
385,255 shares held by the ESOP ("the ESOP shares") and 687,289 non-ESOP
shares. As of December 31, 1994, 328,657 remain unallocated to
participants' accounts.
The trustee will vote the allocated shares in accordance with
confidential instructions from each participant. If no voting instructions
are received, the trustee will vote such allocated shares as it determines
to be in the best interest of the participants.
A prorata portion of unallocated ESOP shares are automatically voted
by the trustee on behalf of participants in the same manner as each
participant voted his or her allocated shares. The trustee will vote the
balance of unallocated ESOP shares for which no instructions are received
in proportion to the unallocated ESOP shares for which voting instructions
are received.
Security Ownership of Certain Beneficial Owners and Management
5% Owners. The following table shows the beneficial ownership of each
person or entity known by the Company to own more than 5% of the Company's
common stock. Ownership shown is based on publicly available information
reported as of December 31, 1994.
Amount
& Nature of
Name & Address of Beneficial Percent
Beneficial Owner Ownership of Class
The Capital Group Companies, Inc. 710,220(1) 5.3%
333 South Hope Street
Los Angeles, California 90071
Alaska Airlines & Horizon Air 1,072,544 8.0%
Industries 40l(k) Plans
c/o Seattle-First National Bank, Trustee
701 Fifth Avenue
Seattle, Washington 98124
(1) As of December 31, 1994, Capital Guardian Trust
Company and Capital Research and Management Company, operating
subsidiaries of The Capital Group Companies, Inc., exercised investment
discretion with respect to 68,720 and 641,490 shares, respectively,
owned by various institutional investors.
Management. The following table shows the beneficial ownership of Company
common stock by all directors, director nominees, executive officers named
in the Summary Compensation Table and all directors, nominees and executive
officers as a group as of March 10, 1995, except for 40l(k) Plan shares
which are as of December 31, 1994. As a group, the directors, nominees and
executive officers owned 9.5% of the outstanding stock on that date. Except
as noted below, none of these individuals owns more than 1% of the
outstanding common stock. Unless otherwise noted, they have sole voting
and dispositive power over such shares.
No. of Common Percent
Name of Individual Shares of
Beneficially Class
Owned Owned
William H. Clapp 108,369(1)
Ronald F. Cosgrave 22,830(2)
Mary Jane Fate 115(3)
John R. Fowler 19,097(4)
Patrick L. Glenn 47,873(4)(5)
John F. Kelly 83,325(4)(6)
Bruce R. Kennedy 129,385(4)(8)
R. Marc Langland 150
Byron I. Mallott 400(8)
Bruce R. McCaw 2,000
Willie G. McKnight, Jr. 27,300(4)(9)
Robert L. Parker, Jr. 266
Raymond J. Vecci 288,246(4)(8) 2.15%
(10)
Richard A.Wien 200
All directors, nominees and 1,273,919(4)(8) 9.5%
executive officers as a group
(27 individuals)
(1)Includes 90,000 shares registered in the name of a family trust for
which Mr. Clapp is a beneficiary and serves as co-trustee.
(2)Includes 5,330 shares, which represents conversion of $430,000 of the
Company's 7-1/4% zero coupon convertible subordinated notes registered
in the name of Mr. Cosgrave.
(3)Does not include 1,546 shares registered in the name of her husband.
Mrs. Fate disclaims beneficial ownership of those shares.
(4)Includes shares held in trust under the Company's 40l(k) Plans. Also
includes the following options which are exercisable in the next 60
days:
Name of Individual Stock Option Capital Performance
Plans Plan(7)
John R. Fowler 18,475 0
Patrick L. Glenn 16,175 29,250
John F. Kelly 33,800 44,850
Bruce R. Kennedy 42,000 74,100
Willie G. McKnight, Jr. 0 27,300
Raymond J. Vecci 207,025 68,250
All directors, nominees
and executive officers as
a group(27 individuals)553,538 518,750
(5)Mr. Glenn retired as Executive Vice President and Chief Operating
Officer at year end.
(6)Mr. Kelly was elected Chairman, President and Chief Executive Officer
on February 9, 1995.
(7)Under the Alaska Air Group Capital Performance Plan ("CPP") a broad
group of management employees purchased investment options to acquire
convertible preferred stock. Messrs. Glenn, Kelly, Kennedy, McKnight
and Vecci were among those who purchased the investment options at
$2.63 each. The options entitle the employees to purchase preferred
stock at $50 per share. Each preferred share is convertible into 1.95
shares of common stock at $27 per common share. The employees will
experience no gain until and unless the market value of the stock
reaches $27. The investment options expire in February 1997 and, if
not exercised at that time, the employees' investments will be returned
to them without interest. The named executive officers invested the
following amounts to purchase CPP investment options: John R. Fowler -
None; Patrick L. Glenn - $39,450; John F. Kelly - $60,490; Willie G.
McKnight, Jr. - $36,820; and Raymond J. Vecci - $92,050.
(8)Shares dispositive and investment power with spouse over the following
shares: Bruce R. Kennedy - 13,285; Byron I. Mallott - 400; Raymond
J. Vecci - 9,461; and all directors, nominees and executive officers
as a group - 35,463.
(9)Mr. McKnight resigned as Vice President/Marketing at year end.
(10) Mr. Vecci resigned as Director, Chairman, President and Chief
Executive Officer in February 1995.
ELECTION OF DIRECTORS
Four directors are proposed to be elected at the Annual Meeting. The
Board of Directors is divided into three classes, each serving staggered
three-year terms. The persons named in the proxy intend to vote for the
election of the four nominees named below. Each nominee has consented to
serve as a director. If any nominee is unable to serve for any reason, the
proxies or their substitutes will vote the shares represented by each proxy
for such substitute nominees as the Executive Committee of the Board of
Directors shall approve.
NOMINEES FOR DIRECTOR (Term expiring 1998)
WILLIAM H. CLAPP (53) - Mr. Clapp has been a director since 1977 and is
Chairman of the Audit Committee. He has been Chairman of the Board and
President of Matthew G. Norton Co. (investment/holding company), Seattle,
Washington, since 1979. Mr. Clapp is also a director of Weyerhaeuser
Company and Alaska Airlines.
RONALD F. COSGRAVE (63) - Mr. Cosgrave has been a director since 1983 and
serves on the Executive Committee. He has been Chairman of the Board of
Alaska Northwest Properties Inc. (real estate and investments), Seattle,
Washington, since 1979. He is a retired Chairman and Chief Executive
Officer of Alaska Airlines. He is Chairman Emeritus and a director of
Alaska Airlines.
R. MARC LANGLAND (53) - Mr. Langland has been a director since February
1991 and serves on the Audit and Compensation Committees. He has been
President of Northrim Bank (banking), Anchorage, Alaska, since November
1990 and President of Norcap, Ltd. (investments) since May 1989. He was
Chairman and Chief Executive Officer of Key Bank of Alaska from 1987 to
1988 and President from 1985 to 1987. He served on the Board of Trustees
of the Alaska Permanent Fund Corporation from February 1987 to January 1991
and was Chairman from June 1990 to January 1991. He is also a director of
Northrim Bank and Alaska Airlines.
BRUCE R. McCAW (48) - Mr. McCaw has been a director since November 1994 and
serves on the Audit Committee. He is President of Racesport Management and
the Managing General Partner of PacWest Racing Group (Indy car racing
team), Bellevue, Washington. He has been a trustee and member of the
Executive Committee for the Museum of Flight in Seattle since 1982. He has
been a director of Claircom Communications since 1990. He was a co-
founder, Vice President and Director of Horizon Air. He served as a
director of McCaw Cellular Communications from 1969 to 1994 and as Chairman
of Forbes Westar, Inc. from 1972 to 1991. He is also a director of Alaska
Airlines.
CONTINUING DIRECTORS (Term expiring 1997)
MARY JANE FATE (61) - Mrs. Fate has been a director since 1979 and serves
on the Compensation Committee. She has served as General Manager of a
family business, Fairbanks, Alaska, since 1989. She was President and
Executive Director of Baan o yeel kon Corporation (an Alaska Native village
corporation) from 1981 to 1989. She is a director of Horizon and Baan o
yeel kon Corporation.
JOHN F. KELLY (50) - Mr. Kelly has been a director since 1989. He was
elected Chairman, President and Chief Executive Officer of Air Group and
Alaska Airlines and Chairman of Horizon Air in February 1995. He was Chief
Operating Officer of Alaska Airlines from November 1994 to February 1995.
He was Chairman of Horizon Air from February 1991 to November 1994 and
President and Chief Executive Officer of Horizon Air from June 1987 to
November 1994. He was Vice President/Marketing of Alaska Airlines from
1981 to June 1987. He is also a director of Horizon Air and Alaska
Airlines.
BRUCE R. KENNEDY (56) - Mr. Kennedy has been a director since 1972 and has
served as Chairman of the Executive Committee since 1985, except for the
brief period of August 1994 to February 1995. He is Chairman Emeritus of
Air Group. He served as Chairman, Chief Executive Officer and President of
Air Group from 1985 to 1991. He was also Chairman of Alaska Airlines from
1979 to 1991, Chief Executive Officer from 1979 to 1990 and President for
eleven years between 1978 and 1990.
CONTINUING DIRECTORS (Term expiring 1996)
BYRON I. MALLOTT (51) - Mr. Mallott has been a director since 1982 and is a
member of the Audit Committee. He served as Mayor of the City and Borough
of Juneau, Alaska, from October 1994, until resigning in February 1995 upon
appointment as the Executive Director (chief executive officer) of the
Alaska Permanent Fund Corporation (a state of Alaska investment trust). In
December 1994, he completed a two-year appointment as Executive in
Residence at the University of Alaska Southeast. He was a director of
Sealaska Corporation, Juneau, Alaska, from 1972 to 1988, Chairman from 1976
to 1983 and Chief Executive Officer from 1982 through September 1992. He
owns Mallott Enterprises (personal investments) and is a director of
Seafirst Corporation, Colville Tribal Enterprises Corporation and Horizon
Air.
ROBERT L. PARKER, JR. (46) - Mr. Parker has been a director since 1975. He
serves on the Executive Committee and is Chairman of the Compensation
Committee. He has been President and Chief Executive Officer and a
director of Parker Drilling Company (oil and gas drilling contractor),
Tulsa, Oklahoma, since December 1991. He was President, Chief Operating
Officer and a director from 1977 to 1991.
RICHARD A. WIEN (59) - Mr. Wien has been a director since 1982 and serves
on the Compensation Committee. He served on the Audit Committee from June
1985 to February 1995. He has been Chairman and Chief Executive Officer of
Florcraft, Inc. (retail flooring), Fairbanks and Anchorage, Alaska, since
1986. He is also a director of Horizon Air and National Bank of Alaska.
DIRECTOR REMUNERATION
Each director who is not an employee of Air Group receives an annual
retainer fee of $12,000 and a meeting fee of $750 for each board of
directors or committee meeting in which he or she participates. Directors
of Alaska and Horizon also receive an annual retainer of $1,000 plus
meeting fees of $750 for each board of directors meeting attended. When
more than one meeting of a board and/or a committee are held on the same
day, only one meeting fee is paid.
THE BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors has established the following committees which
meet outside of regular Board of Directors meetings to assist the Board in
discharging its responsibilities.
Audit Committee. The Audit Committee consists of William H. Clapp
(Chairman), Bruce R. McCaw, R. Marc Langland and Byron I. Mallott. The
Audit Committee is responsible for: (1) review of the annual report of the
independent auditors; (2) evaluation of the external and internal audit
functions; and (3) recommendations to the Board of Directors with respect
to the retention of independent auditors and other auditing matters. Two
Audit Committee meetings were held during 1994.
Compensation Committee. The Compensation Committee consists of Robert
L. Parker, Jr. (Chairman), Mary Jane Fate, R. Marc Langland and Richard A.
Wien. The functions of the Compensation Committee are to: (1) make
recommendations to the Board of Directors with respect to the salary of the
Chairman and Chief Executive Officer; (2) to approve salaries of other
executive officers; (3) make recommendations to the Board of Directors with
respect to other executive compensation issues, including modification or
adoption of executive compensation plans; (4) grant stock options pursuant
to plans approved by the stockholders; and (5) serve as the Plan
Administrator for the Company's stock option plans and CPP. The
Compensation Committee held four meetings during 1994.
Executive Committee. The Executive Committee consists of Bruce R.
Kennedy (Chairman), John F. Kelly, Robert L. Parker, Jr. and Ronald F.
Cosgrave. The Executive Committee serves as the Nominating Committee to
select director nominees. The Committee does not consider director
nominations from stockholders. The Company's Bylaws outline procedures and
minimum notice provisions for nominating directors. The Executive
Committee held one meeting during 1994.
In the future, the Executive Committee will make recommendations to
the Board on Committee membership and chairs, and will prepare an annual
evaluation of the Chief Executive Officer's performance for review by the
full Board.
There were six Air Group Board of Directors meetings in 1994. All
directors attended at least 75% of the meetings of the Board and committees
on which they serve.
Compensation Committee Interlocks and Insider Participation
Mr. Robert L. Parker, Jr., Mrs. Mary Jane Fate and Mr. Richard A. Wien
served as members of the Compensation Committee in 1994. Mr. R. Marc
Langland was appointed to the Committee in August 1994. None of these
individuals is a current or former employee or executive officer of the
Company or any of its subsidiaries or has any interlocking relationship
with any other corporation that would require disclosure.
EXECUTIVE COMPENSATION
Severance or Employment Contracts
In February 1995, the Company entered into a severance agreement with
Mr. Vecci, which includes the following terms: Mr. Vecci's base salary
(totaling $239,423) and basic benefits will continue through September 30,
1995, at which time he will be eligible for actuarially reduced early
retirement benefits under the Alaska Airlines Salaried Retirement Plan. He
will also be eligible for actuarially reduced early retirement benefits
under the Officers Supplementary Retirement Plan beginning February 1,
1996. On September 30, 1995, he will receive a lump sum of $126,923, which
is equivalent to his current base salary for four months and includes all
unused vacation. Mr. Vecci was also gifted his company automobile.
Summary Compensation Table
The following table shows the compensation of the Company's chief
executive officer and the four other most highly paid executive officers
for the three years ending December 31, 1994. (Bonus figures are reported
in the year earned.)
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------------ -----------------------------------
Other Awards Payouts
Annual Restricted Underlying All Other
Compen- Stock Options/ LTIP Compen-
Name and Salary Bonus sation(1) Award(s)(2) SARs(3) Payouts(2) sation(4)
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
Raymond J. Vecci(5) 1994 $372,116 $334,904 - 0 163,900 0 $10,092
Chairman, President and 1993 300,000 0 - 0 11,900 0 9,681
CEO (Alaska) 1992 288,924 0 - 0 5,000 0 6,228
John F. Kelly(5) 1994 $203,404 $141,435 - 0 8,800 0 $11,673
Executive Vice President 1993 187,115 0 - 0 7,200 0 11,419
and COO (Alaska) 1992 173,755 21,270 - 0 0 0 10,187
Patrick L. Glenn(6) 1994 $255,115 $178,581 - 0 0 0 $11,486
Executive Vice President 1993 242,481 0 - 0 9,000 0 9,372
and COO (Alaska) 1992 218,076 0 - 0 0 0 6,932
Willie G. McKnight, Jr.(7) 1994 $172,298 $99,000 - 0 7,700 0 $1,726
Vice President/ 1993 162,193 0 - 0 6,200 0 991
Marketing (Alaska) 1992 150,845 0 - 0 0 0 712
John R. Fowler 1994 $171,500 $102,900 - 0 7,500 0 $6,393
Vice President/Maintenance 1993 160,035 0 $19,457 0 6,200 0 6,165
and Engineering (Alaska) 1992 153,614 0 24,472 0 0 0 71,186
(1)Includes the value of personal benefits and a tax gross-up for the
imputed income in connection with those benefits. Except as noted,
these personal benefits have not exceeded the lesser of $50,000 or 10%
of a named executive's salary plus bonus in the past three years. Also
includes expenses relating to Mr. Fowler's automobile for 1992 and 1993
of $12,395 and $11,710, respectively, and $10,715 for a tax gross up in
1992 for the imputed income in connection with all personal benefits,
etc.
(2)The Company grants no restricted stock awards and has no long-term
incentive plan.
(3)There were no broad-based grants to executives in 1992, but options
were granted to newly elected or appointed officers. Tandem SARs
(stock appreciation rights) generally attach to up to 50% of options
granted. Optionees cannot redeem SARs for cash; SARs can only be
exercised to receive a credit toward the exercise price of options.
SARs are not included in the 150,000 options granted to Mr. Vecci in
1994.
(4)Includes the following Company contributions to individual 40l(k) Plan
accounts for 1994, 1993 and 1992, respectively: Messrs. Vecci, Glenn
and Fowler - $4,620, $4,497 and $4,364; Mr. Kelly - $9,240, $8,994 and
$8,728. Mr. McKnight did not participate in the Plan. Also includes
the following premiums for straight-term life insurance for 1994, 1993
and 1992, respectively: Mr. Vecci - $5,472, $5,184 and $1,864; Mr.
Kelly - $2,433, $2,425 and $1,458; Mr. Glenn - $6,866, $4,875 and
$2,568; Mr. McKnight - $1,726, $991 and $712 and Mr. Fowler - $1,773,
$1,668 and $1,276. No portion of the premiums will be refunded to the
Company on termination of the policy. Also includes a $25,000 payment
to cover a portion of the loss on the sale of Mr. Fowler's house and an
additional $43,205 in expenses in connection with his move to the West
Coast.
(5)Mr. Kelly was elected Chairman, President and Chief Executive Officer
of the Company, replacing Mr. Vecci who resigned on February 9, 1995.
For most of 1994, Mr. Kelly served as Chairman, President and Chief
Executive Officer of Horizon Air, becoming Executive Vice President and
Chief Operating Officer of Alaska Airlines in November.
(6)Mr. Glenn retired at year end.
(7)Mr. McKnight resigned at year end.
Stock Option Plan Information
Stock options are granted at the fair market value of Air Group shares
on the date of grant. They are not transferable. They are exercisable for
cash, through a stock-for-stock exchange or through the use of SAR credits
where they exist, or a combination of the three. The Administrator is
authorized to establish the terms of each grant. The options are generally
not exercisable until one year after grant and then become exercisable in
25% increments over a period of four years. The 150,000 options granted to
Mr. Vecci in 1994 are an exception. They become 100% vested and
exercisable one year from the grant date. Incentive stock options have a
ten-year term, and nonqualified options have a term of approximately ten
years and one month. Retiring employees may exercise vested options for
six months after their retirement. Any unvested options are canceled upon
retirement. All unexercised options of employees who leave the Company for
reasons other than retirement are canceled at the time their employment
ends. The accelerated vesting provisions of all options are described
under "Change in Control Arrangements" on page 15.
The following table shows grants of stock options to the named
officers during 1994:
Option/SAR Grants in Last Fiscal Year
Individual Grants Potential Realizable
Value at Assumed Annual
Number of Rates of Stock Price
Securities % of Total Appreciatio for Option
Underlying Options/SARs Term
Options/SARs Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
Raymond J. Vecci 150,000 45.4 $15.375 6/16/04 $1,450,388 $3,675,569
13,900 (1) 4.2 17.50 1/30/04 152,979 387,678
John F. Kelly 8,800 2.7 17.50 1/30/04 96,850 245,436
Patrick L. Glenn 0 0 0 N/A 0 0
Willie G. McKnight, Jr. 7,700 (2) 2.3 17.50 1/30/04 84,744 214,757
John R. Fowler 7,500 2.3 17.50 2/28/04 82,542 209,179
The assumed rates of appreciation in the above table were set by the SEC
and are not intended to predict appreciation of Air Group common stock
prices. If the stock price does not increase, the options above will be
valueless.
(1)10,425 of these options will not be vested and will be canceled on
September 30, 1995.
(2)This grant was unvested at the time of Mr. McKnight's resignation and
was canceled.
The following table shows unexercised options held by each named
executive at year-end 1994. There is no assurance that the indicated
values of any unexercised options will actually be realized. Approximately
95% of options held by the Company's key employee group had exercise prices
higher than the market price of the common stock at year end.
Aggregated Option/SAR Exercises in 1994 and Fiscal Year End Options/SAR Value
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal Year End(2) at Fiscal Year End(3)
Acquired Value
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
Raymond J. Vecci 9,461 $49,728 120,950 170,700 $2,100 $0
John F. Kelly 4,083 23,988 52,225 36,625 2,625 0
Patrick L. Glenn 10,050 11,888 36,800 17,625 0 0
Willie G. McKnight, Jr. 0 0 13,650 13,650 0 0
John R. Fowler 0 0 15,050 16,650 0 0
(1)Market price of underlying securities at exercise date minus the
exercise or base price.
(2)Includes the following shares, which may be acquired through exercise
of CPP convertible preferred stock options: Raymond J. Vecci - 68,250;
John F. Kelly - 44,850; Patrick L. Glenn - 29,250; Willie G. McKnight,
Jr. - 27,300 and John R. Fowler - None. All CPP options were under
water at year end 1994. (See Security Ownership of Management on page
3 for a description of the CPP.)
(3)Defined as the market price of common stock at year end minus the
exercise or base price.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Executive Compensation Policy
The Company's policy is to pay competitive compensation at all levels,
including executive ranks. The objectives of the Company's executive
compensation policies are: to attract and retain highly qualified
executives; to motivate officers to provide excellent leadership and
achieve Company goals; to link the interests of executives and shareholders
by tying a large portion of total compensation to Company profitability and
stock value; and to reward outstanding performance.
In 1994, Section 162 of the Internal Revenue Code was amended to
eliminate the deductibility of compensation over $1 million paid to the
named executive officers. The company has not yet established a policy in
connection with this IRS ruling since the total compensation of those
individuals is not close to that limitation.
Executive compensation includes three components: competitive base
salary; an incentive plan tying cash compensation to annual financial
performance; and stock options, which provide long-term incentives to
maximize the value of shareholder investments.
Base Salary
1994 base salaries for all executive officers other than the CEO were
set by the CEO and reviewed with the Compensation Committee. They were
based on subjective analysis of five criteria: competitive market rates;
the extent to which each officer's skills are in demand or may be marketed
to other companies; the degree of an executive's influence on long-term
Company strategies and success; the relationship of each position to others
within the organization; and individual performance. In 1995, executive
officers' base salaries will be approved by the Compensation Committee
based on recommendations by the CEO.
The Company periodically reviews compensation surveys to ensure that
its overall compensation is set at appropriate levels compared with other
airlines of similar size and corporations in the Pacific Northwest. Though
no specific surveys were conducted in 1994, the Company regularly surveys
executive compensation at companies that comprise the Dow Jones
Transportation Index, other air carriers and similarly sized companies in
the Pacific Northwest. Broad-based national compensation surveys conducted
by compensation consultants are also regularly reviewed.
Although the Company does not attempt to set executive compensation at
specific target ranges of any particular survey, the information in recent
surveys revealed that base salaries of the Company's executives were much
lower than those of companies surveyed, and over several years adjustments
have been made to bring them closer to market rates. The Company believes
that base salaries of its executives are now generally in line with those
at comparable companies, and in 1994 officers (other than the CEO) received
modest increases averaging 3%.
Management Incentive Plan
Air Group's Management Incentive Plan ("MIP") links a significant
portion of each executive's potential cash compensation to the Company's
annual profitability. Thirty-nine employees, including officers and key
management employees of the Company and its two operating subsidiaries,
currently participate in the plan.
The Compensation Committee establishes annual profit targets for the
MIP. For awards to be paid, the Company must achieve or exceed profit
goals. From 1992 through 1994, the Committee set profit goals based on
return-on-equity levels of 8%, 12% and 14% for "threshold," "target" and
"maximum" awards, respectively. For example, if the 12% return-on-equity
target is achieved, executives can earn awards ranging from 30% to 45% of
base salary, depending upon position. Awards can also be adjusted for
individual performance. If the profit "target" is exceeded, incentive
payments can increase proportionately up to a maximum of double the
"target" award. For the 1995 MIP, the Committee increased the "maximum"
goal, setting the return-on-equity measures to 8%, 12% and 16% for
"threshold," "target" and "maximum" awards, respectively.
No payments were made under the MIP for 1990 through 1993 as targets
were not met. Payments were made for 1994 as the "maximum" return-on-equity
target was exceeded. Payments made to the named executives are shown in
the Summary Compensation Table on page 7.
The MIP puts a significant portion of each officer's total potential
cash compensation at risk. For the executives in the Summary Compensation
Table, the percentages of total potential cash compensation at risk under
the MIP in 1994 were: Mr. Vecci - 47%; Mr. Kelly - 41%; Mr. Glenn - 41%;
Mr. McKnight - 37%; and Mr. Fowler - 38%.
Stock Options
Stock options provide an incentive to maximize stock values, linking
the long-term interests of executives to the long-term interests of
shareholders. Because options vest over a period of years, they also
encourage executives to remain with the Company.
The Committee always grants options at the current market price, so
recipients benefit only if the market price of the stock appreciates and
stockholders also benefit. No options have been repriced in the past ten
years. The Company seeks to maximize the incentive value of options by
making annual grants of a consistent number of options. This policy
averages option prices over the long term.
The Committee does not base grants on ownership targets or the number
of options an individual has outstanding because it believes doing so would
discourage officers from retaining options or shares. The total options
available for grant are allocated in roughly equal annual grants over a
four-year period. Individual grants are determined on a pro rata basis
according to base salary, which reflects the relationship of executive
positions to one another. The options granted to each of the named
executive officers in 1994 are shown in the Summary Compensation Table and
the Option Grant Table on pages 7 and 9.
CEO Compensation
Base Salary
In establishing the CEO's base salary, the Committee evaluates the
same criteria used for all other Company executives. The Committee also
considers competitive market rates of pay, company performance and the
CEO's relationship with the Board. The Committee also used an independent
consultant to advise on CEO compensation in 1994.
Competitive Market Rates of Pay. In determining the CEO's base
salary, the Committee considers the compensation paid to CEOs of other
airlines and national and Pacific Northwest companies with comparable
revenues. The CEO's compensation is compared to the same survey data that
is used for reviewing all officers' compensation.
The Committee does not intend to target a specific range of
competitive pay, but will subjectively apply the information as it deems
appropriate. By continuing to review data in these surveys, the Committee
believes it will remain aware of general changes in competitive
compensation levels. The Committee also believes it is important to be
mindful of compensation levels that would be required to recruit from
outside the Company to fill all top management positions.
Company Performance. Following are examples of the kinds of
accomplishments the Committee considers in measuring performance. In 1994
the Company continued to reduce its costs and substantially improve
productivity. One key measure of improved productivity was aircraft
utilization, which climbed by two hours per aircraft per day, or the
equivalent of adding 18 aircraft to the fleet. The Company also
restructured its B737-400 aircraft leases, saving more than $6 million per
year over the ten-year lease term. Consolidated net income for 1994 was
$22.5 million, a significant improvement from the heavy losses in 1992 and
1993.
The methods used to cut costs were in line with strategic plans to be
competitive in a low-fare environment, to maintain a quality service
differential over competition, and to maximize yield. Growth, increased
asset utilization and route selection during the year also fit the
Company's emerging low-cost, low-fare profile.
Relationship With Board. The Committee will consider the CEO's
management and working relationship with the Board, and the degree to which
the CEO meets the Board's desire for information and communication.
Independent Consultant. In addition to the above criteria, in 1994
the Compensation Committee engaged an independent compensation consultant
to advise them on the appropriate base salary and total compensation for
the CEO. The consultant reviewed several surveys comparing CEO salaries
and total compensation and made recommendations on several elements of CEO
compensation. Consistent with recommendations of the independent
consultant, Mr. Vecci's 1994 base salary was increased to $375,000.
In the future, the Compensation Committee will recommend salary
increases for the CEO to be acted upon by all of the outside directors.
Management Incentive Plan
The portion of the CEO's compensation that most directly relates to
the Company's financial performance, the MIP award, can range from 45% of
his base salary if the profit "target" is met, to 90% of his base salary if
profits reach or exceed the "maximum" goal. The profit measurements on
which Mr. Vecci's 1994 MIP award was based were identical to those detailed
on page 10 and 11 for all participants in the MIP. Mr. Vecci's 1994 MIP
payment was $334,904.
Stock Options
In 1994, Mr. Vecci received a grant of 13,900 options, as part of an
annual grant made to all participants in the Company's option plans. The
size of the grant was based on criteria identical to that outlined earlier
for option grants to executive officers in general. In addition, the
Compensation Committee granted Mr. Vecci 150,000 nonqualified options at
$15.375. This grant was based on the recommendation of the independent
compensation consultant engaged by the Committee in 1994.
By: Alaska Air Group Compensation Committee
Robert L. Parker, Jr., Chairman
Mary Jane Fate, Committee Member
R. Marc Langland, Committee Member
Richard A. Wien, Committee Member
(The disclosures incorporated in the preceding report are not to be deemed
soliciting material or to be filed under Section 18 of the Exchange Act,
and are not deemed to be incorporated by reference into any filings, either
current or past, under the Securities Act or Exchange Acts, except as the
Company specifically determines otherwise.)
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return Among Alaska Air Group, Inc.,
the S & P 500 Index, the Dow Jones Transportation Index and the Dow Jones
Airline Group
(Fiscal Year Beginning January 1)
Alaska Air Dow Jones Dow Jones
Date Group S & P 500 Transportation(1) Airlines(2)
1989 100.00 100.00 100.00 100.00
1990 85.73 96.89 78.76 72.24
1991 107.50 126.42 119.46 95.79
1992 82.42 136.05 129.43 93.76
1993 70.56 149.76 159.18 113.73
1994 74.93 151.74 133.93 79.58
Assumes $100 invested on January 1, 1990, in Air Group common stock, S & P
500 Index, Dow Jones Transportation Index and the Dow Jones Airlines Group
with all dividends reinvested.
(1)The companies included in the Dow Jones Transportation Index are:
Airborne Freight, Alaska Air Group, American President Lines, AMR,
Burlington Northern, Carolina Freight Corp., Conrail, Consolidated
Freightway, CSX Corp., Delta Air Lines, Federal Express, Norfolk
Southern Corp., Roadway Services, Ryder Systems, Santa Fe Pacific,
Southwest Airlines, UAL, Union Pacific, USAir and Xtra Corporation.
(2)The Dow Jones Airlines Group is a subset of the Transportation Index
listed above.
The Company has decided to compare its total shareholder return with
the Dow Jones Airlines Group rather than the Dow Jones Transportation Index
in the future. The Company believes this comparison is more appropriate as
the majority of the companies included in the Transportation Index are
trucking or railroad companies. Most companies in both groups are much
larger than the Company.
Salaried Retirement Plan
The Company maintains a tax-qualified, defined benefit retirement plan
for all salaried Alaska employees who have completed one year of service.
Benefits payable under the Alaska Airlines Salaried Retirement Plan (the
"Salaried Retirement Plan") are based on years of credited service and
final average earnings (highest average earnings during any five
consecutive calendar years of the last ten full years of service). The
annual retirement benefit at age 62 (normal retirement age under the Plan)
is equal to the employee's final average earnings times two percent, times
years of credited service. Annual benefits are paid on a straight life or
joint life annuity basis at normal retirement age or in reduced amounts for
early retirement. Amounts payable under the Salaried Retirement Plan are
not subject to offset for Social Security benefits.
The following table shows estimated Salaried Retirement Plan annual
benefits during 1994 at various combinations of final average earnings and
years of credited service. These estimates represent the single life
annuity benefit for an individual who retires at normal retirement age.
Final Average
Earnings (1) Annual Benefits Based on Years of Credited Service (2)
15 20 25 30 35
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
$175,000 52,500 70,000 87,500 105,000 122,500
$225,000 67,500 90,000 112,500 135,000 157,500
$300,000 90,000 120,000 150,000 180,000 210,000
$350,000 105,000 140,000 175,000 210,000 245,000
$400,000 120,000 160,000 200,000 240,000 280,000
$450,000 135,000 180,000 225,000 270,000 315,000
(1)Mr. Glenn's annual retirement benefit under the Plan is $52,628. Final
average earnings under the Salaried Retirement Plan for the other named
executives for the five-year period ending December 31, 1994 are: Mr.
Vecci - $283,054; Mr. Kelly - $172,254; Mr. McKnight - $147,081; and
Mr. Fowler - $165,768.
(2)Internal Revenue regulations limit the annual benefits which may be
paid from a tax-qualified retirement plan. The current limit is
$118,800. In addition, Internal Revenue regulations limit the covered
compensation on which annual retirement benefits are based to $150,000.
To the extent that the amounts shown in the table above exceed that IRS
limitation, the excess shall be paid from the Officers Supplementary
Retirement Plan.
All of participating employees' base salaries, excluding bonuses, are
covered under the Plan. The officers shown in the Summary Compensation
Table have the following years of credited service and covered compensation
as of December 31, 1994:
Named Executive Years of Credited
Service Covered Compensation
Raymond J. Vecci 18.9 $372,115
John F. Kelly (1) 17.3 203,403
Patrick L. Glenn 23.5 255,115
Willie G. McKnight, Jr. 6.0 165,000
John R. Fowler 2.2 171,500
(1)Mr. Kelly's years of credited service include 9.8 years with Alaska
Airlines and 7.5 years with Horizon Air.
Officers Supplementary Retirement Plan
In addition to the benefits described above, under the Officers
Supplementary Retirement Plan ("the Supplementary Plan"), elected officers
of Air Group and Alaska and Alaska officers who transfer to related
corporations can receive an annual retirement benefit equal to up to 50% of
his or her final average annual salary at normal retirement age, provided
they have met service requirements.
The Supplementary Plan is a nonqualified, unfunded, noncontributory
defined benefit plan. Under versions of the Supplementary Plan applicable
to the different elected officers, normal retirement benefits are payable
once the officer reaches 55, 58 or 60 and has six to ten years service as
an elected officer. Annual benefits are paid on a straight life or joint
life annuity basis at normal retirement age or in reduced amounts for early
retirement. The Supplementary Plan also provides an option for the payment
of reduced benefits to an employee's surviving spouse. Benefits under the
Supplementary Plan are subject to offset for Social Security benefits
received by the participant. Although we are unable to project estimated
benefits at this time for Messrs. Vecci, Kelly and Fowler, final average
earnings for those executives under the Supplementary Plan at December 31,
1994 were: Mr. Vecci - $337,500; Mr. Kelly - $172,254 and Mr. Fowler -
$165,768. Mr. Glenn is currently receiving an annual retirement benefit
under the Plan of $76,347. Mr. McKnight was not vested in the plan at the
time of his resignation.
Change-in-Control Arrangements
The Boards of Directors of Air Group and Alaska Airlines have adopted
resolutions providing severance pay to all executive officers and certain
other key employees in the event they are terminated within 24 months after
a change in control of the Company. The formula provides for payments
equaling from 12 to 24 months' salary, depending on length of service and
the time elapsed between a takeover and termination. Because of these and
other variables to be determined at the time of distribution, the value of
this benefit cannot be determined at this time.
Some Company benefit plans provide for accelerated vesting in the case
of a change in control. Under the Supplementary Plan, after a change in
control, benefits will vest at the rate of 10% per year of a participant's
service as an elected officer. The Supplementary Plan provides that, after
a change in control, benefits will not be forfeited if an individual is
terminated for cause (excluding dishonesty or criminal acts) or is later
employed by a competitor. The value of this provision to the named
executives cannot be determined at this time as the amount depends on a
number of variables to be determined at the time of any change in control.
Upon a change in control of the Company, outstanding options become
fully exercisable, unless the Board of Directors determines such
accelerated vesting is not appropriate. The value of accelerated vesting
of options owned by the named executives does not exceed the $100,000
reporting threshold.
Under the CPP Plan, upon a change in control, participants will
receive their original investment without interest, or the amount they
would have received had they exercised the options, if greater. The
exercise price of these investment options is above the current price of
the common stock and, therefore, there is no current value to this
acceleration provision.
Transactions with Management and Others
Alaska has an agreement with Claircom Communications to provide
AirOnesm air-to-ground telephone equipment for use in Alaska's MD-80 and
B737-400 aircraft. In 1994, Alaska's income from the agreement was
$323,319. Mr. Bruce McCaw, a director of Air Group and Alaska, is also a
director of Claircom Communications.
Transactions under Section 16(a) of Exchange Act
The Company has adopted procedures to assist its directors and
officers in complying with Section 16(a) of the Securities Act of 1934,
which includes assisting the officer or director in preparing forms for
filing. All present and former officers and directors of the Company are
current in their Security Act filings. The only exception in 1994 was one
late filing by Mr. William Clapp.
AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to examine the financial statements of Air Group and its
subsidiaries for the fiscal year ending December 31, 1995. Arthur Andersen
LLP examined the financial statements of Air Group and its subsidiaries for
the year ended December 31, 1994. It is anticipated that representatives
of Arthur Andersen LLP will be present at the Annual Meeting to answer
questions by stockholders and will have the opportunity to make a statement
if they desire to do so.
SOLICITATION
The cost of soliciting proxies, including the cost of reimbursing
brokers for forwarding proxy material to their principals, will be paid for
by the Company. The Company has engaged Corporate Investor Communications,
Inc. ("CIC") to assist in the solicitation of proxies for the meeting. The
Company will pay CIC approximately $3,000 in fees for its services and will
reimburse it for reasonable out-of-pocket expenses. The solicitation of
proxies will be generally by mail. In addition, solicitation may be made
personally or by telephone or telegraph by employees of CIC and/or the
Company.
Proxy material may also be distributed through brokers and banks to
the beneficial owners of the Company's common stock, and the Company may
reimburse such parties for their reasonable fees and out-of-pocket expenses
for such services.
If you find it inconvenient to attend the meeting in person, your
stock will be represented and voted if you will sign, date and mail the
enclosed proxy card in the envelope provided for that purpose.
Marjorie E. Laws
Vice President/Corporate Affairs
and Corporate Secretary
April 3, 1995
Seattle, Washington
