<PAGE>
ALASKA AIR GROUP, INC.
P.O. Box 68947
Seattle, Washington 98168
March 31, 1994
Dear Stockholder:
You are cordially invited to attend the Annual Meeting
of Stockholders of Alaska Air Group which will be held May
17, 1994, at 2 p.m. in the William M. Allen Theater at the
Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington.
The business matters to be acted on are described in
the accompanying Notice of Meeting and Proxy Statement.
We encourage your participation at this meeting.
Regardless of the number of shares you hold or whether you
are able to attend the meeting in person, your opinion is
important to us. Please review the Proxy Statement and sign
and return your proxy card in the envelope provided 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 your confidence in Alaska Air Group
through your investment, and we look forward to the chance
to visit with you at the meeting and hear your questions and
comments.
Sincerely,
/S/ Raymond J. Vecci
Chairman, President and
Chief Executive Officer
ALASKA AIR GROUP, INC.
P.O. Box 68947
Seattle, WA 98168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1994
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 17, 1994, for the
following purposes:
1. To elect three 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 11, 1994, will be entitled to vote
at the meeting.
By Order of the Board of Directors,
/S/ Marjorie E. Laws
Vice President/Corporate Affairs
and Corporate Secretary
March 31, 1994
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
solicitation of proxies by the Board of Directors of Alaska
Air Group, Inc. ("Air Group" or "the Company") to be used at
the 1994 Annual Meeting of Stockholders (the "Annual
Meeting"), which will be held at 2 p.m. on May 17, 1994, at
the Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington. This Proxy Statement is being mailed to
stockholders on about March 31, 1994.
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 no instructions have been provided by the
stockholder, the shares will be voted in favor of the
election of the three 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 three directors, the Company is not aware of any other
matters to be presented at the meeting.
STOCKHOLDER PROPOSALS
For a stockholder proposal to be included in the proxy
statement for the 1995 Annual Stockholders Meeting, it must
be received by the Company at its corporate headquarters,
P.O. Box 68947, Seattle, Washington 98168, by November 30,
1994. The Company's Bylaws outline procedures, including
minimum notice requirements, for bringing matters before the
stockholders.
VOTING SECURITIES
The Company's voting stock consists solely of common
stock. On March 11, 1994, the record date for stockholders
entitled to vote at the Annual Meeting, the Company had
outstanding 13,353,444 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.
The 40l(k) Plans of the Company and its subsidiaries
include Employee Stock Ownership Plan ("ESOP") features. On
December 31, 1993, the Plans held 1,082,880 shares, or 8.1%
of the outstanding common stock, in trust for participants.
Included in that total are 791,186 shares held by the ESOPs
("the ESOP shares") and 291,694 non-ESOP shares. As of
December 31, 1993, 549,226 ESOP shares had been allocated to
participants' accounts.
The trustee will vote the shares allocated to
participants in accordance with confidential instructions
received from each employee 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.
Participants are also entitled to direct the voting of
unallocated ESOP shares on a pro rata basis. The trustee
will vote unallocated ESOP shares for which no instructions
are received in proportion to the unallocated 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, 1993.
Name & Address of Amount & Nature of Percent
Beneficial Owner Beneficial Ownership of Class
The Capital Group, Inc. 1,718,120 (1) 12.87%
333 South Hope Street
Los Angeles, California 90071
FMR Corp. 865,909 (2) 6.48%
82 Devonshire Street
Boston, Massachusetts 02109
Alaska Airlines & Horizon Air Industries 1,082,880 8.11%
401(k) Plans
c/o Seattle-First National Bank-Trustee
701 Fifth Avenue
Seattle, Washington 98124
(1) Capital Guardian Trust Company and Capital Research and
Management Company, which are both operating subsidiaries
of The Capital Group, Inc., have investment discretion
for 747,690 and 970,420 shares, respectively, which were
owned by various institutional investors.
(2) Includes the following shares beneficially owned by
three wholly owned subsidiaries of FMR Corp.: Fidelity
Management & Research Company - 694,180, Fidelity
Management Trust Company - 170,929 and Fidelity
International Limited - 800. FMR Corp. has sole voting
power for 167,210 shares and sole dispositive power for
865,909 shares.
The total number of shares beneficially owned by FMR
Corp. includes 717,109 shares of common stock resulting
from the assumed conversion of $57,850,000 principal
amount of the convertible Liquid Yield Option Notes
(LYONs) at 12.396 shares of common stock for each $1,000
principal amount of the LYONs.
Management. The following table shows the beneficial
ownership of the Company's 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 February 28,
1994, except for 40l(k) Plan shares which are as of
December 31, 1993. As a group, the directors, nominees
and executive officers owned 5.8% of the outstanding
common stock on that date. 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 Shares
Name of Individual Beneficially Owned
William H. Clapp 18,369
Ronald F. Cosgrave 17,500
Mary Jane Fate 115 (1)
Patrick L. Glenn 43,408 (2)
James A. Johnson 39,191 (2)
John F. Kelly 55,256 (2)
Bruce R. Kennedy 101,602 (2)(3)(4)
R. Marc Langland 150
Byron I. Mallott 400 (4)
Willie G. McKnight, Jr. 36,200 (2)
Robert L. Parker, Jr. 266 (5)
Raymond J. Vecci 87,877 (2)
J. Ray Vingo 58,241 (2)(4)
Richard A. Wien 200
All directors, nominees and executive 781,154 (2)(4)
officers as a group (25 individuals)
(1) Does not include 1,546 shares registered in the name of
her husband. Mrs. Fate disclaims beneficial ownership of
those shares.
(2) 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:
Stock Option Capital
Name of Individual Plans Performance Plan(6)
Patrick L. Glenn 26,625 14,625
James A. Johnson 9,355 19,500
John F. Kelly 28,633 22,425
Bruce R. Kennedy 42,000 37,050
Willie G. McKnight, Jr. 22,550 13,650
Raymond J. Vecci 50,536 34,125
J. Ray Vingo 23,400 27,300
All directors, nominees and 369,687 295,425
executive officers as a group
(25 individuals)
(3) Does not include 285 shares held by his daughter. Mr.
Kennedy disclaims beneficial ownership of those shares.
(4) Shares dispositive and investment power with spouse over
the following shares: Bruce R. Kennedy - 22,552, Byron
I. Mallott - 400, J. Ray Vingo - 5,654, and all
directors, nominees and executive officers as a group
40,623.
(5) Does not include 45,713 shares of common stock owned by
Parker Drilling Company. Mr. Parker disclaims beneficial
ownership of those shares.
(6) Under the Alaska Air Group Capital Performance Plan
("CPP") a broad group of management employees purchased
investment options to acquire convertible preferred
stock. The named executives 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 or unless the
market value of the stock reaches $27. The investment
options expire on February 5, 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: Raymond J. Vecci - $92,050; Patrick L. Glenn
$39,450; J. Ray Vingo - $73,640; John F. Kelly $60,490;
Willie G. McKnight, Jr., - $36,820 and James A. Johnson
$52,600.
ELECTION OF DIRECTORS
Three directors are proposed to be re-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 three nominees named below. Each nominee has
consented to serve as a director if elected. 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 1997)
MARY JANE FATE (60) - Mrs. Fate has been a director since
1979 and serves on the Compensation Committee. She was
General Manager of a family dental business, Fairbanks,
Alaska, from 1989 to 1993. 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 Air Industries and Baan o yeel kon Corporation.
JOHN F. KELLY (49) - Mr. Kelly has been a director since
1989. He has been Chairman of Horizon since February 1991
and President and Chief Executive Officer of Horizon since
June 1987. He was Vice President/Marketing of Alaska from
1981 to June 1987. He is also a director of Horizon.
BRUCE R. KENNEDY (55) - Mr. Kennedy has been a director
since 1972 and serves as Chairman of the Executive
Committee. He is Chairman Emeritus of Air Group. He served
as Chairman of Air Group from 1985 to mid-1991 and Chief
Executive Officer and President from 1985 to 1991. He was
also Chairman of Alaska from 1979 to 1991, Chief Executive
Officer from 1979 to 1990 and President for eleven years in
the 1978 to 1990 period.
CONTINUING DIRECTORS (Term expiring 1996)
BYRON I. MALLOTT (50) - Mr. Mallott has been a director
since 1982 and is a member of the Audit Committee. He is
the owner of Mallott Enterprises (business consulting,
lobbying) and is Practitioner in Residence, School of
Business & Public Administration, University of Alaska
Southeast. He was Chief Executive Officer of Sealaska
Corporation (a regional Alaska Native corporation), Juneau,
Alaska, from 1982 through July 1992, Chairman of the Board
from 1976 to 1983 and President from 1984 to 1985. He
served on the Board of Trustees of Alaska Permanent Fund
Corporation from 1982 to February 1991. He is a director of
Horizon, Seafirst Corporation and Bank of America - Alaska.
ROBERT L. PARKER, JR. (45) - Mr. Parker has been a director
since 1975, 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.
RAYMOND J. VECCI (51) - Mr. Vecci has been a director since
1989 and serves on the Executive Committee. He has been
Chairman of Air Group since May 1991 and President and Chief
Executive Officer since February 1991. He has been Chairman
of Alaska since February 1991 and President and Chief
Executive Officer since September 1990. He was Executive
Vice President and Chief Operating Officer of Alaska
Airlines from 1986 to 1990 and Vice President/Planning from
1979 to 1986. He is also a director of Alaska and Horizon.
RICHARD A. WIEN (58) - Mr. Wien has been a director since
1982 and serves on the Audit and Compensation Committees. 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 and National
Bank of Alaska.
CONTINUING DIRECTORS (Term expiring 1995)
WILLIAM H. CLAPP (52) - 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 Alaska, Weyerhaeuser
Company, McDonald Industries, Inc. and Results.
RONALD F. COSGRAVE (62) - 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. He is Chairman Emeritus and a director
of Alaska.
R. MARC LANGLAND (52) - Mr. Langland has been a director
since February 1991 and serves on the Audit Committee. 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 Alaska.
J. RAY VINGO (55) - Mr. Vingo has been a director since
1986. He has served as Vice President/Finance, Chief
Financial Officer and Treasurer of Air Group since 1985,
Vice President/Finance and Chief Financial Officer of Alaska
since 1983 and Treasurer of Alaska from 1983 to 1987. He is
also a director 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
attended. When a Board of Directors meeting and a committee
meeting are held on the same day, only one attendance 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), R. Marc Langland, Byron I.
Mallott and Richard A. Wien. 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. Three Audit
Committee meetings were held during 1993.
Compensation Committee. The Compensation Committee
consists of Robert L. Parker, Jr. (Chairman), Mary Jane Fate
and Richard A. Wien. The functions of the Compensation
Committee are to: (1) determine the salary of the Chairman
and Chief Executive Officer; (2) make recommendations to the
Board of Directors with respect to other executive
compensation issues, including modification or adoption of
executive compensation plans; (3) grant stock options
pursuant to plans approved by the stockholders; and (4)
serve as the Plan Administrator for the Company's stock
option plans and CPP. The Compensation Committee held four
meetings during 1993.
Executive Committee. The Executive Committee consists
of Bruce R. Kennedy (Chairman), Robert L. Parker, Jr.,
Ronald F. Cosgrave and Raymond J. Vecci. 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
1993.
There were five Air Group Board of Directors meetings
in 1993. 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 during 1993. 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.
As discussed in the Compensation Committee Report, Mr.
Raymond J. Vecci, CEO, sets base salaries for the executives
of the Company other than himself. Mr. Vecci is not a
member of the Compensation Committee, and has no
interlocking relationships with any company that would
require disclosure.
EXECUTIVE COMPENSATION
The following table shows the compensation of the
Company's chief executive officer, the four other most
highly paid executive officers and a retired executive for
the three years ending December 31, 1993. (Bonus figures
are reported in the year earned.)
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ -------------------------------------
Awards Payouts
------------------------ ----------
Other Securities
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 ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Raymond J. Vecci(5) 1993 $300,000 0 - 0 11,900 0 $9,681
Chairman, CEO and 1992 288,924 0 - 0 5,000 0 6,228
President (Alaska) 1991 253,807 0 NA 0 0 0 NA
Patrick L. Glenn 1993 $242,481 0 - 0 9,000 0 $9,372
Exec. Vice President 1992 218,076 0 - 0 0 0 6,932
and COO (Alaska) 1991 193,269 0 NA 0 0 0 NA
J. Ray Vingo 1993 $205,788 0 - 0 7,800 0 $10,029
Vice President/Finance 1992 190,846 0 - 0 0 0 6,759
and CFO (Alaska) 1991 174,615 0 NA 0 0 0 NA
John F. Kelly 1993 $187,115 0 - 0 7,200 0 $11,419
Chairman, CEO and 1992 173,755 $21,270 - 0 0 0 10,128
President (Horizon) 1991 155,000 65,210 NA 0 0 0 NA
Willie G. McKnight, Jr. 1993 $162,193 0 - 0 6,200 0 $991
Vice President/ 1992 150,845 0 - 0 0 0 712
Marketing (Alaska) 1991 136,009 0 NA 0 0 0 NA
James A. Johnson 1993 $104,530(6) 0 $47,216(7) 0 0 0 87,726(8)
Senior Vice President/ 1992 145,015 0 - 0 0 0 7,381
Public Affairs (Alaska) 1991 130,115 0 NA 0 0 0 NA
</TABLE>
(1) Includes the value of personal benefits and a tax gross-
up for the imputed income in connection with those
benefits. These personal benefits have not exceeded
$50,000 or 10% of a named executive's salary plus bonus
(if less) in any of the past three years.
(2) The Company grants no restricted stock awards and has
no long-term incentive plan.
(3) There were no broad-based grants to all executives in
1991 and 1992, but options were granted to newly elected
or appointed officers. Tandem SARs (stock appreciation
rights) attach to only 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.
(4) Includes the following Company contributions to
individual 40l(k) Plan accounts for 1993 and 1992,
respectively: Messrs. Vecci, Glenn, Vingo and Johnson -
$4,497 and $4,364; Mr. Kelly - $8,994 and $8,670. Mr.
McKnight does not participate in the Plan. Also
includes the following premiums for straight-term life
insurance for 1993 and 1992, respectively: Mr. Vecci
$5,184 and $1,864; Mr. Glenn - $4,875 and $2,568; Mr.
Vingo $5,532 and $2,395; Mr. Kelly - $2,425 and $1,458;
Mr. McKnight - $991 and $712 and Mr. Johnson $3,229 and
$3,017. No portion of the premiums will be refunded to
the Company on termination of the policy.
(5) Mr. Vecci became Chairman, President and Chief
Executive Officer in 1991.
(6) Mr. Johnson retired as an active employee on June 30,
1993.
(7) Includes personal benefits and a tax gross-up as
described in footnote 1 which are not identified
individually as they do not meet the reporting
threshold. In addition, upon his retirement in 1993,
Mr. Johnson was gifted his Company car valued at
$43,991.
(8) Includes the amounts described in footnote 4. In
addition, upon his retirement in 1993, Mr. Johnson was
given a special award of $75,000 in recognition of his
42 years of service and his continuing association with
the Company as Sr. Vice President Emeritus. One-half of
the award was paid in 1993 and the remainder was
deferred until 1994. The entire $75,000 is included in
this table.
Stock Option Plan Information
The following table shows grants of stock options to the
named officers during 1993.
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- -------------------------------------------------------------------------------------- ---------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or
Granted(1) Fiscal Year Base Price Expiration
Name (#) (%) ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Raymond J. Vecci 5,100 3.0 $16.25 2/28/03 $52,120 $132,081
6,800 3.9 16.25 3/31/03 70,197 178,302
Patrick L. Glenn 3,800 2.2 16.25 2/28/03 38,834 98,414
5,200 3.0 16.25 3/31/03 53,680 136,349
J. Ray Vingo 4,100 2.4 16.25 2/28/03 41,900 106,183
3,700 2.1 16.25 3/31/03 38,195 97,017
John F. Kelly 6,700 3.8 16.25 2/28/03 68,471 173,519
500 .3 16.25 3/31/03 5,162 13,110
Willie G. McKnight, Jr. 6,200 3.6 16.25 2/28/03 63,361 160,570
<FN>
James A. Johnson retired in 1993 and did not receive a grant.
</TABLE>
The rates of appreciation in the above table were set
by the SEC and are not intended to forecast future
appreciation of Air Group common stock prices. If Air Group
stock price does not appreciate, then the options above will
be valueless.
(1) Stock options are granted at the fair market value of
Alaska 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, or a combination of the three. The options are
not exercisable until one year after grant and then
become exercisable in 25% increments over a period of
four years. Incentive stock options have a ten-year
term, and nonqualified options have a term of
approximately ten years and one month. Retiring
employees can exercise options in which they are vested
at retirement for six months after their retirement. The
unvested options of a retiree are cancelled on his or her
retirement date. Vested and unvested options held by
employees who leave the Company for reasons other than
retirement are cancelled at the time their employment
ends. See the third paragraph of the section titled
"Severance Pay/Change in Control Arrangements" for the
accelerated vesting provisions of the options.
The following table shows unexercised options held by
each named executive at year end 1993, including options
which were not yet exercisable. There is no assurance that
the indicated values of any unexercised options will
actually be realized. Approximately 97% 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.
<TABLE>
Aggregated Option/SAR Exercises in 1993 and Fiscal Year-End Options/SAR Value
<CAPTION>
Number of Securities Value of Unexercised
Underlying 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 (#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Raymond J. Vecci 0 0 63,374 73,837 $41,392 0
Patrick L. Glenn 0 0 31,037 40,188 0 0
J. Ray Vingo 0 0 35,100 54,500 0 0
John F. Kelly 0 0 38,046 46,088 17,863 0
Willie G. McKnight, Jr. 0 0 27,825 31,175 0 0
James A. Johnson 0 0 19,105 33,750 0 0
</TABLE>
(1) Market price of underlying securities at exercise date
minus the exercise or base price.
(2) Includes the number of common shares below, which may be
acquired through exercise of CPP convertible preferred
stock options. All CPP options were under water at year-
end 1993. (See Security Ownership of Management on page 3
for a description of the CPP.)
Unexercised Options
(No. of Common Shares)
(#)
Exercisable Unexercisable
Raymond J. Vecci 17,063 51,187
Patrick L. Glenn 7,312 21,938
J. Ray Vingo 13,650 40,950
John F. Kelly 11,213 33,638
Willie G. McKnight, Jr. 6,825 20,475
James A. Johnson 9,750 29,250
(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 of the Company, 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.
Effective January 1, 1994, Section 162 of the Internal
Revenue Code was amended to eliminate the deductibility of
compensation over $1 million paid to the CEO and the other
named executive officers. The company has not established a
policy in connection with this new 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
Base salaries for all executive officers, including the
named executive officers other than the CEO, are set by the
CEO based on subjective analysis of five criteria:
competitive market rates for each position; the extent to
which each officer's skills are in demand or may be marketed
to other companies or industries; the degree of influence
that the executive has on long-term Company strategies and
success; the relationship of each position to others within
the organization; and individual performance. These
criteria are applied subjectively as appropriate for each
position.
The Company regularly 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. The surveys include
data on executive compensation at companies that comprise
the Dow Jones Transportation Index, other air carriers not
included in the Dow Jones Transportation group and similarly
sized companies in the Pacific Northwest. Broad-based
national compensation surveys conducted by compensation
consultants are also reviewed. In 1993, these surveys
included data on 408 companies throughout the nation.
Special attention is paid to the companies involved in the
same industry.
The Company does not attempt to set executive
compensation at specific target ranges of any particular
survey. The base salaries of Company officers are generally
below the averages paid for comparable positions by
companies in the surveys reviewed. Excluding the CEO, the
average base salaries of the Company's named executive
officers in 1993 were 28% lower than the average paid for
similar positions by Dow Jones Transportation Index
companies in 1992. The Company's performance is compared to
the Index in the Performance Graph, and the companies
included therein are listed on page 13.
Management Incentive Plan
Alaska Air Group's Management Incentive Plan (MIP) links a
significant portion of officers' cash compensation to the
Company's annual financial performance. Forty-one
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 targets. Since 1992, the
Committee has set profit goals based on return-on-equity
levels of 8%, 12% and 14% for threshold, target and maximum
awards, respectively. If the target is achieved, executives
can earn awards ranging from 30% to 45% of base salary,
depending upon their position. Awards can also be adjusted
for individual performance factors. If the profit target is
exceeded, incentive awards can increase proportionately to
double the awards.
Prior to 1993, MIP targets were different for Alaska
Airlines and Horizon Air Industries. Targets for the two
companies are now the same. No payments were made under the
MIP for 1993 as the targets were not met.
The MIP puts a significant portion of each officer's
total cash compensation at risk. For the executives in the
Summary Compensation Table, the percentages of total cash
compensation at risk under the MIP are: 47% for Mr. Vecci;
41% for Mr. Glenn and Mr. Kelly; and 37.5% for Mr. Vingo and
Mr. McKnight.
Stock Options
Stock options provide an incentive to maximize stock
values, linking the long-term interests of officers 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- to five 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
1993 are shown in the Summary Compensation Table and the
Option Grant Table on pages 7 and 8.
CEO Compensation
Base Salary
In determining Mr. Vecci's base salary, the Committee
considers the compensation paid to CEOs of companies in the
Dow Jones Transportation Index, as well as other airlines
and national and Pacific Northwest companies with comparable
revenues. His compensation is compared to the same survey
data that is used for reviewing all officers' compensation.
Mr. Vecci's 1993 base salary was 40% below the average
paid in 1992 to the CEOs of Dow Jones Transportation Index
companies.
In addressing Mr. Vecci's base salary for 1993, the
Committee evaluated the criteria used to establish base
salaries for all other Company executives. At his request,
Mr. Vecci's base salary was not increased but held at
$300,000, the level set in mid 1992, to allow the Committee
and the full Board time to reaffirm the criteria against
which his performance will be measured in determining future
compensation.
After its review, the Committee has determined that it
will consider the following factors in setting the CEO's
base salary in the future.
Company Performance. Following are examples of the
kinds of accomplishments the Committee will consider in
measuring performance. In 1993 the Company reduced its
annual on-going costs by $80 million, far beyond the
established goal of $50 million in annual cost reductions.
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.
Competitive Market Rates of Pay. The Committee will
continue to review data in the compensation surveys
mentioned above to stay aware of competitive compensation
levels. It does not intend to target a specific range of
competitive pay, but will subjectively apply the information
as it deems appropriate. 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.
Relationship With Board. The Committee will also
consider the CEO's management and working relationship with
the Board, and the degree to which he meets the Board's
desire for information and communication.
Management Incentive Plan
The portion of Mr. Vecci'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 target. The profit targets on
which Mr. Vecci's MIP awards are based are identical to
those detailed on page 11 for all participants in the MIP.
These targets have not been achieved, and Mr. Vecci has not
received an award under the MIP since 1989.
Stock Options
Mr. Vecci received 11,900 options in 1993. The size of
the grant was based on criteria identical to that outlined
earlier for option grants to executive officers in general.
This report is prepared over Mr. Vecci's name in
addition to the names of the Compensation Committee
members, since Mr. Vecci sets base salaries for the
Company's other executive officers.
By: Alaska Air Group Compensation
Committee
Robert L. Parker, Jr., Chairman
Mary Jane Fate, Committee Member
Richard A. Wien, Committee Member
And, Raymond J. Vecci, CEO
(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, S & P 500 Index and
Dow Jones Transportation Index
(Fiscal Year Beginning January 1)
(PERFORMANCE GRAPH SUBMITTED ON FORM SE DATED MARCH 31, 1994.)
S&P 500 Dow Jones (1) Alaska Air Group
1/2/89 $100.00 $100.00 $100.00
1/2/90 $131.69 $127.10 $103.94
1/2/91 $127.60 $70.61 $89.11
1/2/92 $166.47 $147.16 $111.74
1/4/93 $179.15 $161.83 $85.67
1/3/94 $197.21 $198.40 $73.34
Assumes $100 invested on January 2, 1989 in Air Group common
stock, S & P 500 Index and Dow Jones Transportation Index
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 Airlines, Federal Express, Norfolk Southern
Corp., Roadway Services, Ryder Systems, Santa Fe
Pacific, Southwest Airlines, UAL,Union Pacific, U.S. Air
and Xtra Corporation.
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 years of the last ten complete years of
service). The annual retirement benefit at age 62 (normal
retirement age under the Salaried Retirement 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 Social Security benefits or other offset amounts.
The following table shows estimated annual benefits during
the calendar year 1993 at various combinations of final
average earnings and years of credited service under the
Salaried Retirement Plan:
Final Average Annual Benefits Based on Years
Earnings(1) of Credited Service (2)
15 20 25 30 35
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
$150,000 45,000 60,000 75,000 90,000 105,000
$175,000 52,500 70,000 87,500 105,000 122,500
$200,000 60,000 80,000 100,000 120,000 140,000
$250,000 75,000 100,000 125,000 150,000 175,000
$300,000 90,000 120,000 150,000 180,000 210,000
$360,000 108,000 144,000 180,000 216,000 252,000
(1) Final average earnings under the Salaried Retirement
Plan for the named executives for the five-year period
ending December 31, 1993 are: Mr. Vecci - $243,231, Mr.
Glenn - $178,137, Mr. Vingo - $171,788, Mr. Kelly -
$157,535, Mr. McKnight - $136,395 and Mr. Johnson -
$122,854.
(2) Internal Revenue regulations limit the annual benefits
which may be paid from a tax-qualified retirement plan.
The current limit is $115,641. In addition, Internal
Revenue regulations limit the covered compensation on
which annual retirement benefits are based to $235,840.
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 the participating employees' salaries excluding
bonuses, but including any 401(k) Plan contributions, 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, 1993:
Years of Covered
Named Executive Credited Service Compensation
Raymond J. Vecci 17.9 $300,000
Patrick L. Glenn 22.5 242,480
J. Ray Vingo 9.5 205,788
John F. Kelly (1) 16.5 187,114
Willie G. McKnight, Jr. 5.0 162,192
James A. Johnson (2) 22.5 104,530
(1) Mr. Kelly transferred from Alaska Airlines to Horizon
Air Industries as its CEO in June 1987. At the time of
his transfer, he was fully vested under the Salaried
Retirement Plan. Since Horizon does not have a similar
plan and because he would not be able to continue to
accrue credited service under the Salaried Retirement
Plan, Horizon agreed to supplement his benefits to ensure
his annual benefit uponretirement would be equivalent to
the annual benefit he would have received had he
continued service with Alaska. His years of credited
service shown above include 9.8 years with Alaska
Airlines and 6.5 years with Horizon.
(2) Mr. Johnson retired on June 30, 1993.
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 as an elected
officer.
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 maximum available Social Security offsets whether
received or not. Although we are unable to project
estimated benefits at this time, final average earnings
under the Supplementary Plan at December 31, 1993, for the
named executives were as follows: Mr. Vecci - $294,462; Mr.
Glenn - $178,137; Mr.Vingo - $171,788; Mr. Kelly - $157,648;
Mr. McKnight - $136,396 and Mr. Johnson - $144,500.
Severance Pay /Change-in-Control Arrangements
The Boards of Directors of Air Group and Alaska have
adopted resolutions providing severance pay to all executive
officers, including the named executives, 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 that
elapses between a takeover and the termination. Because of
these and other variables which are to be determined at the
time of distribution, the value of this benefit cannot be
determined at this time.
Some Company benefit plans have change-in-control
provisions which provide for accelerated vesting. Under the
Supplementary Plan, benefits of the named executive officers
and other elected officers will vest at the rate of 10% per
year of service as an elected officer. The individual may
choose to receive his or her vested benefits in a single
lump-sum payment or in installments. In addition, the
Supplementary Plan provides that, after a change in control,
benefits will not be forfeited if the 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.
Options granted under the Company's three stock option
plans become exercisable at the rate of 25% per year,
beginning one year after the date of grant. 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
There were no transactions with the Company's
directors, nominees, executive officers or 5% stockholders
which are required to be disclosed.
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
current and former executive officers of the Company are
current in their Securities Act filings.
AUDITORS
The Board of Directors has selected Arthur Andersen &
Co., independent auditors, to examine the financial
statements of Air Group and its subsidiaries for the fiscal
year ending December 31, 1994. Arthur Andersen & Co.
examined the financial statements of Air Group and its
subsidiaries for the year ended December 31, 1993. It is
anticipated that representatives of Arthur Andersen & Co.
will be present at the Annual Meeting to answer questions by
stockholders and will have the opportunity to make a
statement if they so desire.
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
March 31, 1994
Seattle, Washington
