Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
April 1, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Alaska Air Group, Inc. at 2 p.m. on May 20, 1997, in the William M.
Allen Theater at the Museum of Flight, 9404 East Marginal Way South,
Seattle, Washington.
We encourage you to participate at this meeting. Whether or not you
plan to attend the meeting, please sign and return your proxy card as soon
as possible. This will save your company the expense of contacting you
again.
Your opinion and your vote are important to us regardless of the
number of shares you own. Voting by proxy will not prevent you from voting
in person if you attend the meeting, but it will ensure that your vote is
counted if you are unable to attend.
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
PAGE BREAK
Alaska Air Group, Inc.
P.O. Box 68947
Seattle, Washington 98168
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 20, 1997
To 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 20, 1997, 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 21, 1997, will be entitled to
vote at the meeting.
By Order of the Board of Directors,
Keith Loveless
Corporate Secretary and
Associate General Counsel
April 1, 1997
Seattle, Washington
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the meeting,
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.
PAGE BREAK
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 "Company") to be used at the 1997 Annual Meeting of Stockholders
("Annual Meeting"), at 2 p.m. on May 20, 1997, in the William M. Allen
Theater at the Museum of Flight, 9404 East Marginal Way South, Seattle,
Washington. This proxy statement is being mailed to stockholders on
approximately April 1, 1997.
PROXIES
The shares represented by the enclosed proxy, when properly executed,
will be voted in accordance with directions given by the stockholder.
Where the stockholder has provided no instructions, 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
Annual Meeting. A stockholder has the right to revoke, withdraw or change
the proxy at any time before it is voted by contacting the Corporate
Secretary of the Company. Other than the election of directors, the
Company is not aware of any other matters to be presented at the Annual
Meeting.
VOTING SECURITIES
The Company's voting stock consists solely of common stock. On March
21, 1997, the record date for stockholders entitled to vote at the Annual
Meeting, the Company had outstanding 14,558,789 shares of $1.00 par value
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 a majority of the
shares present will be required to act on the 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, 1996, the Company's 40l(k) plans held 1,121,228
shares, or 7.7% of the outstanding common stock, in trust for participants.
The Alaska Air Group 401(k) trust includes Employee Stock Ownership Plan
("ESOP") features. Included in the total shares held by the 401(k) plans
on behalf of employees of Alaska Airlines, Inc. ("Alaska Airlines") are
367,616 shares held by the ESOP ("ESOP shares") and 753,612 non-ESOP
shares. As of December 31, 1996, 112,413 shares remain unallocated to
participants' accounts.
The trustee will vote the allocated shares in accordance with
confidential instructions from each participant. If no instructions are
received, the trustee will vote such allocated shares as it determines to
be in the best interest of the participants. Unallocated ESOP shares are
automatically voted by the trustee on behalf of participants in the same
manner as the participants instructed the allocated shares to be voted.
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 February 15, 1997.
Amount & Nature of Percent of
Name & Address of Beneficial Owner Beneficial Ownership Class
FMR Corp. 1,661,600 (1) 11.4%
82 Devonshire Street
Boston, Massachusetts 02109
Alaska Airlines & Horizon Air 1,121,228 7.7%
Industries 40l(k) Plans
c/o BNY Western Trust Company,
Trustee
Two Union Square, Suite 520
601 Union Street
Seattle, Washington 98101
(1) Includes the following shares beneficially owned by two wholly owned
subsidiaries of FMR Corp.: Fidelity Management & Research Company-
583,700 and Fidelity Management Trust Company-1,077,900. FMR Corp. has
sole voting power for 1,056,800 shares and sole dispositive power for
1,661,600 shares.
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 21, 1997, except for 40l(k) plan shares,
which are as of December 31, 1996. As a group, the directors, nominees and
executive officers owned 1.7% of the outstanding 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.
Name of Individual No. of Common Shares Percent of
Beneficially Owned Class Owned
George D. Bagley 32,693(1)
William H. Clapp 30,990(2)
Ronald F. Cosgrave 10,000
Mary Jane Fate 115(3)
John R. Fowler 16,633(1)
John F. Kelly 12,220(1)
Bruce R. Kennedy 25,285(1)(4)
R. Marc Langland 1,200
Harry G. Lehr 16,706(1)
Byron I. Mallott 400(1)
Robert L. Parker, Jr. 266
John V. Rindlaub 1,000
Michel A. Swanigan 403(1)
Richard A. Wien 1,000
All directors, nominees 248,307(1)(4) 1.7%
and executive officers as
a group (24 individuals)
(1) Includes shares held in trust under the Company's 40l(k) plans. Also
includes the following options, which are exercisable within 60 days:
Name of Individual Stock Option Plans
George D. Bagley 30,875
John R. Fowler 15,525
John F. Kelly 7,225
Bruce R. Kennedy 12,000
Harry G. Lehr 14,625
Michel A. Swanigan 250
All directors, nominees 159,025
and executive officers
as a group(24 individuals)
(2) Includes 20,000 shares registered in the name of a family trust for
which Mr. Clapp is a beneficiary and serves as co-trustee.
(3) Does not include 1,546 shares registered in the name of her husband.
Mrs. Fate disclaims beneficial ownership of those shares.
(4) Shares dispositive and investment power with spouse over the following
shares: Mr. Kennedy-13,285; Mr. Mallott-400; and all directors,
nominees and executive officers as a group-37,296.
ELECTION OF DIRECTORS
Three directors are proposed to be elected at the Annual Meeting. The
Board of Directors is divided into three classes 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 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 2000)
MARY JANE FATE (63) - Mrs. Fate has been a director since 1979 and serves
on the Compensation Committee. She has served as General Manager of a
family business in 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 Air
Industries, Inc. ("Horizon Air") and Baan o yeel kon Corporation, and a
member of the University of Alaska Board of Regents.
JOHN F. KELLY (52) - Mr. Kelly has been a director since 1989 and serves on
the Executive Committee. 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 Washington Water Power, a Spokane, Washington, based public
utility.
BRUCE R. KENNEDY (58) - Mr. Kennedy has been a director since 1972 and has
served as Chairman of the Executive Committee since 1985, except for the
period from November 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 from 1978
to 1990.
CONTINUING DIRECTORS (Term expiring 1999)
BYRON I. MALLOTT (53) - Mr. Mallott has been a director since 1982 and
serves on the Audit Committee. He served as Mayor of the City and Borough
of Juneau, Alaska, from October 1994 to February 1995, when he was
appointed Executive Director (chief executive officer) of the Alaska
Permanent Fund Corporation (a trust managing proceeds from the state of
Alaska's oil revenues). 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 Horizon Air.
ROBERT L. PARKER, JR. (48) - 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 of Parker
Drilling Company (oil and gas drilling contractor), Tulsa, Oklahoma, since
December 1991. He was President and Chief Operating Officer of Parker
Drilling Company from 1977 to 1991 and has been a director since 1977.
RICHARD A. WIEN (61) - Mr. Wien has been a director since 1982 and serves
on the Compensation and Audit 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 Air,
National Bank of Alaska and Usibelli Coal Mine.
CONTINUING DIRECTORS (Term expiring 1998)
RONALD F. COSGRAVE (65) - Mr. Cosgrave has been a director since 1971
(except the period from 1981 to 1983) and serves on the Executive
Committee. He was Chairman of Alaska Northwest Properties Inc. from 1979
to March 1997, when he became Executive Director of ANP LLC. He is a
retired Chairman and Chief Executive Officer of Alaska Airlines and
Chairman Emeritus and a director of Alaska Airlines.
R. MARC LANGLAND (55) - 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
Alaska Airlines, Northrim Bank, Usibelli Coal Mine and Totem Resources
Corporation.
JOHN V. RINDLAUB (52) - Mr. Rindlaub was appointed a director in November
1996. He is currently Chairman of Seafirst Bank, a post he has held since
1993, and Group Executive Vice President of Bank of America NT and SA,
responsible for the Northwest. Prior to his position at Seafirst, Mr.
Rindlaub served as Group Executive Vice President/Asia Division for Bank of
America and as a managing director for Banker Trust Company New York,
Investment Banking Group. He is currently a director of the Seattle Branch
of the Federal Reserve Bank.
RETIRING DIRECTOR
WILLIAM H. CLAPP - Mr. Clapp, a director since 1977, will not continue on
the Air Group Board beyond the Annual Meeting in order to devote more time
to his charitable and non-profit activities. He is Chairman and President
of Matthew G. Norton Co. in Seattle and founder of Global Partnerships, an
organization dedicated to the reduction of poverty.
DIRECTOR REMUNERATION
Each outside director of Air Group receives an annual retainer of
$15,000. Outside directors of Alaska Airlines or Horizon Air receive an
annual retainer of $1,000. An annual retainer of $1,000 is also paid to
each Committee chair. In addition, a meeting fee of $1,000 is paid for
each Board or Committee meeting in which an outside director participates
in person. If participation is via telephone, the fee is $750. When more
than one meeting of a Board and/or Committee is 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 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. Mr.
Clapp, who has served as a director since 1977, has decided to step down
from the Board of Directors, effective with the May 20 Annual Meeting. The
Audit Committee is responsible for: (1) reviewing the annual report of the
independent auditors; (2) evaluating the external and internal financial
audit functions; (3) making recommendations to the Board of Directors with
respect to the appointment of independent auditors and other auditing
matters; and (4) evaluating the Company's compliance with environmental
regulations. The Audit Committee held three meetings during 1996.
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) approve salaries of executive
officers of Alaska Airlines and Horizon Air; (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; and (5) serve as administrator for the Company's stock
option and other long-term incentive plans. The Compensation Committee
held five meetings during 1996.
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 Executive Committee does not consider
director nominations from stockholders; however, procedures and minimum
notice provisions for stockholders to nominate directors are outlined in
the Company's bylaws. The Executive Committee also makes recommendations
to the Board on committee membership and chairs. The Executive Committee
held three meetings during 1996.
There were six Air Group Board of Directors meetings in 1996. All
directors attended at least 75% of the meetings of the Board and committees
on which they serve.
EXECUTIVE COMPENSATION
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
(the "named executive officers") for each of the last three fiscal years
ended December 31. (Bonus figures are reported in the year earned.)
<TABLE>
Summary Compensation Table
<CAPTION>
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 ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. Kelly 1996 376,923 339,231 - 0 206,300(5) 0 10,473
Chairman, President 1995 317,154 47,678 - 0 37,800 0 10,170
& CEO (Alaska) 1994 203,404 141,435 - 0 8,800 0 11,673
Harry G. Lehr 1996 231,231 138,738 - 0 14,600 0 10,990
Sr. Vice President/ 1995 222,577 22,944 - 0 25,700 0 10,350
Finance (Alaska) 1994 161,308 96,785 - 0 7,000 0 7,272
George D. Bagley 1996 207,308 145,115 - 0 16,400 0 11,132
President & CEO 1995 170,813 18,133 - 0 20,800 0 6,984
(Horizon) 1994 153,654 92,192 - 0 7,000 0 18,624
John R. Fowler 1996 186,231 111,738 - 0 11,800 0 6,694
Sr. Vice President/ 1995 178,654 18,416 - 0 20,600 0 6,483
Technical 1994 171,500 102,900 - 0 7,500 0 6,393
Operations (Alaska)
Michel A. Swanigan 1996 174,708 104,825 - 0 11,100 0 5,365
Vice President/Flight 1995 177,981 2,494 - 0 11,500 0 3,502
Operations (Alaska) 1994 155,847 0 - 0 0 0 3,218
</TABLE>
(1) The value of personal benefits and a corresponding tax gross-up did not
exceed $50,000 or 10% of salary plus bonus for any of the above-named
executives during the past three years.
(2) The Company granted no restricted stock awards and no long-term
incentive awards.
(3) Tandem stock appreciation rights ("SARs") generally attach to up to 50%
of options granted. SARs are not paid in cash, but can only be
exercised to receive a credit toward the exercise price of options.
SARs are not included with the options granted in 1996.
(4) Represents Company-paid contributions to individual 40l(k) plan
accounts and imputed income for the value (as determined by the
Internal Revenue Service ("IRS") of a term life insurance benefit
provided by the Company. In 1996, 401(k) contributions were: $4,750
each for Messrs. Kelly, Lehr, and Fowler; $9,500 for Mr. Bagley; and
$3,544 for Mr. Swanigan. Imputed income for term life insurance during
1996 was: Mr. Kelly-$5,723; Mr. Lehr-$6,240; Mr. Bagley-$1,632; Mr.
Fowler-$1,944; and Mr. Swanigan-$1,821.
(5) Includes a special grant of 150,000 options awarded to Mr. Kelly in
1996.
Equity Plan Information
The stock options granted under the 1984 and 1988 Stock Option Plans
and the 1996 Long-Term Incentive Equity Plan are exercisable at the fair
market value of Air Group shares on the date of grant. The Compensation
Committee is authorized to establish the terms of each grant. The stock
options are not transferable. They are exercisable for cash, through a
stock-for-stock exchange, through the use of SAR credits where they exist,
or a combination of the three. The options are generally not exercisable
until one year after grant and then become exercisable in 25% increments
over a period of four years. Incentive stock options have a ten-year term,
and nonqualified options have a term of approximately ten years and one
month. Retiring employees may exercise vested options for six months after
their retirement. Unvested options are canceled upon retirement.
Unexercised options of employees who leave the Company for reasons other
than retirement are canceled at the time their employment ends. The
accelerated vesting provisions of all options are described under "Change-
in-Control Arrangements" on page 15.
The 1996 Long-Term Incentive Equity Plan provides for equity-based
awards in addition to stock options.
The following table shows grants of stock options to the named
executive officers during 1996:
<TABLE>
Option/SAR Grants in Last Fiscal Year
<CAPTION>
Individual Grants Potential Realizable
--------------------------------------------------- Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options/SARs Appreciation for Option
Underlying Granted to Term (1)
Options/SARs Employees in Exercise or
Granted Fiscal Year Base Price Expiration
Name (#) (%) ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly (2) 150,000 39.5 24.000 8/15/06 2,264,021 5,737,473
56,300 14.8 21.500 9/25/06 761,246 1,929,146
Harry G. Lehr 14,600 3.8 21.500 9/25/06 197,410 500,276
George D. Bagley 16,400 4.3 21.500 9/25/06 221,748 561,954
John R. Fowler (3) 11,800 3.1 21.500 9/25/06 159,551 404,332
Michel A. Swanigan (3) 11,100 3.1 21.500 9/25/06 150,086 380,347
</TABLE>
(1) The assumed rates of appreciation in the above table were suggested as
examples by the Securities and Exchange Commission and are not intended
to predict actual appreciation of Air Group common stock prices.
(2) A special grant of 150,000 options was awarded to Mr. Kelly in 1996.
(3) 1,500 of the options granted to Mr. Fowler at $21.50 were incentive
stock options and will expire on August 25, 2006; 10,100 of the options
granted to Mr. Swanigan at $21.50 were incentive stock options and
expire on August 25, 2006. They are shown together with the
nonqualified stock options that were part of the same grant.
The following table shows unexercised options held by each named
executive officer at year end 1996. There is no assurance that the
indicated values of any unexercised options will actually be realized.
<TABLE>
Aggregated Option/SAR Exercises in 1996 and Fiscal Year-End Options/SAR Value
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at Fiscal Year End at Fiscal Year End(2)
Shares ------------------------------------------------------------------------------
Acquired Value
on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 42,225 486,950 5,025 240,850 27,009 184,628
Harry G. Lehr 20,000 176,675 14,125 38,775 68,578 128,034
George D. Bagley 0 0 30,925 36,575 149,972 105,191
John R. Fowler 13,400 125,694 18,150 32,550 43,416 107,984
Michel A. Swanigan 2,875 24,734 0 19,725 0 46,828
</TABLE>
(1) Market price of underlying securities at exercise date minus the
exercise price.
(2) Defined as the market price of common stock at year end minus the
exercise price.
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Executive Compensation Policy
The Company's policy is to pay competitive compensation. 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 stockholders by tying a large portion of total compensation
to Company profitability and stock value; and to reward outstanding
performance. Executive compensation includes competitive base salary, a
cash incentive plan tied to annual financial performance, and equity-based
awards.
Section 162(m) of the Internal Revenue Code eliminates the
deductibility of certain compensation over $1 million paid to the named
executive officers. The Company has not established a formal policy in
connection with Section 162(m) because base plus bonus compensation of those
individuals does not exceed that amount. Compensation from the exercise of
options granted to date under the Company's stock option and equity plans
qualifies for the deduction.
Base Salary
1996 base salaries for other executive officers were approved by the
Compensation Committee. They were based on subjective analysis of:
competitive market rates; the market demand for each executive officer's
skills; the executive's influence on long-term Company strategies and
success; the relationships among executive positions; and individual
leadership performance.
To ensure that its overall compensation is appropriate, the Company
periodically reviews executive compensation for Dow Jones Airlines Group
companies, other air carriers, similarly sized Pacific Northwest companies
and from broad-based national compensation surveys. The Company does not
attempt to set executive compensation at specific target ranges of any
particular survey. In 1996, executive officers (other than the CEO)
received increases averaging 4.7%.
Management Incentive Plan
Air Group's Management Incentive Plan ("MIP") links a significant
portion of each executive's potential cash compensation to annual
profitability. Thirty-six employees, including officers and key employees
of the Company, Alaska Airlines and Horizon Air, currently participate in
the plan.
For awards to be paid, the Company must achieve or exceed profit goals
established annually by the Compensation Committee. MIP goals are based on
return-on-equity levels of 8%, 12% and 16% for threshold, target and maximum
goals, respectively. Awards increase proportionately based on the degree to
which goals are met. They can range from zero if the threshold is not met,
to 30-45% of executive officers' base salaries if the target is met, up to a
maximum of double the target award if profits reach or exceed the maximum
goal. Award levels vary by position and can be adjusted for individual
performance.
No payments were made under the MIP for 1990 through 1993 because the
threshold goal was not met. Payments made to the named executives for 1994
and 1996 were based on profits that exceeded the maximum goal. Payments
made for 1995 were based on profits that exceeded the threshold but fell
short of the full target. (See Summary Compensation Table on page 7.)
For the executives in the Summary Compensation Table, the percentages
of total potential cash compensation linked to performance under the MIP in
1996 were: Mr. Kelly - 47%; Mr. Lehr - 38%; Mr. Bagley - 41%; Mr. Fowler -
38%; and Mr. Swanigan - 38%.
Equity-Based Awards
Although the 1996 Long-Term Incentive Equity Plan provides for equity-
based awards in addition to stock options, stock options are the only
equity-based compensation presently in use by the Company. They provide an
incentive to maximize stock values, linking the long-term interests of
executives with those of stockholders. Because options vest over several
years, they also encourage executives to remain with the Company.
The Committee grants options at market price, so recipients benefit
only if the price of the stock appreciates and stockholders also benefit.
No options have been repriced in the past ten years.
The Committee does not base grants on ownership targets or on the
number of options an individual has outstanding, because it believes doing
so would discourage officers from retaining options or shares. Individual
grants are determined according to base salary and position. The options
granted to each of the named executive officers in 1996 are shown in the
Summary Compensation Table and the Option Grant Table on pages 7 and 8.
CEO Compensation
Base Salary
In recommending the CEO's base salary for approval by the Board of
Directors, the Committee reviews competitive information similar to that
used for other Company executives. The Committee does not target a specific
range of competitive pay, but applies the information as it deems
appropriate. By reviewing survey data periodically, the Committee believes
it will remain mindful of compensation levels that would be required to
recruit from outside the Company.
The Board of Directors conducts an annual evaluation of the CEO's
performance based on the Company's financial performance, the CEO's
relationship with the Board, communication to the Board and other Company
constituencies, investor relations, overall leadership, and strategic and
succession planning.
Following are examples of the kinds of accomplishments the Board
considered in measuring performance during 1996. Air Group net income for
1996 was $38 million, representing the second-highest profit in the history
of the Company. In addition, the Company achieved its highest return on
equity in the past ten years in spite of skyrocketing fuel prices. Alaska
Airlines boosted its aircraft utilization by another 4.4% over last year and
increased its already strong market presence in the face of intense
competition and a sixth straight year of declining fares. Other measurable
productivity gains included improvements in the number of passengers served
per employee. Steps taken to control costs were consistent with strategic
plans to be competitive in a low-fare environment and to maintain a quality
service differential over the competition. These steps included moving both
Alaska Airlines and Horizon Air toward fleet simplification and
incorporating state-of-the-art technology to improve efficiency and safety.
Management Incentive Plan
The MIP award is the portion of the CEO's compensation that most
directly relates to the Company's financial performance. It can range from
zero if the threshold is not met, to 45% of base salary if the profit target
is met, up to a maximum of 90% if profits reach or exceed the maximum goal.
The profit measurements on which Mr. Kelly's 1996 MIP award was based were
identical to those detailed on page 10 for all participants in the MIP. Mr.
Kelly's 1996 MIP payment was $339,231.
Stock Options
In 1996, Mr. Kelly was granted a total of 206,300 stock options under
the Company's equity plans. Mr. Kelly's grant of 56,300 stock options was
based on the criteria outlined earlier for option grants to executive
officers in general. In keeping with past practice, the Compensation
Committee made a special grant of 150,000 stock options to Mr. Kelly in
1996. The Committee feels having a significant amount of compensation tied
to stock performance further aligns the CEO's interests with those of the
Company's stockholders.
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
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return(1)
Among Alaska Air Group, the S & P 500 Index, and the Dow Jones Airlines
Group
(Fiscal Year Ended December 31)
PERFORMANCE GRAPH IS SHOWN HERE BASED ON THE DATA THAT FOLLOWS
Date Alaska Air Group S & P 500 Dow Jones Airlines(2)
1991 100.00 100.00 100.00
1992 76.71 107.62 97.88
1993 65.67 118.46 118.72
1994 69.73 120.03 83.07
1995 75.54 165.12 125.64
1996 97.63 203.05 144.82
(1) Assumes $100 invested on December 31, 1991, in Air Group common stock,
the S & P 500 Index and the Dow Jones Airlines Group with all dividends
reinvested.
(2) The companies included in the Dow Jones Airlines Group are: Alaska Air
Group, AMR, Delta Airlines, Southwest Airlines, USAir and UAL.
The Board of Directors and the Compensation Committee recognize that
the market price of stock is influenced by many factors, only one of which
is issuer performance. The stock price performance shown in the graph is
historical and not necessarily indicative of future performance.
Salaried Retirement Plan
The Company maintains a tax-qualified, defined benefit retirement plan
for all salaried Alaska Airlines employees who have completed one year of
service. Benefits payable under the Alaska Airlines Salaried Retirement
Plan ("Salaried Retirement Plan") are based on years of credited service
and final average earnings. The annual retirement benefit at age 62
(normal retirement age under the Salaried Retirement Plan) is equal to two
percent of the employee's final average earnings times years of credited
service. Annual benefits are computed on a straight life annuity basis at
normal retirement age. Benefits 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 1996 at various combinations of final average earnings and
years of credited service. These estimates represent the straight life
annuity benefit for an individual who retires at normal retirement age.
Final Average Annual Benefits Based on Years of Credited
Earnings (1)(2) 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) Final average earnings for the named executives for the five-year
period ended December 31, 1996 are: Mr. Kelly - $252,337; Mr. Lehr -
$179,464; Mr. Bagley - $177,258; Mr. Fowler - $174,105; and Mr.
Swanigan - $174,707. Prior to his election as an officer in October
1995, Mr. Swanigan was an active participant in the Fixed Income
Retirement Plan for Pilots. He is no longer accruing additional
benefits under that plan. Based on his service and earnings as a pilot
prior to October 1995, Mr. Swanigan will be eligible for an annual
benefit of $42,216 at normal retirement age under the pilots plan.
(2) IRS regulations limit the annual benefits that may be paid from a tax-
qualified retirement plan. The current limit is $125,000. In
addition, IRS regulations limit the covered compensation on which
annual retirement benefits are based to $160,000 in 1997. To the
extent that the amounts shown in the table above exceed that IRS
limitation, the excess is paid from the Officers Supplementary
Retirement Plan.
All of the participants' base salaries, excluding bonuses, are covered
under the Salaried Retirement Plan. The officers shown in the Summary
Compensation Table have the following years of credited service and covered
compensation as of December 31, 1996:
Named Executive Years of Credited Service(1) Covered Compensation(2)
Officer
John F. Kelly 19.3 $376,923
Harry G. Lehr 9.1 $231,231
George D. Bagley(3) 3.1 $207,307
John R. Fowler 4.2 $186,231
Michel A. Swanigan 1.1 $174,707
(1) Reflects combined service at Alaska Airlines and Horizon Air since
becoming eligible for the Salaried Retirement Plan.
(2) Amounts in excess of IRS limitations will be paid from the Officers
Supplementary Retirement Plan.
(3) When Mr. Bagley transferred from Alaska Airlines to Horizon Air in
October 1995, he was 100% vested under the Salaried Retirement Plan.
Horizon Air does not have a similar plan, but will supplement his
benefits to ensure that his retirement benefit will be equivalent to
what he would have received had he continued with Alaska Airlines.
Officers Supplementary Retirement Plan
In addition to the benefits described above, under the Officers
Supplementary Retirement Plan ("Supplementary Plan"), elected officers of
Air Group and Alaska Airlines and Horizon Air's Chief Executive Officer can
receive retirement benefits, provided they have met service requirements.
The Supplementary Plan is a nonqualified, unfunded, noncontributory defined
benefit plan. Normal retirement benefits are payable once the officer
reaches age 60 and has ten years of service as an elected officer. Annual
benefits are calculated on a straight life annuity basis. Under the
version of the Supplementary Plan applicable to officers elected prior to
August 8, 1995, benefits can be up to 50% of a participant's final average
earnings, offset by Social Security benefits. Under the version of the
Supplementary Plan applicable to officers elected on or after August 8,
1995, benefits can range from 50% to 75% of a participant's final average
earnings, offset by benefits from Company-sponsored qualified retirement
plans and by Social Security benefits. Benefits under all versions of the
Supplementary Plan are subject to vesting schedules that are dependent on
the officer's length of service. Although we are unable to project
estimated benefits at this time, final average earnings for the named
executives under the Supplementary Plan at December 31, 1996 were: Mr.
Kelly - $252,337; Mr. Lehr - $179,464; Mr. Bagley - $177,258; Mr. Fowler -
$174,105; and Mr. Swanigan - $160,313.
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 applicable to
officers elected prior to August 8, 1995, after a change in control,
benefits become vested at the rate of 10% per year of a participant's
service as an elected officer. Under the Supplementary Plan applicable to
officers elected on or after August 8, 1995, benefits become fully vested
upon a change in control. The benefit after a change in control is equal
to 10% of final average earnings for each year of service as an elected
officer up to and including the fifth year. For officers having five or
more years of service as an elected officer, the benefit amount ranges from
50% to 75% of final average earnings, depending on length of service.
Under all versions, the benefit remains subject to applicable offsets.
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 under the
Company's 1984 and 1988 Stock Option Plans and 1996 Long-Term Incentive
Equity Plan become fully exercisable unless the Board of Directors
determines otherwise. As of December 31, 1996, the value of accelerated
vesting of options owned by each of the named executives would have been:
Mr. Kelly - $184,628; Mr. Lehr - $128,034; Mr. Bagley - $105,191; and
Mr. Fowler - $107,984. The value of accelerated vesting of options for Mr.
Swanigan would have been less than $100,000.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company has adopted procedures to assist its directors and
officers in complying with Section 16(a) of the Securities Exchange Act of
1934, which includes assisting them in preparing forms for filing. All
present and former officers and directors of the Company are current in
their Exchange Act filings.
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, 1997. Arthur Andersen
LLP examined the financial statements of Air Group and its subsidiaries for
the year ended December 31, 1996. 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. Proxies may be
solicited by mail, personal interview, telephone or fax. Proxies may also
be solicited by directors, officers, employees and other agents of the
Company, who will receive no additional compensation therefor except for
reimbursement of expenses.
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.
STOCKHOLDER PROPOSALS
Under the rules of the Securities and Exchange Commission for a
stockholder proposal to be included in the proxy statement for the 1998
Annual Meeting of Stockholders, it must be received by the Company at its
corporate headquarters, P.O. Box 68947, Seattle, Washington 98168, by
December 1, 1997. The Company's bylaws outline procedures, including
minimum notice requirements, for bringing matters before the stockholders.
OTHER MATTERS
The 1996 Annual Report of the Company was mailed to stockholders
together with this proxy statement. The Company will furnish without
charge a copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, including financial statements and schedules to
any stockholder who makes written request to the Finance Department at
Alaska Air Group, Inc., P.O. Box 68947, Seattle, Washington 98168.
Keith Loveless
Corporate Secretary and Associate General Counsel
April 1, 1997
Seattle, Washington
PROXY CARD TEXT FOLLOWS
PROXY
Alaska Air Group, Inc.
(use logo)
This Proxy is Solicited on Behalf of the Board of Directors
Annual Stockholders Meeting, May 20, 1997
The undersigned stockholder hereby appoints John F.
Kelly and Keith Loveless Proxies of the undersigned (with
full power of substitution) and hereby authorizes them to
represent and to vote at the above annual meeting all the
shares of common stock of Alaska Air Group, Inc. that the
undersigned would be entitled to vote if personally
present. The Board of Directors recommends a vote FOR
Proposal 1.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO
VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
(continued and to be signed on the reverse side)
SEE REVERSE SIDE
X
Please mark votes as in this example.
This Proxy when executed will be voted in the
manner directed herein. If no direction is made
this proxy will be voted FOR Proposal 1.
1. Election of Directors
Nominees: Mary Jane Fate, John F. Kelly and Bruce R. Kennedy.
FOR ALL NOMINEES
WITHHELD FROM ALL NOMINEES
For except vote withheld from the following nominee(s)
___________________________________________
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as your name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
Signature(s) Date
Signature(s) Date
