ex10-7.htm


    
       

      
         


      

      
         


        
          Exhibit
10.1

        

      

    


    ALASKA
AIR GROUP PERFORMANCE BASED PAY PLAN

    (formerly,
the “Management Incentive Plan” or “MIP”)

    (Amended
and Restated December 2, 2009)

    


    The Board
of Directors (the “Board”) of Alaska Air Group, Inc. (the “Company”) has adopted
a plan to reward employees of Alaska Airlines, Inc. (“Alaska”) and Horizon Air
Industries, Inc. (“Horizon”).  The plan, formerly known as the
Management Incentive Plan, has been renamed as the Performance Based Pay Plan
(“Plan”).  This memorandum is provided to explain the key elements of
how the Plan will operate.  The Performance Based Pay award (“Award”)
of each eligible Participant will depend upon the degree to which the Company
achieves the performance goals and award modifier set by the Compensation
Committee of the Board for each calendar year (a “Plan Year”) and the discretion
of the Compensation Committee of the Board and Chief Executive Officer explained
below.  This Plan is effective beginning with the 2003 Plan Year and
each year thereafter until amended, restated or terminated, pursuant to
paragraph 8.

    


    
      	
              1.

            	
              ELIGIBILITY

            


    

    Eligibility
to participate in the Plan during a Plan Year is limited to officers and other
employees of Alaska and Horizon who (a) are designated by the Compensation
Committee (attached as Annex B), and (b) are full-time employees of Alaska or
Horizon as of December 31 of the Plan Year, or (c) were full-time employees
during the Plan Year and do not meet the requirement of (b) because their
employment ended due to retirement at age 52 or older, disability or death (each
a “Participant,” or collectively “Participants”).  Individuals may
become Participants during the Plan Year if they are newly hired or promoted
during the year and meet the requirements of the preceding
sentence.  Participants who are on temporary medical leave, military
leave, or otherwise not working either full-time or part-time for Alaska or
Horizon for reasons approved by the Board, but who remain employed, also retain
eligibility as Participants.  Participation in the Plan does not
guarantee that any Award will be paid if applicable performance goals specified
for the Plan Year are not achieved for the year.  Unless otherwise
provided for in a separate Award agreement, an individual whose employment with
Alaska or Horizon ends for any reason not described in (c) above, such as
resignation or termination, forfeits eligibility upon such end of
employment.

    


    
      	
              2.

            	
              BASIS
      FOR PARTICIPATION

            


    

    
      	
               
      

            	
              A
      Participant’s Basis for a Plan Year is used to determine the dollar amount
      or initial target value of the Participant’s Award for that
      year.  The “Basis” is the actual Basic Salary of the Participant
      earned during the Plan Year multiplied by the percentage selected for that
      Participant by the Board.  “Basic Salary” means the compensation
      earned by the Participant for services performed for Alaska or Horizon,
      including
      amounts that the Participant could have received in cash had the
      Participant not elected to contribute the amount to an employee benefit
      plan maintained by Alaska, Horizon or the Company and any other voluntary
      payment the Participant makes which reduces his/her compensation (such as
      the Participant’s voluntary contribution to an Internal Revenue Code
      (“Code”) Section 401(k) Plan, Code Section 125 medical account, dependent
      day care spending account, or charitable gift), but excluding
      commissions, all awards (including any Award under this Plan), and all
      other forms of incentive or other supplemental pay, employee benefits paid
      by the employer (such as employer contributions to a Code Section 401(k)
      Plan), cash and non-cash fringe benefits and perquisites (such as auto
      allowance and travel

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    reimbursement).  Awards
may be paid in cash or by act of the Compensation Committee of the Board, the
Company’s Common Stock.  Alternatively, Awards may, by act of the
Compensation Committee of the Board, be denominated in shares of the Company’s
Common Stock that are subject to conditions and restrictions established by the
Compensation Committee and based on the achievement of performance goals as
provided for in a Performance Share Award Agreement (such shares of Common Stock
are referred to as “Performance Shares”).

    


    
      	
              3.

            	
              CALCULATION
      OF THE AWARD

            


    

    The size
of the Award earned for a Plan Year will depend upon the extent to which the
performance goals and award modifier of the Company have been achieved during
that Plan Year and the discretion of the Compensation Committee of the
Board.  Separate performance weighting has been established for each
performance goal.  The Award will equal either (i) in the case of
cash-based Awards, the dollar amount achieved by multiplying the Participant’s
Basis by the sum of the weighted percentage achievement factors, or (ii) in the
case of Common Stock Based Awards, the number of shares which is equal to the
cash award under the preceding clause (i) divided by the closing price of the
Company’s Stock on the NYSE on the date of such Award, or (iii) in the case of
Awards denominated in Performance Shares, the actual number of shares of Common
Stock earned by the Participant will be determined based on the achievement of
performance goals as described in the applicable Performance Share Award
Agreement, in each case, as such amounts may be adjusted in the Compensation
Committee’s discretion pursuant to paragraph 6 or pursuant to the terms of an
applicable Performance Share Award Agreement.  All calculations will
be performed by the Human Resources Department of Alaska and will be subject to
approval by the Compensation Committee.  Once approved by the
Compensation Committee of the Board, such calculations shall be conclusively
presumed to be accurate.

    


    
      	
              4.

            	
              PERFORMANCE
      WEIGHTING

            


    

    In order
to achieve any Award for a particular performance goal, a “Threshold” must be
achieved.  An Award of 25% of full entitlement is achieved if
“Threshold” is reached.  A full entitlement is achieved when the
“Target” is reached, and a double entitlement is possible if the “Maximum” is
achieved.  This weighting applies to each goal
individually.  Once the Threshold is achieved, the percentage of the
difference between the Threshold and Target achieved is multiplied by the
weighting factor as specified in the attachment for the applicable Plan
Year.  If the Target is exceeded, the percentage of the difference
between the Target and the Maximum achieved is multiplied by the weighting
factor as specified in the attachment for the applicable Plan
Year.  Since the difference between the Threshold and Target is, in
most cases, arithmetically different from the difference between the Target and
the Maximum, calculations will be performed utilizing either the
Threshold-Target range, or Target-Maximum range, as applicable, to locate the
percentage of the Target, or the percentage of the Maximum, as applicable, that
has been achieved.  Additional performance weighting criteria and the
methodology for determining the number of shares issued to a Participant
pursuant to an Award of Performance Shares may be set forth or described in an
applicable Performance Share Award Agreement.

    


    
      	
              5.

            	
              PERFORMANCE
      GOALS AND APPLICABLE PERFORMANCE WEIGHTING
  FACTORS

            


    

    The
Compensation Committee of the Board will establish the performance goals and
award modifier for each Plan Year during the life of this Plan, and will provide
Annex A to this Plan that outlines goals, award modifiers and the weighting
factors.

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      	
              6.

            	
              DISCRETIONARY
      FACTOR

            


    

    In the
case of a Participant described in paragraph 1(c) who retired due to age,
terminated employment due to disability, or died during the year, or a
Participant who took a leave of absence or worked a reduced schedule during any
portion of the year, the Compensation Committee of the Board retains absolute
discretionary authority to adjust the Award to such Participant based upon the
Compensation Committee’s determination of such Participant’s contribution to the
Company.

    


    
      	
              7.

            	
              TIMING
      OF AWARDS

            


    

    It is the
intent of the Board to distribute the Award, or actual shares of the Company’s
Common Stock for Awards denominated in Performance Shares, for a Plan Year no
later than March 15 of the following year for each Plan Year that Participants
have become entitled to an Award.  The terms and conditions of an
Award denominated in Performance Shares will be set forth in a Performance Share
Award Agreement with a Participant.  A deceased Participant's Award
will be paid, or shares of the Company’s Common Stock underlying an Award
denominated in Performance Shares will be distributed, to the beneficiary
designated by the Participant for purposes of the Company's group term life
insurance plan covering the deceased Participant, and in the absence of any
designation, will be paid or distributed to the Participant’s
estate.

    


    
      	
              8.

            	
              AMENDMENT

            


    

    The
Board, acting through the Compensation Committee, retains the right to modify
the Plan at any time in any manner that it deems appropriate, provided that (a)
no amendment that adversely affects the rights of Participants or their
beneficiaries shall be effective for a Plan Year that ended prior to the Plan
Year in which the amendment was adopted, and (b) it will not terminate the Plan
for any Plan Year during that Plan Year unless it is clear that Participants
will not receive an Award for that Plan Year.  It is understood that
the Compensation Committee of the Board will review the Plan yearly and may make
changes to the Plan for the next Plan Year.

    


    9.           MISCELLANEOUS

    
      	
               
      

            	
              a.

            	
              This
      memorandum, including its attachments, constitutes the entire
      understanding relating to an Award to any employee of Alaska or Horizon,
      and supersedes all prior oral or written agreements, representations or
      commitments relating to such
Awards.

            


    

    


    
      	
               
      

            	
              b.

            	
              This
      Plan is not a commitment of the Company, Alaska or Horizon, to any officer
      or employee of such company, to continue that individual in its employ in
      order to qualify for an Award.  Nothing contained in this Plan
      may be considered to be a promise of continued employment.  Any
      employee who shall file suit against his or her employer for wrongful
      termination shall automatically cease to be a
  Participant.

            


    

    


    
      	
               
      

            	
              c.

            	
              In
      the event that a Participant has a written employment agreement with
      Alaska or Horizon which entitles such Participant to participate in the
      Management Incentive Plan, this Plan is intended, for the purpose of such
      agreements, to be considered to be the same plan and may continue to be
      referred to as the MIP.

            


    

    


    
      	
               
      

            	
              d.

            	
              This
      memorandum and the rights and obligations provided for herein shall be
      construed and interpreted in accordance with the law of the state of
      Washington, excluding its conflicts of law
  rules.

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      	
               
      

            	
              e.

            	
              No
      unpaid Award will be subject to the debts, liabilities, contracts or
      engagements of any Participant, and may not be alienated, pledged,
      garnished or sold, and any attempt to do so shall be
  void.

            


    

    


    
      	
               
      

            	
              f.

            	
              Awards
      of Common Stock, Performance Shares, and the issuance of shares of the
      Company’s Common Stock underlying Awards of Performance Shares, are deemed
      to be made pursuant to the Company’s 2008 Performance Incentive Plan, or
      any such successor plan.

            


    

    


    Dated
December 2,
2009                                                                           Alaska
Air Group, Inc.

    


    


    __/s/ Phyllis J.
Campbell_______________

    Phyllis J. Campbell

    Chair, Compensation
Committee

    Alaska Air Group, Inc. Board of
Directors


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ANNEX
1

    


    PERFORMANCE
BASED PAY PLAN GOALS AND MEASURES FOR 2010

    


    This
Annex sets forth the goals for the Alaska Air Group Performance Based Pay Plan
for the 2010 Plan year.

    


    The
performance goals for 2010 are divided into two groups: Operational Performance
and Financial Performance.  The Operational Performance goals, which
are based on safety, employee engagement and cost per available seat mile (CASM)
measures, represent 30% of the total weight.  The Financial
Performance goal is based on the Company’s profitability and represents 70% of
the total weight.

    


    
      	
               
      

            	
              a.

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

            


    

    


    
      	
               
      

            	
              1.

            	
              Safety  (10%)

            


    

    


    A Safety
payout requires the attainment of stated goals for lost time injury rates and
aircraft ground damage.  No award for Safety will be earned if there
is an employee on-the-job or operationally related passenger
fatality.

    


    The basis
for achievement of this goal is improvement over the preceding year’s
performance.  The performance goals for 2010 for Alaska and Horizon
are reflected below:

    


    For
Alaska:

    Lost-time Injuries (5%)

    
      	
               
      

            	
              Threshold

            	 


    

    
      	
               
      

            	
              Target

            	 


    

    
      	
               
      

            	
              Maximum

            	 


    

    
      	
               
      

            	
              Aircraft
      Ground Damage (5%)

            


    

    
      	
               
      

            	
              Threshold

            


    

    
      	
               
      

            	
              Target

            


    

    
      	
               
      

            	
              Maximum

            


    

    
      	
               
      

            	
              For
      Horizon:

            


    

    
      	
               
      

            	
              Lost-time
      Injuries (5%)

            


    

    
      	
               
      

            	
              Threshold

            


    

    
      	
               
      

            	
              Target

            


    

    
      	
               
      

            	
              Maximum

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      	
               
      

            	
              Aircraft
      Ground Damage (5%)

            


    

    
      	
               
      

            	
              Threshold

            


    

    
      	
               
      

            	
              Target

            


    

    
      	
               
      

            	
              Maximum

            


    

    


    2.           Employee
Engagement/Customer Satisfaction  (10%)

    
      	
               
      

            	
              Employee
      Engagement/Customer Satisfaction will be measured by the number of times
      each airline meets or exceeds the monthly Operational Performance Rewards
      (OPR) Customer Satisfaction goal. The OPR goal is measured through online
      surveys of recent customers and is based 50% on employee attitude,
      courtesy & helpfulness, 25% on satisfaction on the most recent flight,
      and 25% on satisfaction over the past 12
months.

            


    

    


    For
Alaska:

    
      	
               
      

            	
              Threshold

            


    

    
      	
               
      

            	
              Target

            


    

    
      	
               
      

            	
              Maximum

            


    

    


    
      	
               
      

            	
              For
      Horizon:

            


    

    
      	
               
      

            	
              Threshold

            


    

    
      	
               
      

            	
              Target

            


    

    
      	
               
      

            	
              Maximum

            


    

    


    
      	
               
      

            	
              3.

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

            


    

    


    CASM
calculations exclude fuel costs and may be adjusted for certain Excluded Items
and Alternative Accounting Treatments (as defined below), as appropriate in the
discretion of the Compensation Committee.

    


    
      	
               
      

            	
              Alaska
      CASM ex. fuel:

            


    

    


    Threshold

    Target                                

    Maximum                                


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Horizon
CASM ex. fuel:

    


    Threshold

    Target                                

    Maximum                                

    


    
      	
               
      

            	
              b.

            	
              Financial
      Performance.  (70% of the total).  Financial
      Performance is measured by the Company’s
  Profitability.

            


    

    


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

    


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

    


    Threshold

    Target

    Maximum

    


    “Adjusted Pretax Profit” means
the net income of Alaska Air Group, Inc. as computed under Generally Accepted
Accounting Principles (GAAP), adjusted for Excluded Items and Alternative
Accounting Treatments.   “Excluded Items” means
(a) income taxes, (b) pretax expense under any Alaska Air Group (or
subsidiary) profit sharing, performance-based pay, operational performance
rewards, variable pay plan, or similar such programs as determined in the
discretion of the Compensation Committee, and (c) special income or expense
items that, in the discretion of the Compensation Committee, should be excluded
because recognizing them would not appropriately serve the goals of the Plan.
These may include, without limitation, gain or loss on disposition of capital
assets, impairments or other fleet exit costs, expenses from voluntary or
involuntary severance programs, government refunds or assistance and cumulative
effect of accounting changes.  “Alternative Accounting
Treatments” means expense or income items that, for purposes of
calculating Adjusted Pretax Profit, the Company (or any


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    subsidiary)
will account for based on non-GAAP methods because, in the discretion of the
Compensation Committee, using GAAP accounting methods would not appropriately
serve the goals of the Plan.  These may include, without limitation,
fuel hedge accounting on an “as settled” basis.

     

    
      	
               
      

            	
              c.

            	
              Modifier.   The
      Performance-Based Pay modifier results in plus or minus 10 percentage
      points based on the performance of the key metrics as detailed
      below.

            


    

    


    
      	
               
      

            	
              For
      Alaska and Horizon

            


    

    The
application of the modifier is based on the annual ancillary revenue earned per
passenger at the Air Group level.  The modifier will be applied as
follows:

     

    Performance-Based
Pay shall be determined and then the modifier shall be applied.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ANNEX
2

    


    PERFORMANCE
BASED PAY PLAN PARTICIPANTS

    


    This
Annex sets forth the Alaska Airlines, Inc. and Horizon Air Industries, Inc.
employment groups which are participants under the Alaska Air Group Performance
Based Pay Plan for the 2010 Plan year.  Individual eligibility shall
be according to Section 1 of the Plan document.

    


    


    Alaska
Airlines, Inc.

    
      	
               
      

            	
              ·

            	
              Management
      Executives and Employees

            


    

    
      	
               
      

            	
              ·

            	
              Former
      Management Incentive Plan (MIP)
Participants

            


    

    
      	
               
      

            	
              ·

            	
              Dispatch
      Employees (Transportation Workers
Union)

            


    

    
      	
               
      

            	
              ·

            	
              Pilots
      (Air Line Pilots Association)

            


    

    
      	
               
      

            	
              ·

            	
              Flight
      Attendants (Association of Flight
Attendants)

            


    

    
      	
               
      

            	
              ·

            	
              Mechanics/Technicians
      & Related Crafts Employees (Airline Mechanics Fraternal
      Association)

            


    

    


    Horizon
Air Industries, Inc.

    
      	
               
      

            	
              ·

            	
              Merit/Management
      Exempt

            


    

    
      	
               
      

            	
              ·

            	
              Merit/Management
      Hourly

            


    

    
      	
               
      

            	
              ·

            	
              Management
      Non-Represented Employees

            


    

    
      	
               
      

            	
              ·

            	
              Non-Management
      Non-Represented Employees

            


    

    
      	
               
      

            	
              ·

            	
              Dispatch
      Employees (Transportation Workers
Union)

            


    

    
      	
               
      

            	
              ·

            	
              Flight
      Attendants (Association of Flight
Attendants)