Document:

oprplanamended122818

                            ALASKA AIR GROUP                     OPERATIONAL PERFORMANCE REWARDS                                PLAN DESCRIPTION                 Adopted January 3, 2005; Amended December 28, 2018                                           The Board of Directors of Alaska Air Group, Inc. (the “Company”) has adopted the Operational  Performance Rewards Plan (the “Plan”) to reward employees of Alaska Airlines, Inc. (“Alaska”)  and  Horizon Air Industries, Inc. (“Horizon”) (each a “Subsidiary”) for achieving certain  operational performance targets.  This description is provided to explain the key elements of how  the Plan will operate.  This Plan is effective beginning with the 2019 Plan year and each year  thereafter until amended or terminated as provided herein.     1.    ELIGIBILITY          All regular employees and temporary variable-time employees of Alaska and Horizon        (including employees outside of the United States, if permitted by applicable law and        labor contracts) are eligible to participate in the Plan (“Eligible Employees”), and will        receive one or more payments under the Plan if they meet the criteria in this paragraph.        Payments under the Plan (“Awards”) are earned monthly and paid quarterly. Eligible       Employees on active status or on an approved leave of absence as of the close of business       on the last day of the quarter during which (a) any of the monthly operational targets       applicable to such employee's applicable Subsidiary are met and (b) employee had       eligible earnings as defined in the Company's Performance Based Pay Plan during the       quarter will be eligible for a payout for each month of the quarter in which the       employee's applicable Subsidiary's operational targets are met.  For persons with       Voluntary Severance Incentive or equivalent severance packages (whether voluntary or       not), the last day of eligible employment will not include any of the period during which       the employee has ceased working but is still otherwise treated as on payroll.              Unless otherwise provided in a separate agreement, an individual whose employment       with Alaska and Horizon ends prior to the last day of the quarter for any reason not set       forth above, for example, resignation or termination (with or without cause), forfeits any       Award under this Plan. In addition, employees terminated for cause, as determined by       such employee’s applicable subsidiary, shall forfeit any Award under this Plan,       regardless of their employment status on the last day of the quarter. Notwithstanding the       foregoing, contract employees or independent contractors as classified by Alaska or       Horizon, as applicable, shall be excluded from participation hereunder, regardless of       whether an agency or court subsequently re-classifies such individuals as employees of       Alaska or Horizon. An Eligible Employee who meets all the requirements for an Award       is a “Plan Participant."  Participation in the Plan does not guarantee that any Award will       be paid if applicable operational targets are not achieved.                                                     1  

 

2.    ACCRUAL OF AWARDS          An Award will accrue for each Participant as of the close of business of the last day of        any quarter in which the applicable Subsidiary has achieved one or more of the        performance goals set forth in Exhibit A.  Each Subsidiary does not need to achieve all of        the performance goals in a given quarter to accrue an Award; each goal reached in a        given Target Period (as defined in Exhibit A) will apply separately towards the Award to        that Subsidiary’s Participants for that quarter.    3.    PAYMENT OF AWARDS          Accrued Awards will be paid quarterly.  The Company will use reasonable efforts to pay        accrued Awards to Participants within sixty (60) days after the end of each calendar        quarter. The Company may pay Awards through regular payroll or by separate check in        the Company’s discretion, and in either case the Company may withhold applicable taxes        and garnishments from such payments.  The Company will pay a deceased Participant's        Award 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 to the Participant’s estate.          4.    ESTABLISHMENT OF PERFORMANCE GOALS           The Compensation and Leadership Development Committee of the Board (the        “Compensation Committee”) will establish the periodic performance goals for each Plan        year during the life of this Plan, and will provide an exhibit to this Plan that outlines goals        and the payout amounts for each goal.  Each such attachment will be labeled “Exhibit A:        Operational Performance Rewards Plan Goals and Award Levels for [year]” and        communicated to eligible employees.    5.    AMENDMENT; TERMINATION; INTERPETATION          The Board, acting through the Compensation Committee, retains the right at any time to        modify the Plan in any manner that it deems appropriate or to terminate the Plan,        provided that no amendment or termination shall be effective sooner than the first day of       the month following the Compensation Committee’s action on such amendment or        termination.  No termination of the Plan shall affect Awards accrued before the effective       date of termination.  Management may interpret or amend this Plan Description with        respect to administrative issues that do not affect benefit amounts and are not otherwise        material to the overall benefits provided by the Plan.  The Compensation Committee shall        have discretion to interpret and resolve any material issue or dispute under the Plan, and        its decision concerning any aspect of the operation of the Plan will be final and        conclusive. The Compensation Committee will review the Plan annually and may make       changes to the Plan and/or Exhibit A for the next Plan year.                                        2  

 

6.    MISCELLANEOUS          This description, including its attachments, constitutes the entire understanding relating to        the Plan, and supersedes all prior oral or written agreements, representations or        commitments relating to the Plan or any Award.  This Plan is not a commitment of the        Company, Alaska or Horizon, to any officer or employee of any such company to        continue that individual in its employ for any reason.  Any employee who files suit        against his or her employer for wrongful termination shall automatically cease to be a        Participant. This description 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.                                                                                    3pbpplanamendedandrestate

                       ALASKA AIR GROUP PERFORMANCE BASED PAY PLAN                                   (Amended and Restated January 16, 2019)                                                        The Board of Directors (the “Board”) of Alaska Air Group, Inc. (the “Company”) has adopted the Performance- Based Pay Plan (the “Plan”) to reward employees of Alaska Airlines, Inc. (“Alaska”) and Horizon Air Industries,  Inc. (“Horizon”).  The Board has delegated authority to the Compensation and Leadership Development  Committee (the “Committee”) to administer the Plan.  The Performance Based Pay Award (“Award”) of each  eligible Plan Participant will depend upon the degree to which the Company, Alaska and Horizon achieve the  applicable performance goals and, if applicable, an award modifier, set by the Committee for each calendar year  (a “Plan Year”) and upon the discretion of the Committee as explained below.      This Amended and Restated Plan is effective beginning with the 2019 Plan Year and each year thereafter until  amended, restated or terminated, pursuant to Paragraph 8.  For the terms of Awards granted for any earlier Plan  Year, refer to the version of the Plan in effect for the applicable Plan Year.    1.     ELIGIBILITY         Eligibility to participate in the Plan during a Plan Year is limited to all regular and temporary variable         time  U.S. and Canadian employees, and Mexico management employees,        of Alaska and Horizon         (“Eligible Employees”) who:                      (a)  are employees of Alaska or Horizon on December 31 of the Plan Year for which the Award is                 being paid, or                          (b)  were employees during a portion of the Plan Year for which the Award is being paid but were                 not employees on December 31 because their employment ended due to retirement, disability or                 death.  (For example, if an employee retires from Alaska or Horizon and his/her last day of                 employment is on or between January 1 and December 31, 2019, he/she would be eligible for an                 award for the 2019 Plan Year, but would not be eligible for an Award for the 2020 Plan Year                 because he/she was not an employee during any part of the 2020 Plan Year, even though his/her                 first day of retirement might be January 1, 2020.)                  For the sake of clarity, “Eligible Employees” shall not include temporary employees (with the exception         of variable time employees) or Mexico non-management employees of Alaska or Horizon, or employees         of McGee Air Services, Inc.                  Eligible Employees who are on temporary medical leave, military leave, furlough, or company-approved         leave of absence as of December 31 of the Plan Year   shall remain eligible under the Plan.  Unless         otherwise provided in a separate agreement, an individual whose employment with Alaska or Horizon         ends prior to December 31 of the Plan Year for any reason not set forth above, for example, resignation or         termination (with or without cause), forfeits any Award  under this Plan.  In addition, employees         terminated for cause, as determined by Alaska or Horizon, shall forfeit any Award under this Plan,         regardless of their employment status on December 31 of the Plan Year.  Notwithstanding the foregoing,         contract employees or independent contractors as classified by Alaska or Horizon, shall be excluded from         participation hereunder, regardless of whether an agency or court subsequently re-classifies such         individuals as employees of Alaska or Horizon. An Eligible Employee who meets all the requirements for         an Award is a “Plan Participant” for such Plan Year.  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.           2.     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, if applicable, an award modifier has been achieved during that Plan Year, and upon the discretion of         the Committee.  Separate performance weighting has been established for each performance goal.                                                                  1  

 

       A Plan Participant’s Award is determined by the following formula:  Eligible Earnings X Participation         Rate X Payout Award Percentage.              “Eligible Earnings” means the aggregate wages or salary paid during the Plan Year to the Plan         Participant for services performed for Alaska or Horizon, including cash received for vacation payouts in         connection with the Plan Participant’s transfer between any two entities (i.e., Alaska and Horizon) or in         connection with retirement, death or disability, amounts that the Plan Participant could have received in         cash had the Plan Participant not elected to contribute the amount to an employee benefit plan         maintained by the Company or an affiliate and any other voluntary payment the Plan Participant makes         which reduces his/her compensation (such as the Plan 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 bonuses (including any payment         received 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), worker’s         compensation payments, disability payments, cash and non-cash fringe benefits and perquisites (such as         per diems, auto expense reimbursement, relocation reimbursement or travel reimbursement).             “Participation Rate” shall mean the percentage level communicated to each Eligible Employee or class of         Eligible Employee.           “Payout Award Percentage” means the sum of the weighted payout of each performance goal, calculated         in the manner specified by Paragraph 3, herein.  Awards may be paid in cash only.                  All calculations will be performed by the Finance Department of Alaska and will be subject to approval         by the Committee.  Once approved by the Committee, such calculations shall be conclusively presumed         to be accurate.           3.     PERFORMANCE WEIGHTING         In order for any Award  to be payable as to a particular performance goal, a “Threshold” performance         level for that goal must be achieved.  The payout percentage for a particular performance goal will be         50%  if the “Threshold”  level is reached, 100% if the “Target” level is reached, and 200%  if the         “Maximum” level is achieved.  This determination applies to each goal individually.  If performance for a         particular goal is between the Threshold and Target levels, or between the Target and Maximum levels,         the payout percentage for that goal will be determined by linear interpolation between those two levels.         The payout percentage for each goal as so determined will then be multiplied by the weighting factor for         that goal, as specified in Annex 1 Performance-Based Pay Plan Goals and Measures      described in         Paragraph 4 for the applicable Plan Year (the “weighted payout percentages”).              4.     PERFORMANCE GOALS AND APPLICABLE PERFORMANCE WEIGHTING FACTORS         The Committee will establish the performance goals and, if applicable, an award modifier for each Plan         Year during the life of this Plan, and will annually approve an Annex 1 Performance-Based Pay Plan         Goals and Measures to this Plan that outlines the performance goals, award modifiers and the weighting         factors and an Annex 2 Performance-Based Pay Plan Participation Rates.             5.     DISCRETIONARY FACTOR         In the case of a Plan Participant described in Paragraph 1 who retired, terminated employment due to         disability, or died during the year, or a Plan Participant who took a leave of absence or worked a reduced         schedule during any portion of the year, the Committee retains absolute discretionary authority to adjust         the Award to such Plan Participant based upon the Committee’s determination of such Plan Participant’s         contribution to the Company   or its affiliates or any other factors as the Committee may determine         appropriate.             6.     TIMING OF AWARDS         Payment of  Awards  for a Plan Year will be made no later than March 15  of the following year.  A         deceased  Plan Participant's Award will be paid to the beneficiary designated by the Participant for                                                       2  

 

       purposes of the Company's or its affiliates’ group term life insurance plans covering the deceased         Participant, and in the absence of any designation, will be paid or distributed to the Participant’s estate.    7.     PLAN PARTICIPANT TRANSFERS BETWEEN ALASKA AND HORIZON         If a Plan Participant transfers between Alaska and Horizon, the Plan Participant’s Award under this Plan,         and any payment in respect of such Award, shall be separately determined by the Committee based on         Eligible Earnings, Participation Rate and Payout Award Percentage attributable to each entity.  This will         result in a separate Award based on Alaska service and performance, and a separate Award based on         Horizon service and performance, as applicable.    8.     AMENDMENT         The Board, acting on its own or through the 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 Plan 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 Plan Participants will not receive any payment with respect to         Awards granted for that Plan Year.      9.     CLAWBACK POLICY.         The Award is subject to the terms of the Company’s recoupment, clawback or similar policy as it may be         in effect from time to time, as well as any similar provisions of applicable law, any of which could in         certain circumstances require forfeiture of the Award and repayment or forfeiture of any cash received         with respect to the Award.    10.    MISCELLANEOUS         a.      This Plan, 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 Plan Participant.                  c.      This Plan 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.                  d.      No unpaid Award will be subject to the debts, liabilities, contracts or engagements of any Plan                 Participant, and may not be alienated, pledged, garnished or sold, and any attempt to do so shall                 be void.                  e.      All Awards are subject to applicable federal, state, and local deductions.                  f.      This Plan is intended to be an exception to, or otherwise be in compliance with, Section 409A of                 the Internal Revenue Code of 1986, as amended.  This Plan shall be interpreted to comply with                 Section 409A.                                                                             3

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