AAWW Atlas Air Worldwide Holdings

ITEM 11. EXECUTIVE COMPENSATION.

Compensation Committee

Duties and Responsibilities

The Board’s Compensation Committee assists the Board in discharging and performing its duties regarding the compensation of our executives, including our Named Executive Officers ("NEOs"), executive succession planning, and other matters. The Compensation Committee is also the administrator of our long-term incentive award and annual bonus plans.

The Compensation Committee is also responsible for:

Processes and Procedures

Following approval of the annual budget, either before or during the first quarter of each year, the Committee establishes the minimum financial performance objective required before any annual incentive award payment may be made, as well as the year’s objectives for financial, on-time customer service reliability and individual performance goals and objectives for senior executives. All are taken into account in setting the performance range for each such executive and ultimately in determining the amount of each such executive’s annual award payment, if any. The Compensation Committee establishes these criteria, with the advice of the independent compensation consultant and outside counsel, as appropriate, after reviewing information submitted to the Compensation Committee by the CEO and General Counsel (at the request of the Compensation Committee). Our CEO and General Counsel also provide information to the Committee regarding annual and long-term incentive plans that the Compensation Committee considers, with the advice of the independent compensation consultant and outside counsel, in its determination of awards under those plans.

The Compensation Committee is required by its charter to meet at least four times annually. During 2019, the Compensation Committee held four in-person meetings and six telephonic meetings and acted once by written consent. In 2019, the Compensation Committee consisted of four outside Directors, Ms. Hallett (Chair), Mr. Wulff, Mr. Griffin and Ms. Lute, each of whom is an independent Director within the meaning of applicable SEC and NASDAQ rules.

Compensation Determination Process

The Compensation Committee has primary responsibility for determining and approving, on an annual basis, the compensation of our CEO and other executive officers. The Compensation Committee receives information and advice from its independent compensation consultant, independent legal counsel, as well as from our human resources, finance and legal departments and management to assist in compensation determinations.

The Committee’s Risk Assessment of Our Compensation Policies

The Compensation Committee is aware of the need to routinely assess the Company’s compensation policies and practices as they relate to the Company’s risk management and whether the structure and administration of the Company’s compensation and incentive programs could promote imprudent in excessive risk-taking. With the support of Pay Governance, the Compensation Committee considered the structure and administration of our compensation program and determined that our program is appropriately balanced and does not promote imprudent or excessive risk-taking. Significant factors contributing to their conclusion included:

Compensation Overview

Notwithstanding a challenging airfreight environment in 2019, our results reflected a fourth-quarter peak season that included a pickup in customer demand and improved yields compared with the middle of the year. They also reflected our team coming together to deliver the high-quality services that our customers appreciate.

We flew our highest block hours ever, and we delivered record operating revenue.

On a reported basis, our full-year results reflected a loss from continuing operations, net of taxes, which included a noncash special charge of $638.4 million ($503.1 million after tax), partially offset by an unrealized gain on financial instruments of $75.1 million.

On an adjusted basis, we generated earnings that were among the best in company history.

Both our reported and adjusted results reflected the impact on global airfreight and economic conditions of tariffs, trade tensions and geopolitical unrest in certain South American countries, together with certain labor-related service disruptions. These market factors resulted in lower commercial cargo yields and lower utilization of our 747-400 ACMI and Charter aircraft. As a result, and in accordance with U.S. accounting standards, we recorded a noncash special charge for the write-down of our 747-400 freighter fleet, as well as the disposition of certain nonessential Dry Leasing aircraft and engines.

In 2019, we continued to execute on strategic initiatives to enrich our business mix, expand our customer base, generate cost savings through operating efficiencies and other continuous improvement initiatives, and enhance our portfolio of assets and services. Our results reflected the leadership of our ACMI and Charter businesses, the annuity-like contribution of our Dry Leasing business, progress in our efficiency and productivity initiatives, and the introduction of 11 aircraft to our operating fleet during the year in response to customer demand for our services.

Positioned for 2020 and Beyond

Though these are extraordinary times, with the future uncertainty caused by the novel coronavirus, we believe Atlas Air Worldwide is well-positioned for continued success in 2020 and beyond.

We have driven substantial growth in our business over the past several years, establishing a solid platform from which to capitalize on our achievements and our future opportunities.

Airfreight serves the global community by keeping necessary goods flowing at very important times of need. Airfreight is also a vital element in a modern, global economy, fostering international trade, providing efficient access to markets, and contributing to global economic development.

As history has taught us through other crises, airfreight plays a key role in not only delivering relief supplies in times of need, but also in facilitating the movement of goods as the global supply chain rebalances. In fact, airfreight typically rebounds more quickly during periods of economic recovery.

In the near term, we are currently accommodating special charter demand, and we are well-prepared for the anticipated surge of volumes once business and economic conditions recover.

Looking ahead, we have a strong core of long-term customers and will continue to play an important role in their operating networks, especially as they navigate challenging times.

We have a strategic focus on faster-growing global airfreight markets, and will continue to leverage our significant commercial charter business to capitalize on demand.

Together with the exceptional teamwork of our employees and the guidance of our Board of Directors, Atlas Air Worldwide remains innovative, adaptive and forward-looking – leading the outsourced aviation sector, driving ahead with our strategic initiatives, serving the needs of the global community and delivering value to our customers and shareholders.

2019 Executive Leadership Changes

Fiscal 2019 was a period of change for us as we announced that William J. Flynn would retire from his role as our President and Chief Executive Officer. Mr. Flynn stepped down as President of the Company effective as of June 30, 2019; and, effective as of January 1, 2020 (the “Transition Date”), he retired from his position as Chief Executive Officer. Upon his retirement, Mr. Flynn also no longer served as an executive, officer or employee of any of our subsidiaries or affiliates. In connection with Mr. Flynn’s retirement, the Board appointed John W. Dietrich, our then-current Executive Vice President and Chief Operating Officer, to serve as our President and Chief Operating Officer effective as of July 1, 2019; and, effective as of the Transition Date, Mr. Dietrich began serving as our President and Chief Executive Officer (collectively, the “Leadership Transition”). Mr. Dietrich has over 30 years of experience in the aviation and air cargo industries, including more than 20 years with the Company. During his tenure with the Company, Mr. Dietrich has served as our Chief Operating Officer, General Counsel, Corporate Secretary, Chief Communications Officer, and Chief Human Resources Officer.

After stepping down as President of the Company, Mr. Flynn continued to serve as a Director, and was appointed the Chairman of the Board on August 22, 2019 following the passing of our prior Board Chairman, Robert F. Agnew.

In addition, in October 2019 we announced that effective January 1, 2020, James A. Forbes would succeed Mr. Dietrich and be promoted to Executive Vice President and Chief Operating Officer. Mr. Forbes has been employed with the Company for over 20 years and brings exceptional qualifications to his new role. Prior to being promoted, Mr. Forbes was Senior Vice President, Chief Operating Officer for our airline Southern Air and was responsible for all aspects of the day-to-day Southern Air operation, including flight, ground and technical operations, as well as safety, performance and customer satisfaction. He also previously held executive positions in operations for our airlines Atlas Air and Polar Air Cargo.

William J. Flynn Transition Agreement

In connection with his retirement, Mr. Flynn entered into a transition agreement with the Company (the “Transition Agreement”), effective as of July 1, 2019, which restated the existing entitlements he would receive upon his retirement pursuant to his employment agreement and other Company benefit plans and programs in which he participated at the time of his retirement. The Compensation Committee did not amend Mr. Flynn’s compensation package in 2019 as it related to his retirement. Such package had been approved years prior to the announcement of his retirement.

In the Transition Agreement, Mr. Flynn reaffirmed the two-year post-termination non-solicitation and one-year post-termination non-competition provisions in his employment agreement. The Transition Agreement also contains customary restrictive covenants related to trade secrets, confidential information, company property, and non-disparagement, and required that Mr. Flynn execute a general release of claims on his last day of employment.

John W. Dietrich Employment Agreement

On July 1, 2019, we entered into an employment agreement with Mr. Dietrich pursuant to which he became our President and remained our Chief Operating Officer through December 31, 2019. As noted above, as of January 1, 2020 Mr. Dietrich became our President and Chief Executive Officer. In negotiating such arrangements the Compensation Committee received information, analysis and advice from Pay Governance and independent legal counsel. In developing the compensation arrangement for Mr. Dietrich, the Compensation Committee and Board considered the same executive compensation objectives and competitive positioning used for our other executives and also took this as an opportunity to reset his compensation levels to that of a new Chief Executive Officer. Given his breadth of experience in the aviation industry and at our Company, his business acumen, and his experience in many elements of the business, among other things, Mr. Dietrich’s compensation package was set at a level that is approximately 75% of the compensation that Mr. Flynn was eligible to receive prior to his retirement. The key compensation elements of Mr. Dietrich’s employment agreement are described in the section entitled “Employment Agreements—John W. Dietrich.” Mr. Dietrich did not receive a one-time cash payment or inducement equity awards in connection with his promotion.

The Compensation Committee and independent Directors believe that the compensation arrangement provided to Mr. Dietrich is reflective of the talent and experience he brings us, is competitive and represents an appropriate mix of annual and long-term incentives with a substantial portion of such compensation tied to the attainment of performance goals and stock price appreciation as a result of the Total Shareholder Return ("TSR") modifier in our long-term incentive program, and as a result directly links pay and performance. A description of the material terms of Mr. Dietrich’s employment agreement, including payments and benefits to be provided to Mr. Dietrich in the event his employment is terminated by us without “cause” or by Mr. Dietrich for “good reason” is set forth in the “Employment Agreement” section below.

Direct Link between Compensation and Business Strategy

Our compensation programs are designed to drive achievement of our business strategies and provide competitive opportunities, principally dependent on the successful achievement of performance goals closely tied to Company performance, as exemplified by the features set forth below.

Our compensation program continues to evolve as we focus on ensuring that executive pay is well aligned with Company performance. In order to further coordinate our compensation program with Company and shareholder interests, and to take into consideration the potential impact that tariffs, trade tensions, geopolitical unrest, labor related service disruptions, and costs associated with COVID-19 may continue to have on Company performance, for the 2020 program year the Compensation Committee, with advice from its independent compensation consultant, approved the addition of Liquidity as an additional Company financial performance metric under our Annual Incentive Plan to ensure that the Company maintains an adequate and appropriate level of liquidity. As we continue to enhance and refine our compensation programs, we, together with the members of our Compensation Committee, look forward to continuing our open dialogue with our shareholders during our shareholder engagement process on these and other matters.

How We Incorporate Pay-for-Performance into Our Compensation Programs

Our Compensation Committee believes that our compensation practices have played a key role in our steady operating and financial results during transformative growth periods such as those experienced from 2016 through 2018, and the more challenging times experienced generally in the global freight industry in 2019. Our compensation programs are designed to drive achievement of our business strategies and provide competitive opportunities, principally dependent on the successful achievement of performance goals closely tied to Company performance. The performance metrics within the executive compensation program are designed to drive the achievement of key business, financial, on-time customer, and operational annual and long-term results, in addition to individual contributions.

The Compensation Committee achieves its pay-for-performance goals by:

Significant Portion of CEO Compensation Opportunity Performance-Based and/or At-Risk

We design our CEO’s compensation opportunity to be largely performance-based and at-risk. 69% of the maximum total CEO compensation opportunity in 2019 was designed to be based on attainment of performance metrics, including approximately 48.0% in the form of long-term multiyear opportunities and 21% in annual incentive opportunity. An additional 20.0% of compensation opportunity was granted in the form of RSUs with three-year vesting, resulting in 89% (at maximum levels) of CEO compensation opportunity being at risk.

Our CEO’s bonus opportunity has not been increased since 2010. Additionally, in response to shareholder feedback his long-term incentive opportunity was reduced to a 3.75 multiple of salary in 2014 and has not been increased since. In addition, in developing the compensation package of our new CEO, Mr. Dietrich, which became effective as of January 1, 2020, we set the total value of his compensation at a level that is approximately 75% of the compensation Mr. Flynn was eligible to receive prior to his retirement.

The addition of a comparative TSR modifier and other changes to performance-based long-term incentive awards results in significant compensation opportunity structured to be performance-based, as set forth below. The following charts illustrate our CEO’s total compensation opportunity in 2019, as well as the 2019 long-term incentive opportunity for our CEO (at target levels):

For overall LTI opportunity structure for all our NEOs, please see pages [45-50].

Best Practices and Risk Mitigation

The Compensation Committee is required by its charter to meet at least four times annually. During 2019, the Compensation Committee held four in-person meetings and six telephonic meetings and acted once by written consent. In 2019, the Compensation Committee consisted of four outside Directors, Ms. Hallett (Chair), Mr. Wulff, Mr. Griffin and Ms. Lute, each of whom is an independent Director within the meaning of applicable SEC and NASDAQ rules.

Through our compensation program design and related policies, we pursue the alignment of interests of our executives with those of our shareholders over a multiyear long-term basis and encourage thoughtful and appropriate business risk-taking.

The following table sets forth several of our compensation and corporate governance practices, which were primarily enacted in response to shareholder feedback and which reflect market best practices.

Discussion of Our Compensation Program

Components of Compensation

Three primary components for our NEOs’ compensation include (1) Base Salary, (2) Annual Incentives and (3) Long-Term Incentives. See “Primary Components of NEO Composition” below for additional details on our compensation components.

1. Base Salary

Purpose: Compensate executives for their leadership, management responsibility, experience, sustained high level of performance, and contribution to our success.

Process for setting salaries: The amount of any senior executive salary increase is determined by the Compensation Committee, in consideration of a number of factors, including but not limited to the nature and responsibilities of the position; level of performance of the individual; expertise of the individual; advice of the Compensation Committee’s independent compensation consultant, including survey data; and recommendations of the CEO (except regarding his own salary) and the General Counsel (except regarding his own salary).

Salary levels for NEOs are generally reviewed annually by the CEO and the Compensation Committee as part of the performance review process. Mr. Dietrich’s annual base salary increased from $715,000 to $775,000 as of July 1, 2019 to account for his increased roles and responsibilities upon becoming the Company’s President and Chief Operating Officer in connection with the Leadership Transition. The base salary of all other NEOs were not increased in 2019.

Performance-Based Compensation: Annual and Long-Term Incentive Compensation

At-Risk Philosophy:

The Compensation Committee believes that a significant portion of a senior executive’s compensation should be “at-risk,” based upon the Company’s financial and operating performance. Performance-based compensation aligns senior executive compensation with our goals for corporate financial and operating performance and encourages a high level of individual performance. For 2019, 89% of our CEO’s maximum total direct compensation opportunity (base salary and maximum payout opportunity of annual and long-term incentive awards granted in 2019) was performance-based. A significant portion of our CEO’s compensation is considered “at-risk” due to recent changes that we have made to our performance-based long-term incentive awards, which are described further below, including the addition of a Comparative TSR modifier.

2. Annual Incentive Program

Annual cash incentive compensation awards to our executives are made under our AIP. The AIP is a sub-plan and part of the Company’s 2018 Incentive Plan, as may be amended from time to time (the “2018 Plan”), which has been approved by shareholders. Bonuses are payable based on the achievement of the ANI, on-time customer reliability, and individual business objectives as further described below. As a preliminary matter, the Company must generate a threshold level of ANI for any award to become payable under the AIP. We believe that having an annual “at risk” compensation element gives all employees, including our NEOs, a financial stake in the achievement of our business objectives and motivates them to use their best efforts to ensure that we achieve those objectives.

Each of our executives is assigned a minimum threshold, target bonus opportunity and a maximum bonus opportunity. The 2019 bonus opportunity range for each executive is set forth in the table below:

* Mr. Dietrich’s range of bonus opportunity reflects his increased AIP bonus opportunity due to his promotion to our President as of July 1, 2019, at which time his target bonus increased from 90% of his then current base salary to 100% of his then current base salary. Accordingly, the amounts above reflect the weighted average of Mr. Dietrich's bonus opportunity at the threshold, target and maximum levels for the year taking into account the increased opportunity due to his promotion.

How We Set Our AIP Incentive Metrics:

We base a significant portion of our executives’ compensation on the Company’s financial and operating performance to align senior executive compensation with our goals for corporate financial as well as operating performance and to encourage a high level of individual performance. The annual metrics upon which our incentive plans are structured are designed to drive, on an integrated basis, the achievement of key business, financial, on-time customer reliability, and operational annual results, as well as to recognize the individual contributions of our executives towards these goals. For awards granted in 2020, in addition to the metrics described below, we added a new Liquidity performance metric (based on cash, cash equivalents, restricted cash, and unused availability under our revolving credit agreement) to further align our compensation program with our shareholders’ interests of maintaining an adequate and appropriate level of liquidity.

In designing the annual incentive awards for our executives, the Compensation Committee considers the Board-approved annual budget, as well as short- and long-term strategic goals, and then designs the annual targets, including adjusted net income, around the Board-approved budget and strategic plan, which is consistent with the earnings framework that we provide publicly in our related earnings release. As described below, each of our AIP metrics is set at a challenging, rigorous level, which results in payouts only for strong performance.

Alignment Between Our Performance, Our Strategy and Our AIP Incentive Metrics:

Set forth below are the metrics used under our AIP performance incentive plans in 2019 to provide appropriate rewards for prudent risk-taking, key financial performance and objective results in support of our business strategy. In addition, we believe that our performance metrics align and underscore the link between incentive compensation and the successful execution of our business strategy, and reflect our ongoing commitment to a pay-for-performance compensation philosophy.

Note: Detailed quantitative Company financial performance goals for our incentive compensation plans are disclosed for the completed 2019 fiscal year. Due to the potential for competitive harm, 2019 goals will be disclosed in next year’s Proxy Statement.

2019 AIP Payout

In 2019, we continued to leverage our core competencies and market leadership. Accordingly, our results reflected a strong fourth-quarter peak air cargo and charter passenger season despite the challenging global economic, aviation and airfreight-industry conditions.  Despite the headwinds faced by the Company and the broader global airfreight industry and the Company’s labor challenges and disruptions, the formulaic result of our ANI, customer reliability, and achievement of individual performance objectives would have translated into an AIP payout of 1.52x of target to our NEOs.  However, after considering the entirety of the results and the extent to which these challenges were being felt by our shareholders, the Compensation Committee exercised its authority to reduce the final payout factor under the AIP from 1.52x to 1.20x of target for our NEOs. Actual bonus amounts paid to Messrs. Flynn, Dietrich, Kokas, Schwartz, and Steen under the AIP are included in the Summary Compensation Table for Fiscal 2019 under the “Non-Equity Incentive Plan Compensation” column.

Adjusted Net Income – Objective Metric. The most heavily weighted performance factor in the 2019 AIP is ANI. For purposes of the AIP, the ANI performance range was (1) a threshold amount of $159.0 million, (2) $212.0 million for the target amount, and (3) $233.2 million representing maximum achievement. Our ANI achievement resulted in a 1.2x target performance factor.

On-Time Customer Reliability – Objective Metric. An additional objective performance metric that was used to determine 2019 AIP payments was our on-time customer reliability. Our 2019 on-time customer reliability goals are objective, measurable goals that are set to meet or exceed challenging standards set forth in our ACMI, CMI and AMC/Military customer contracts. In 2019, our weighted overall on-time performance was achieved at 1.61x of target despite the Company’s labor challenges and disruptions. While such goals are customer-specific and proprietary, they are all very aggressive and denote a high level of on-time performance. On-time performance is key to our Company’s success and our NEOs each have a role in ensuring that such performance metrics are met.

2019 Individual Performance Objectives. Individual annual performance objectives for our NEOs are reviewed with and approved by the Compensation Committee typically when the Company’s operating plan is being reviewed and approved by the Board of Directors. These individual performance objectives are based in large part on our annual business plan and our long-term strategic plan, including continuous improvement and cost savings, diversifying our business, and enhancing our financial results, among others.

Our Compensation Committee reviewed each NEO’s 2019 accomplishments in detail and certified that each of our NEOs achieved their individual performance objectives at the maximum level.

2019 individual performance objectives for our NEOs included the following, among others:

3. Long-Term Incentive Compensation

During 2019, the Compensation Committee made long-term incentive grants to our NEOs in the form of performance share units, performance-based cash awards, and time-based restricted stock units.

Long-Term Incentive Awards

The total long-term incentive grant in a given year is based on a multiple calculated as a percentage of base salary. For the CEO, the multiple is based on his actual base salary and for the other NEOs and other executives, the multiple is based on an average base salary for all executives at a particular level (for example Executive Vice President, Senior Vice President or Vice President). The multiple is converted into an aggregate LTI plan award opportunity dollar amount, and for 2019 awards, which, consistent with prior years, is then converted into a target number of RSUs, PSUs and performance cash awards using the average closing price of the Company’s common stock for the 20 trading days ending on February 27, 2019, trailing the grant date.

Assuming achievement at maximum performance opportunity, including maximum achievement of the comparative TSR metric, the performance share units and performance cash units together would pay at approximately 70% of the value of the overall award grant.

For 2019, the LTI award consisted of performance share units and performance cash awards, both of which are subject to a three-year performance period, and restricted stock units that vest ratably over a three-year period, all as more fully described below. The weighting mix of the LTI components were as follows:

Award mix at time of grant: (1) Time-vesting Restricted Stock Units 50%, (2) Performance Stock Units 25% (target level) and (3) Performance Cash 25% (target level).

At a possible future maximum payout of our performance-based LTI: (1) Time-vesting Restricted Stock Units 30%, (2) Performance Stock Units 35% and (3) Performance Cash 35%.

LTI Mix at Target	LTI Mix at Maximum Opportunity

How We Set Our LTI Incentive Metrics:

In designing the long-term incentive awards for our executives, the Compensation Committee considers the Board-approved business plan, as well as long-term strategic goals, and designs the long-term incentive targets, including Average ROIC and EBITDA growth. We believe that most of our executives’ total compensation should be at-risk and that a significant portion of their total compensation should be equity-based, which provides a strong alignment between the senior executives’ compensation and our shareholders’ interests.

Our long-term business strategy contemplates initiatives that enhance our organizational and operating capabilities, generate additional operating efficiencies, broaden our portfolio of assets and services, and diversify our business mix.

Link Between Our Performance, Our Strategy and Our LTI Incentive Metrics:

Set forth below are the metrics used under our long-term performance incentives in 2019 to provide appropriate rewards for prudent risk-taking, key financial performance and objective results in support of our business strategy. In addition, we believe that our performance metrics align and underscore the link between incentive compensation and the successful execution of our business strategy, and reflect our ongoing commitment to a pay-for-performance compensation philosophy.

We have not disclosed the 2019 specific EBITDA growth and Average ROIC targets for the three-year performance period because they represent confidential, commercially sensitive information that we do not disclose to the public and that could cause competitive harm if known in the marketplace.

Both EBITDA growth and Average ROIC targets, as well as the factors that influence these measures, such as revenue and efforts to control costs, are inherently competitive and, if disclosed, would provide valuable insight into areas of focus for the Company. The Compensation Committee sets the EBITDA growth and Average ROIC goals at a level that it believes would be challenging but possible for the Company to achieve. In the interest of providing as much disclosure as appropriate to aid shareholders in assessing the rigor of our LTI metrics, below is a detailed description of our LTI goal-setting process. In addition, we have included, and will continue to include, the threshold, target and maximum level, as well as the actual performance level of each LTI metric for completed performance periods.

Our long-term incentive performance metrics relate to key Company long-term strategies and provide substantial payouts only upon achievement of exceptional performance.

At the end of the three-year period, the awards vest based on a performance matrix ranging from no vesting if the Company’s performance is in the bottom quintile of both EBITDA growth and Average ROIC metrics to 2x target vesting if performance on both metrics is in the top quintile. Target vesting (100% of the award) is achieved if the Company’s performance is at the target level. Performance LTI awards are further subject to a comparative total shareholder return (“Comparative TSR”) modifier, based on AAWW share price performance during the three-year performance period relative to the component companies of the S&P 600 SmallCap Index. The Comparative TSR modifier will be applied to the vesting percentage determined based on the achievement of the EBITDA growth and Average ROIC metrics and could increase or decrease that vesting percentage by up to 20%. However, no upward modification will be made in the event the absolute total shareholder return is negative, even if the Comparative TSR performance achieved would have provided for an upward adjustment.

Payout of 2017-2019 Performance LTI Awards. In the first quarter of 2020, the Compensation Committee reviewed AAWW’s performance over the three-year performance period ended December 31, 2019 for grants made in 2017. The performance metrics for these awards were EBITDA growth, which is based on a three-year average, and three-year Average ROIC applied on an absolute basis. Performance LTI payouts for the 2017-2019 performance period were made in early 2020 for our NEOs. 2017-2019 Performance LTIs were paid at 159% of target level, based on the specific calculations that resulted in our achievement of Average ROIC at 117% of target level and EBITDA growth at the maximum level. The table set forth below shows the threshold, target, max as well as actual performance levels of each performance metric.

Performance-Based Share Units

Performance share units, or PSUs, are paid in shares of Common Stock upon vesting. Key characteristics of the PSUs granted in 2019 are as follows:

Cash-Based Long-Term Incentive Awards

Cash-based long-term incentive awards are paid at the end of a three-year performance period. Key characteristics of the cash-based long-term incentive awards are as follows:

Restricted Stock Units

Restricted stock units, or RSUs, are paid in shares of Common Stock and have the following key characteristics:

RSUs are designed to attract and retain executives by providing them with (1) stock ownership during the applicable vesting period, and (2) a strong incentive to remain with the Company until at least the applicable vesting period ends. In addition, our stock ownership guidelines, as described below, encourage continued alignment between NEOs and other executives and our shareholders.

Peer Group

Carefully Analyzed Peer Group to Aid Our Compensation Decisions

Our Compensation Committee, together with its independent compensation consultant, periodically reviews relevant competitive market pay data for executives in our industry and similar industries. The Compensation Committee identifies a core group of companies, used to periodically assess the Company’s compensation levels and practices, as one factor in the compensation-setting process. Our Compensation Committee has worked closely with its independent compensation consultant over recent years to refine our peer group. The refined group, which was used for comparator purposes when making 2019 compensation decisions, appears below. We did not change our peer group in 2019.

The Compensation Committee believes that identification of peers using a broad industry sector code is inadequate and does not establish similarity of operations and business models, nor adequately represent past, current and future competitors for managerial talent, factors the Compensation Committee considers in the selection of companies for these purposes.

Given the global nature and structure of our business, we believe it is critical to recruit and retain executives with a breadth of experience in global markets. A significant portion of our revenue is derived from companies and business activity based outside of the United States, including those of our unconsolidated subsidiary, Polar, which is operated by our leadership team. In 2019, we operated almost 65,000 flights, serving 400 destinations in 90 countries.

AAWW's 2019 revenue was approximately $2.74 billion, which when combined for peer comparison purposes with its airline subsidiary Polar's revenue of approximately $820 million, totals approximately $3.6 billion. Because AAWW controls the voting interests of Polar and many of AAWW’s NEOs serve in executive positions at Polar for the benefit of both AAWW (as majority owner of Polar) and Polar, we believe including Polar’s revenues with AAWW’s for purposes of peer group comparisons is appropriate.

For 2019, our peer group includes companies that are, in comparison to AAWW:

Other factors considered by the Compensation Committee in making 2019 peer group decisions included the following, among others:

As a secondary source and broader group, the Compensation Committee may also refer to the S & P SmallCap 600 or S & P Composite 1500 Indices as additional reference points.

Our 2019 peer group is comprised of the following companies:

Other Elements of Compensation

Limited Other Benefits and Limited Perquisites

We provide our executives with common benefits, which include health insurance (including certain limited retiree health benefits), severance benefits commensurate with position, 401(k) plan participation, and a retirement restoration program. The Compensation Committee believes that perquisites should be limited and not broad-based. Such perquisites are limited principally to financial counseling and limited travel-related benefits, including limited tax reimbursement payments related thereto. Details concerning these perquisites can be found in the footnotes to the “2019 Summary Compensation Table” below.

Retirement Plans

In addition to the Company’s 401(k) plan, the Company maintains the 401(k) Restoration and Voluntary Deferral Plan (the “Retirement Restoration Plan”) for employees holding the title of Executive Vice President or higher. This plan is a nonqualified deferred compensation plan intended to make eligible employees whole for compensation limits imposed under our 401(k) plan. Under the retirement restoration plan, a participant is eligible to make elective deferrals and to receive employer credits equal to 5% of eligible compensation in excess of the limits described in Sections 401(a)(17) and 402(g) of the Code. Initial employer credits vest upon the third anniversary of the executive’s initial eligibility for the plan, and all employer credits after such anniversary are fully vested. Deferrals and employer credits are credited with notional earnings equal to the prime interest rate until distributed on the earliest of (i) the participant becoming disabled, (ii) the participant’s separation from service (including retirement and death), or (iii) a change in control of the Company.

Under our Benefits Program for Senior Executives, employees holding the rank of Executive Vice President or above would become retirement-eligible on or after (i) attaining age 55 and completing 10 years of service and (ii) giving no less than three months’’ advance written notice of such proposed retirement to the then-current CEO, or in the event of the CEO’s retirement such notice must be given to the Chairman of the Board of Directors. Of our NEOs, Mr. Flynn and Mr. Dietrich were the only ones who were retirement-eligible in 2019.

Additional Compensation Policies

Executive Stock Ownership

In support of the Board philosophy that performance and equity incentives provide the best incentives for our NEOs and other members of management and promote increases in shareholder value, the Board monitors compliance with Stock Ownership Guidelines (the “Guidelines”) covering all Directors, NEOs, and certain other executives. Such guidelines include both stock ownership and recommended stock holding periods as described below. The Guidelines require executives to achieve certain levels of share ownership over a five-year period based on the lesser of a percentage of annual base salary or a fixed number of shares.

Current target share ownership levels for the Directors and the NEOs under the Guidelines are generally based on the lesser of: (i) 4x annual base cash retainer, or 7,500 shares, for independent Directors, (ii) 6x base salary, or 120,000 shares, for the CEO, (iii) 3.5x base salary, or 40,000 shares, for the Chief Executive Officer of Titan (currently, Mr. Steen), and (iv) 3x base salary, or 30,000 shares, for other Executive Vice Presidents.

In 2019, all of our Directors and NEOs were in full compliance with the requisite Common Stock ownership levels set forth in the Guidelines.

Tax Considerations

Section 162(m) of the Code, as in effect for 2017, restricts the deductibility for federal income tax purposes of the compensation paid to the CEO and each of the other NEOs who was an executive officer at the end of the applicable fiscal year (other than our Chief Financial Officer) for such fiscal year to the extent that such compensation for such executive exceeds one million dollars and does not qualify as “qualified performance-based compensation” as defined under Section 162(m) of the Code. The Compensation Committee historically considered available opportunities to deduct compensation paid to NEOs for U.S. federal income tax purposes. The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, eliminated the exception for “performance-based” compensation and expanded the number of executives to which the 162(m) limit may apply. As a result, except to the extent provided in limited transition relief, compensation over one million dollars paid to any named executive officer will no longer be deductible under Section 162(m) of the Code. The Compensation Committee reserves the right to provide compensation to our executives that is not deductible, including but not limited to when necessary to comply with contractual commitments, or to maintain the flexibility needed to attract talent, promote retention, or recognize and reward desired performance.

Equity Grant Practices

The Compensation Committee generally grants equity awards to NEOs in the first quarter of each year. The Compensation Committee does not have any programs, plans or practices of timing these awards in coordination with the release of material nonpublic information. In fact, such awards are granted a week or more following the filing of the Company’s 10-K and the related issuance of its earnings release. We have never backdated, repriced, or spring-loaded any of our equity awards.

Anti-Hedging Policy

Under our insider trading policy, our NEOs are prohibited from engaging in hedging or other monetization transactions involving our securities, including through the use of financial instruments. In addition, our NEOs may not act on investment decisions with respect to Company securities, except during applicable trading window periods. To our knowledge, all of our senior officers, including our NEOs, are currently in compliance with our anti-hedging policy.

Clawback Policy

We have maintained our compensation clawback policy to enhance the alignment of our compensation program features with best practices and consistent with feedback received from our shareholders. Our clawback policy permits us to seek to recover certain amounts of annual cash incentive compensation awarded to any executive officers if payment of such compensation was based on the achievement of financial results that were subsequently the subject of a substantial restatement of our financial statements due to material noncompliance and the executive officer’s intentional misconduct that contributed to a higher amount of cash incentive compensation received.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee during 2019 (Ms. Hallett, Mr. Griffin, Ms. Lute and Mr. Wulff) has ever been an officer or employee of the Company or had any relationship requiring disclosure by the Company under Item 404 of Regulation S-K. None of our executive officers served as a member of the board of directors or the compensation committee of any entity that had one or more of its executive officers serving as a member of the Board or Compensation Committee.

Compensation Committee Report

In managing the Company, our entire Board of Directors seeks to achieve long-term, sustainable performance and to create value through a well-reasoned, long-term strategic plan; prudent risk management; effective corporate governance practices and executive compensation programs; and well-functioning talent and succession planning.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section with senior management. Based on this review, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis section be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Compensation of Named Executive Officers

2019 Summary Compensation Table

As described in the Compensation Discussion and Analysis “Overview” section of this Report, based on our extensive shareholder outreach over the last several years, we have made numerous changes to our compensation programs, while maintaining and enhancing our pay-for-performance philosophy and ensuring that these programs do not promote excessive risk taking. Please read the Compensation Discussion and Analysis “Overview”, along with the remainder of the Compensation Discussion and Analysis section above and the material presented below.

The following table provides information concerning compensation for our NEOs during fiscal year 2019:

Pro Forma Summary Compensation Table (excluding Mr. Flynn’s retirement entitlements and including Mr. Dietrich’s anticipated 2020 compensation)*

(*) The following table sets forth (a) Mr. Dietrich’s fiscal year 2019 compensation as set forth in the Summary Compensation Table and a projection of his 2020 compensation as our President and Chief Executive Officer and (b) an estimate of Mr. Flynn’s fiscal year 2019 and 2020 compensation had he not retired as of December 31, 2019. With respect to performance share units, performance-based long-term incentive cash awards, and bonus under our AIP, fiscal 2019 payments are calculated consistent with the Summary Compensation Table above and fiscal 2020 payments assume target level performance.

Summary Compensation Table Notes

Column (c) – Salary

The amount of Mr. Dietrich’s 2019 salary takes into account his increase in base salary from $715,000 to $775,000 as of July 1, 2019 in connection with the Leadership Transition.

Column (e) – Stock Awards

The amounts included reflect the grant date fair value of stock awards, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures and with performance awards valued based on the probable outcome of performance conditions. For more information about the assumptions used in valuing these awards, see Note 14 in our Annual Report on Form 10-K and footnote (5) to the Grants of Plan-Based Awards table below. Stock awards for 2019 reflect the aggregate grant date fair value of (i) time-based restricted stock units that vest ratably over three years and (ii) performance share units for the three-year performance period ending December 31, 2021 (see pages 36-37 for a discussion of the methodology followed by the Compensation Committee to determine the number of performance share units awarded) assuming target level performance. Performance share units are settled in shares of Common Stock at 0% to 240% of target based upon AAWW’s EBITDA growth and Average ROIC performance relative to internal targets and Comparative TSR over such three-year performance period. Assuming that the performance share units are paid at the maximum level, including the maximum impact of the TSR modifier, the aggregate dollar values of restricted stock unit and performance share unit awards for 2019 (based on the closing price of our Common Stock on the date of grant) would be $2,556,000 for Mr. Flynn, $1,461,000 for Mr. Dietrich and Mr. Steen and $1,293,000 for Mr. Schwartz and Mr. Kokas.

Column (g) – Non-Equity Incentive Plan Compensation

Reflects cash payments made under the AIP Program, a sub-plan of our 2018 Incentive Plan, as well as the value of the NEOs’ performance-based long-term incentive cash awards for the 2017-2019 performance period. The performance goals for the cash-based long-term incentive awards granted in 2017 for the 2017-2019 performance, were paid at 159% of target.

Column (i) – All Other Compensation

“All Other Compensation” includes Company matching contributions under our 401(k) plan. For 2019, these amounts totaled $12,500 for Messrs. Flynn, Dietrich and Schwartz and $9,500 for Messrs. Kokas and Steen.

We provide a limited number of perquisites and other personal benefits to our senior executives. We believe these benefits are reasonable, competitive and consistent with our overall executive compensation program and philosophy and with comparable programs maintained by the companies with which we compete for executive talent. The costs of these benefits constitute only a small percentage of each NEO’s total compensation. For 2019, these personal benefits included financial counseling and tax-preparation fees ($22,480 for Mr. Flynn and $21,930 for Messrs. Dietrich, Kokas, Schwartz and Steen) and limited travel-related expenses ($11,882 for Mr. Flynn, $10,576 for Mr. Dietrich, $116 for Mr. Kokas, $13,608 for Mr. Schwartz and $9,394 for Mr. Steen). Reimbursement of taxes owed for these benefits for 2019 totaled $36,697 for Mr. Flynn, $30,211 for Mr. Dietrich, $20,489 for Mr. Kokas, $33,028 for Mr. Schwartz and $20,323 for Mr. Steen. These amounts are included in the “All Other Compensation” column.

As described above in the section entitled “Other Elements of Compensation – Retirement Plans,” our NEOs are entitled to receive employer credit under the Retirement Restoration Plan. The portion of account balances attributable to such employer credit made under the Retirement Restoration Plan to each of our NEOs during 2019 totaled $145,682 for Mr. Dietrich, $118,916 for Mr. Kokas, $118,916 for Mr. Schwartz and $138,668 for Mr. Steen. These amounts are included in the “All Other Compensation” column. See “Nonqualified Deferred Compensation” below for additional information about the Retirement Restoration Plan.

With respect to Mr. Flynn, his “All Other Compensation” also includes the following entitlements each of which were previously disclosed and were paid or accrued in connection with his retirement pursuant to the terms and conditions of his Transition Agreement: (i) full value of his Retirement Restoration Plan, which includes his 2019 employer credit ($450,919); and (ii) accrued but unused vacation pay ($87,308).

The “All Other Compensation” column also includes de minimis amounts for group term life insurance and long-term disability insurance.

2019 Grants of Plan-Based Awards

The grants set forth in the following table were made pursuant to (i) our 2018 Incentive Plan, as amended and restated, and related award agreements and (ii) our AIP, each of which is described in more detail in the section entitled “Compensation Discussion and Analysis” above.