DEF 14A of Southwest Airlines Co
Filed Apr 5, 2024 · FY20230001193125-24-087857
Board Refreshment
Board Refreshment The Board and the Nominating and Corporate Governance Committee strive to identify highly qualified Directors and, in recent years, have increased focus on Board refreshment—appointing one new Director in late 2021, two new Directors in 2022, and four new Directors in 2023. Additionally, the Board has nominated one new Director candidate for election at the Annual Meeting. The Board believes the Director nominees standing for election at the Annual Meeting possess an appropriate and diverse mix of skills, backgrounds, experiences, perspectives, and tenure to serve the interests of the Company’s Employees, Customers, and Shareholders.
Board Refreshment
| 6 | | Southwest Airlines 2024 Proxy Statement |
Board Refreshment
When conducting its review of the appropriate skills and qualifications desired of Directors, the Nominating and Corporate Governance Committee considers the skills, experience, and expertise that are critical to the Board’s ability to provide effective oversight of the Company and are relevant to Southwest’s business, strategy, and operations. These are as follows:
Board Refreshment
| Skill | Definition | | Public CEO Experience | Substantial professional experience as a past or present CEO of a public company | | Financial | Substantial professional experience in finance or accounting, including experience assessing capital structure, financing and investing activities, financial reporting, and internal controls | | Technology | Substantial professional experience in technology fields such as product development, digital solutions, data analytics, information technology, data management, and cybersecurity | | Consumer Services | Substantial professional experience in customer and product support services |
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| Skill | Definition | | Government Affairs | Substantial professional experience in government relations, regulatory affairs, or public policy | | Human Capital | Substantial professional experience in human resources, compensation practices, talent acquisition, retention, and development, as well as DEI initiatives | | Environmental/ Sustainability | Substantial professional experience with environmental or sustainability initiatives | | Logistics/ Operations | Substantial professional experience with supply chain management, logistics, inventory management, network design, or operations strategy. |
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The Nominating and Corporate Governance Committee reviews the composition of the Board to maintain a balance of knowledge and experience. The following matrix displays the significant skills and qualifications that each Director nominee possesses.
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| Skills and Experience | Public CEO Experience | Financial | Technology | Consumer Services | Government Affairs | Human Capital | Environmental/ Sustainability | Logistics/ Operations | | Lisa M. Atherton | | | | | ● | | | ● | | David W. Biegler | ● | ● | | | | ● | | ● | | J. Veronica Biggins | | | | | ● | ● | | | | Roy Blunt | | | | | ● | | | | | Douglas H. Brooks | ● | ● | | ● | | ● | | ● | | Eduardo F. Conrado | | | ● | ● | | | | | | William H. Cunningham | | ● | | | | | | | | Thomas W. Gilligan | | ● | | | ● | | | | | David P. Hess | ● | ● | | | | | | ● | | Robert E. Jordan | ● | ● | ● | ● | ● | ● | ● | ● | | Gary C. Kelly | ● | ● | ● | ● | ● | ● | ● | ● | | Elaine Mendoza | | | ● | | | | | | | Christopher P. Reynolds | | | | | ● | ● | ● | ● | | Jill A. Soltau | ● | ● | ● | ● | | ● | ● | ● |
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| Southwest Airlines 2024 Proxy Statement | | 7 |
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| | Lisa M. Atherton Independent | Age: 49 Director Since: n/a Principal Occupation: President & CEO of Bell | | Experience: Ms. Atherton serves as the President and Chief Executive Officer of Bell, a Textron Inc. (“TXT”) company that provides innovative products for defense and commercial helicopter customers across the globe. Ms. Atherton also serves as a member of TXT’s Corporate Leadership Team. Prior to assuming her role as President and Chief Executive Officer, Ms. Atherton served as the Chief Operating Officer of Bell from January 2023 to April 2023. From 2017 to January 2023, she served as President and Chief Executive Officer of Textron Systems, another TXT company that provides innovative solutions to the defense, aerospace, and general aviation markets. Ms. Atherton has served in various other roles at both Bell and Textron Systems since joining in 2007, including as Bell’s executive vice president, Military Business, where she was responsible for providing strategic direction and overall management for all government programs and business development efforts. Before her career with Textron, Ms. Atherton spent eight years at Air Combat Command’s Directorate of Requirements and was a contracting officer in the U.S. Air Force. Ms. Atherton serves on the Association of the United States Army Board of Directors and the Reagan Institute National Security Innovation Base Advisory Board. | | Other Public Company Directorships: • None Committees: • To be determined upon election | | Qualifications: The Board has concluded that Ms. Atherton should serve as a Director for the following reasons, among others: (i) Ms. Atherton’s broad range of leadership experience in the aviation industry, along with her service in the U.S. Air Force, will provide a unique perspective to the Board; (ii) Ms. Atherton’s expertise and experience in the aviation industry and with government contracting will enable her to contribute to the Board’s oversight responsibilities on matters relating to regulation, operational strategies, and risks; and (iii) Ms. Atherton’s expertise leading highly complex programs and strong background in supply chain, logistics, and strategic initiatives will provide the Board with valuable insight as the Company evaluates its strategic initiatives. | | |
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| | David W. Biegler Independent | Age: 77 Director Since: 2006 Principal Occupation: Former Chairman of the Board, President, and Chief Executive Officer of Southcross Energy Partners GP, LLC | | Experience: David W. Biegler has held several executive leadership positions at Southcross Energy Partners GP, LLC (“Southcross GP”), including Chairman, President, and Chief Executive Officer, ranging from 2011 through 2018. Southcross GP acted as the general partner of Southcross Energy Partners, L.P., a limited partnership that owned, operated, developed, and acquired midstream energy assets. Mr. Biegler also previously served as Chairman and Chief Executive Officer of Southcross Holdings LP, the sole owner of Southcross GP. Mr. Biegler has extensive experience in the energy industry, having held various leadership positions in upstream, midstream, downstream, and oilfield service companies. Mr. Biegler has also served as interim President and Chief Executive Officer of Dynegy Inc., a provider of wholesale power, capacity, and ancillary services. At the end of 2001, he retired as Vice Chairman of TXU Corp., having served TXU Corp. as President and Chief Operating Officer. He also previously served as Chairman, President, and Chief Executive Officer of ENSERCH Corporation. While he was serving as a director, Southcross Holdings LP filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in March 2016. Southcross Energy Partners, L.P. filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in April 2019. | | Other Public Company Directorships: • Trinity Industries, Inc. (1992-2018) • Arcosa, Inc., a spin-off of Trinity Industries, Inc. (2018-2021) • Southcross Energy Partners, L.P. (2011-2022) Committees: • Compensation Committee (Chair) • Executive Committee • Safety and Compliance Oversight Committee | | Qualifications: The Board has concluded that Mr. Biegler should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Biegler’s extensive experience as a Chief Executive Officer and Chief Operating Officer enable him to contribute significantly to the Board’s oversight responsibilities on matters relating to operational and financial strategies and risks, particularly in his role as a member of the Board’s Safety and Compliance Oversight Committee; (ii) Mr. Biegler’s senior management experience, as well as his experience from serving on multiple public company boards, enable him to contribute significantly with respect to the Board’s oversight of matters relating to executive compensation and compensation strategies, particularly in his role as Chair of the Board’s Compensation Committee; and (iii) Mr. Biegler’s broad-based knowledge in energy marketing is particularly pertinent in assisting the Board with its oversight of the Company’s fuel hedging program. | | |
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| 8 | | Southwest Airlines 2024 Proxy Statement |
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| | J. Veronica Biggins Independent | Age: 77 Director Since: 2011 Principal Occupation: Managing Partner, Atlanta office of Diversified Search LLC | | Experience: J. Veronica Biggins is a Managing Partner in the Atlanta office of Diversified Search LLC, an executive and board search firm. Ms. Biggins was Managing Partner of the Atlanta office of Hodge Partners from 2007 until 2011 when Hodge Partners, also an executive and board search firm, became a part of Diversified Search. Ms. Biggins served as Assistant to the President of the United States and Director of Presidential Personnel under President William Jefferson Clinton and has also served as Chair of the Czech Slovak American Enterprise Fund. Ms. Biggins’ background includes 20 years’ experience with NationsBank (now Bank of America) and its predecessor. Prior to joining the White House, Ms. Biggins was one of the highest ranking women in the banking industry. Ms. Biggins also serves on a number of non-profit boards. | | Other Public Company Directorships: • None Committees: • Compensation Committee • Nominating and Corporate Governance Committee (Chair) | | Qualifications: The Board has concluded that Ms. Biggins should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Biggins brings to the Board extensive banking and financial industry experience, as well as knowledge of the airline industry, through her experience as a director of AirTran Holdings, Inc., the former parent company of AirTran Airways, Inc., which was acquired by the Company in 2011; (ii) Ms. Biggins’ experience as Managing Partner of an executive and board search firm is valuable in her role as Chair of the Board’s Nominating and Corporate Governance Committee, particularly with respect to that committee’s role in identifying candidates for Board membership; (iii) Ms. Biggins’ executive and board search firm experience is also beneficial to the Board and the Board’s Compensation Committee because of her perspectives on compensation and human capital matters; (iv) Ms. Biggins’ past service on the compensation and nominating and corporate governance committees for other publicly traded companies enables her to bring extensive compensation and governance experience to the Board, particularly in her role on the Board’s Compensation Committee and as Chair of the Board’s Nominating and Corporate Governance Committee; and (v) Ms. Biggins’ knowledge of the Atlanta market, along with her community involvement and charitable work, is valuable because of the Company’s significant focus on these areas. | | |
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| | Roy Blunt Independent | Age: 74 Director Since: 2023 Principal Occupation: Chairman of the Leadership Strategies Advisory Services Group in the Washington, D.C. office of Husch Blackwell Strategies | | Experience: Mr. Blunt has served as the Chairman of the Leadership Strategies Advisory Services Group in the Washington, D.C. office of Husch Blackwell Strategies, a government affairs advisory firm, since April 2023. He previously served as a United States Senator from the State of Missouri from 2011 to 2023, and as U.S. Representative for Missouri’s 7th congressional district from 1997 to 2011. In the Senate, Mr. Blunt’s committee assignments included the Commerce Subcommittee on Aviation, Operations, and Innovation; the Committee on Intelligence; and the Appropriations Subcommittee on Labor, Health and Human Services, and Education. Mr. Blunt began his public service career as a high school history teacher before becoming the county clerk and chief election official of Greene County, Missouri. Mr. Blunt also served as the Missouri Secretary of State from 1985 to 1993, and as President of Southwest Baptist University from 1993 to 1996. Mr. Blunt also serves as the President of the State Historical Society of Missouri and as an Executive Fellow with the Bipartisan Policy Center in Washington, D.C. | | Other Public Company Directorships: • Tenet Healthcare Corporation (since 2023) Committees: • Audit Committee • Safety and Compliance Oversight Committee | | Qualifications: The Board has concluded that Mr. Blunt should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Blunt’s extensive experience in the areas of government affairs and public policy is valuable to a heavily regulated company like Southwest; (ii) Mr. Blunt’s experience in the U.S. Senate on the Commerce Subcommittee on Aviation, Operations, and Innovation provides the Board with a unique perspective and is particularly valuable in his role as a member of the Board’s Safety and Compliance Oversight Committee; and (iii) Mr. Blunt’s knowledge of the Midwestern U.S. market adds geographical diversity to the Board and offers a valuable perspective in connection with the Company’s operations in that region. | | |
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| | Douglas H. Brooks Independent | Age: 71 Director Since: 2010 Principal Occupation: Former Chairman of the Board, President, and Chief Executive Officer of Brinker International, Inc. | | Experience: Douglas H. Brooks served as Chairman of the Board of Brinker International, Inc., a casual dining restaurant company, from November 2004 through 2013, as its Chief Executive Officer from 2004 to 2013, and as its President from 1999 to 2013. Mr. Brooks also served in other capacities for Brinker, including as its Chief Operating Officer and as President of Chili’s Grill & Bar. From 2018 to 2023, Mr. Brooks served on the University of Houston System Board of Regents. Mr. Brooks also is a member of the Professional Advisory Board for St. Jude Children’s Research Hospital and serves on the Board of Directors of Limbs for Life. | | Other Public Company Directorships: • AutoZone, Inc. (2013-2022) Committees: • Compensation Committee • Nominating and Corporate Governance Committee • Operations Review Committee | | Qualifications: The Board has concluded that Mr. Brooks should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Brooks adds a unique skill set to the Board because of his lengthy service as a Chief Executive Officer of a company with tens of thousands of employees and operations in the United States, its territories, and numerous other countries outside of the United States; (ii) Mr. Brooks’ experience managing a company with a focus on customer service is particularly beneficial to the Board because of the importance of customer service to the Company; (iii) Mr. Brooks’ experience managing a company with a large employee base is particularly beneficial to the Board because of the importance to the Company of strong employee relations; and (iv) Mr. Brooks’ experience as Chief Executive Officer and President of a multi-national company is relevant to the Board and the Company in connection with the Company’s international operations. | | |
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| | Eduardo F. Conrado Independent | Age: 57 Director Since: 2023 Principal Occupation: President of Ascension | | Experience: Eduardo F. Conrado has served as President for Ascension, the nation’s largest non-profit health system, since February 2023. Before becoming President, Mr. Conrado served as Executive Vice President and Chief Strategy and Innovations Officer from July 2019 through January 2023. He joined Ascension in September 2018 as Executive Vice President and Chief Digital Officer. Prior to joining Ascension, Mr. Conrado had a 25-year career at Motorola Solutions, Inc., a global provider of communication infrastructure, devices, accessories, software, and services, serving in numerous senior executive positions, including his most recent role as Executive Vice President and Chief Strategy & Innovation Officer from 2015 to 2018. Mr. Conrado’s other previous roles at Motorola Solutions include Senior Vice President and Chief Innovation Officer, Senior Vice President — Marketing & IT, and Senior Vice President and Chief Marketing Officer. He also worked in various marketing, distribution, and network capacities for Motorola Solutions. | | Other Public Company Directorships: • ArcBest Corporation (since 2016) Committees: • Audit Committee • Safety and Compliance Oversight Committee | | Qualifications: The Board has concluded that Mr. Conrado should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Conrado’s extensive consumer-focused experience with respect to technology, innovation, and marketing will add valuable expertise to the Board as the Company continues to evaluate and invest in customer-facing technology solutions; (ii) Mr. Conrado’s extensive strategic expertise will provide the Board with unique insight as the Company evaluates and evolves its strategic initiatives; and (iii) Mr. Conrado’s regulatory experience will add a valuable perspective to the Board. | | |
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| 10 | | Southwest Airlines 2024 Proxy Statement |
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| | William H. Cunningham, Ph.D. Independent | Age: 80 Director Since: 2000 Principal Occupation: Professor at The University of Texas at Austin | | Experience: William H. Cunningham, Ph.D. has been a professor at The University of Texas at Austin since 2000 and holds the James L. Bayless Chair for Free Enterprise at the University’s Red McCombs School of Business. Dr. Cunningham served as Chancellor and Chief Executive Officer of The University of Texas System from 1992 to 2000 and as President of The University of Texas at Austin from 1985 to 1992. Dr. Cunningham is also a disinterested Director of John Hancock Funds, III, a registered investment company. Qualifications: The Board has concluded that Dr. Cunningham should continue to serve as a Director for the Company for the following reasons, among others: (i) Dr. Cunningham holds a Ph.D. and a Masters of Business Administration in Business, which, combined with his experience as an executive, brings valuable financial and strategic expertise and perspectives to the | | Other Public Company Directorships: • Lincoln National Corporation (since 2006) Committees: • Audit Committee • Executive Committee • Nominating and Corporate Governance Committee | | Board, particularly in his roles as Lead Director and as a member of the Audit Committee; and (ii) Dr. Cunningham has served on over 25 corporate boards and has taught corporate governance at The University of Texas Schools of Law and Business, which enables him to bring valuable governance expertise to the Board, particularly in his roles as Lead Director and a member of the Nominating and Corporate Governance Committee. | | |
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| | Thomas W. Gilligan, Ph.D. Independent | Age: 69 Director Since: 2015 Principal Occupation: Director and Senior Fellow Emeritus at the Hoover Institution on War, Revolution and Peace at Stanford University | | Experience: Thomas W. Gilligan, Ph.D. has been a Director and Senior Fellow Emeritus at the Hoover Institution on War, Revolution and Peace at Stanford University since August 2020. From 2015 until 2020, Dr. Gilligan served as the Tad and Dianne Taube Director of the Hoover Institution on War, Revolution and Peace at Stanford University. The Hoover Institution on War, Revolution and Peace is a public policy research center devoted to the advanced study of economics, politics, history, and political economy, as well as international affairs. Prior to his appointment at the Hoover Institution, Dr. Gilligan served as the Dean of the McCombs School of Business at The University of Texas at Austin from 2008 to 2015, where he also held the | | Other Public Company Directorships: • KB Home (since 2012) Committees: • Audit Committee • Nominating and Corporate Governance Committee | | Centennial Chair in Business Education Leadership. Prior to his appointment at the McCombs School of Business, Dr. Gilligan held several key administrative roles at the Marshall School of Business at the University of Southern California (“USC”) between 1987 and 2008, including interim Dean, the Vice-Dean of Undergraduate Education, director of the Ph.D. program, and the Chair of the Finance and Business Economics Department. During his tenure at USC, he held visiting appointments at Stanford University and Northwestern University. Dr. Gilligan also taught Economics at the California Institute of Technology. Dr. Gilligan was a staff economist at the Council of Economic Advisers in the White House from 1982 to 1983, and he served in the United States Air Force from 1972 to 1976. Qualifications: The Board has concluded that Dr. Gilligan should continue to serve as a Director for the Company for the following reasons, among others: (i) Dr. Gilligan holds a Ph.D. in economics, which, combined with his extensive leadership experience, brings valuable and unique economic expertise and perspectives to the Board; (ii) Dr. Gilligan also has extensive knowledge of political and international affairs, which is valuable to the Board in connection with the Company’s international operations and governmental affairs; and (iii) Dr. Gilligan’s knowledge of the West Coast U.S. markets is valuable in connection with the Company’s significant operations in that area. | | |
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| | David P. Hess Independent | Age: 68 Director Since: 2021 Principal Occupation: Former Chief Executive Officer of Arconic Corporation | | Experience: David P. Hess served as Chief Executive Officer of Arconic Corporation, a company that manufactures aluminum sheet, plate, extrusions, and architectural products, serving primarily the ground transportation, aerospace, building and construction, industrial, and packaging end markets, from April 2017 to January 2018. Prior to Arconic, Mr. Hess served in multiple executive leadership roles during his 38-year career at United Technologies Corporation (“UTC”), a company with significant business concentrations in aerospace products and services, including jet engines. Mr. Hess’ positions at UTC included Executive Vice President and Chief Customer Officer for UTC Aerospace, President of Pratt & Whitney, as well as President of Hamilton Sundstrand. | | Other Public Company Directorships: • Arconic Corporation (2017-2019) • Allegheny Technologies Incorporated (since 2019) • Woodward, Inc. (since 2021) Committees: • Audit Committee • Operations Review Committee • Safety and Compliance Oversight Committee (Chair) | | Qualifications: The Board has concluded that Mr. Hess should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Hess’ extensive expertise and experience in the aerospace industry, both in leadership roles and serving on public company boards, add a unique aerospace technical expertise to the Board, which is particularly valuable in his role as Chair of the Board’s Safety and Compliance Oversight Committee and member of the Operations Review Committee; (ii) Mr. Hess’ extensive leadership experience in the aerospace industry enables him to contribute to the Board’s oversight responsibilities on matters relating to regulation, operational strategies, and risks, particularly in his role as a member of the Board’s Safety and Compliance Oversight Committee and Operations Review Committee; and (iii) Mr. Hess’ knowledge of the Midwestern and Northeastern U.S. markets adds perspectives to the Board in connection with the Company’s significant operations in those regions. | | |
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| | Robert E. Jordan | Age: 63 Director Since: 2022 Principal Occupation: Chief Executive Officer and President of Southwest Airlines Co. | | Experience: Robert E. Jordan has served as the Company’s Chief Executive Officer since February 2022 and as its President since January 2023. Mr. Jordan has also served in numerous executive leadership roles in his 36-year tenure with the Company, including as Executive Vice President & Incoming Chief Executive Officer from June 2021 to February 2022, Executive Vice President Corporate Services from July 2017 to June 2021, Executive Vice President & Chief Commercial Officer from September 2011 to July 2017, Executive Vice President Strategy & Planning from May 2008 to September 2011, and Executive Vice President Strategy & Technology from September 2006 to May 2008. Mr. Jordan has also worked in various finance, accounting, and technology leadership capacities at the Company. Mr. Jordan joined the Company in 1988 as a programmer. | | Other Public Company Directorships: • The Container Store Group, Inc. (2013-2023) Committees: • Executive Committee | | Qualifications: The Board has concluded that Mr. Jordan should continue to serve as a Director for the Company for the following reasons, among others: (i) he is the Company’s Chief Executive Officer and has been with the Company for over 30 years; (ii) the broad scope of his roles and experience with the Company over his long tenure enable him to bring invaluable strategic, financial, commercial, technological, operational, logistical and cultural perspectives to the Board; (iii) Mr. Jordan’s experience as Chairman of the Board of The Container Store Group, Inc. enables him to bring valuable governance perspectives to the Board; and (iv) his experience enables him to continually educate and advise the Board on the Company’s industry and related opportunities, issues, and challenges. | | |
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| 12 | | Southwest Airlines 2024 Proxy Statement |
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| | Gary C. Kelly | Age: 69 Director Since: 2004 Principal Occupation: Executive Chairman of the Board & Former Chief Executive Officer of Southwest Airlines Co. | | Experience: Gary C. Kelly has served as the Company’s Executive Chairman of the Board since February 2022 and has served as the Company’s Chairman of the Board since May 2008. Mr. Kelly also served as the Company’s Chief Executive Officer from July 2004 to February 2022, President from July 2008 to January 2017, Executive Vice President & Chief Financial Officer from June 2001 to July 2004, and Vice President Finance & Chief Financial Officer from 1989 to 2001. Mr. Kelly joined the Company in 1986 as its Controller. | | Other Public Company Directorships: • Lincoln National Corporation (since 2009) Committees: • Executive Committee (Chair) | | Qualifications: The Board has concluded that Mr. Kelly should continue to serve as a Director for the Company for the following reasons, among others: (i) he served as the Company’s Chief Executive Officer for over 17 years and has been with the Company for over 30 years; (ii) his role and his experience enable him to bring invaluable operational, financial, regulatory, governance, and cultural perspectives to the Board; and (iii) his experience enables him to continually educate and advise the Board on the Company’s industry and related opportunities, issues, and challenges. | | |
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| | Elaine Mendoza Independent | Age: 58 Director Since: 2023 Principal Occupation: Founder, President, and Chief Executive Officer of Conceptual MindWorks, Inc. | | Experience: Elaine Mendoza serves as President and Chief Executive Officer of Conceptual MindWorks, Inc., an informatics company that specializes in providing health-related software and medical informatics to the private sector, which she founded in 1990. Ms. Mendoza also served on the Board of Regents of the Texas A&M University System from 2011 to 2023, including as Chairman from 2019 to 2021. Ms. Mendoza also serves on the Board of Directors of Texas Partners Bank. In her community involvement roles, Ms. Mendoza serves as Chair of the Early Childhood Education Municipal Development Corporation and serves on the Executive Committee of the Texas Business Leadership Council. Ms. Mendoza also serves on the boards of The Holdsworth Center and Texas 2036. | | Other Public Company Directorships: • Rush Enterprises, Inc. (since 2019) Committees: • Audit Committee • Safety and Compliance Oversight Committee | | Qualifications: The Board has concluded that Ms. Mendoza should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Mendoza’s extensive entrepreneurial success and expertise with respect to technology systems will add a unique perspective to the Board as the Company continues to evaluate and invest in technology solutions to support its initiatives; (ii) Ms. Mendoza’s extensive expertise with respect to government contracting will provide the Board with unique insight into this area of business; (iii) Ms. Mendoza’s cybersecurity experience will add unique and valuable expertise to the Board; and (iv) Ms. Mendoza’s experience serving in community involvement roles will be valuable to the Board because of the Company’s significant focus on community affairs. | | |
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| | Christopher P. Reynolds Independent | Age: 61 Director Since: 2022 Principal Occupation: Chief Administrative Officer, Corporate Resources for Toyota Motor North America | | Experience: Christopher P. Reynolds has served as the Chief Administrative Officer, Corporate Resources for Toyota Motor North America (“TMNA”), an automotive company, since 2016, and as deputy chief officer for the global functions of General Administration & Human Resources Group, Global Risk and Global Compliance for Toyota Motor Corporation, the parent company of TMNA, since 2014. Among other things, Mr. Reynolds is responsible for the North American functions of Accounting & Finance, Human Resources, Government Affairs, Corporate Communications, Corporate Strategy, Social Innovation/Diversity & Inclusion, and Legal. Previously, from 2007 to 2014, Mr. Reynolds headed up North American manufacturing operations and Corporate Shared Services for TMNA, and served as chief | | Other Public Company Directorships: • None Committees: • Compensation Committee • Safety and Compliance Oversight Committee | | diversity officer for TMNA, general counsel and chief legal officer of TMNA, and as group vice president, chief environmental officer, and corporate secretary of Toyota Motor Sales, USA, Inc. Prior to joining Toyota in 2007, Mr. Reynolds was a partner at the law firm of Morgan, Lewis & Bockius in New York City, where Mr. Reynolds also worked as manager of the New York office’s labor and employment law group. He served as a member of the firm’s advisory board and as chair of the firm’s diversity committee. Before joining the law firm, Mr. Reynolds served in the U.S. Department of Justice as an Assistant U.S. Attorney for the Criminal Division of the Southern District of New York. Qualifications: The Board has concluded that Mr. Reynolds should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Reynolds’ extensive expertise and experience in the areas of government affairs and law add a unique expertise to the Board, which is particularly valuable with respect to a heavily-regulated company like Southwest; (ii) Mr. Reynolds’ extensive leadership experience enables him to contribute to the Board’s oversight responsibilities on matters relating to accounting, finance, communications, international operations, and global risk, as well as the Company’s operational strategies and risks; (iii) Mr. Reynolds’ extensive expertise and experience in human resources and labor and employment law are extremely valuable to the Board in employment law and collective-bargaining matters; (iv) Mr. Reynolds’ service in multiple leadership roles at a manufacturer of transportation machinery enables Mr. Reynolds to offer a unique and valuable perspective to the Board with respect to opportunities, issues, and challenges confronting the Company and the transportation industry generally; (v) Mr. Reynolds’ extensive experience in diversity and inclusion matters, as well as his understanding and appreciation of cultures of other countries and regions gained through his multiple leadership roles at a subsidiary of a large multinational organization, enables him to add a unique expertise and perspective to the Board with respect to the Company’s plans and initiatives in these areas; and (vi) Mr. Reynolds’ experience as a chief environmental officer is valuable to the Board and the Company in connection with the Company’s sustainability efforts and goals. | | |
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| | Jill A. Soltau Independent | Age: 57 Director Since: 2023 Principal Occupation: Former CEO of J.C. Penney Company, Inc. | | Experience: Jill A. Soltau served as the Chief Executive Officer and a member of the Board of Directors of the J.C. Penney Company, Inc., an apparel and home furnishings retailer, from October 2018 to December 2020. She previously served as President and Chief Executive Officer of JoAnn Stores Inc. from February 2015 to October 2018. Prior to joining JoAnn Stores Inc., Ms. Soltau served as President of Shopko Stores Operating Co. LLC and has held senior level positions in national and regional retailers, including Kohl’s and former Saks Inc. subsidiaries. J.C. Penney Company, Inc. filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in May 2020. Qualifications: The Board has concluded that Ms. Soltau should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Soltau’s experience managing companies with focuses on customer service and customer strategy is particularly beneficial to | | Other Public Company Directorships: • AutoZone, Inc. (since 2018) • J.C. Penney Company, Inc. (2018-2020) • Kirkland’s, Inc. (since 2022) Committees: • Compensation Committee • Nominating and Corporate Governance Committee |
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the Board because of the Company’s customer orientation and the importance of customer service to the Company; (ii) Ms. Soltau’s significant senior management experience in the retail sector is particularly beneficial to the Board because of the importance of logistics, marketing, and technology to the Company; (iii) Ms. Soltau’s experience as a Chief Executive Officer and as a member of other public company boards enables her to contribute with respect to the Board’s oversight of matters relating to financial strategies and risks; and (iv) Ms. Soltau’s management of companies with large employee bases is particularly beneficial to the Board because of the importance of strong employee relations to the Company.
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Table of Contents
| 35 | Performance-Based Short-Term Incentive Compensation Opportunities under the Short Term Incentive Plan and Related Payouts | | 40 | Long-Term Incentive Compensation | | 40 | Equity Awards | | 40 | Objectives of Equity Compensation | | 40 | Approach to Equity Compensation | | 41 | RSUs | | 41 | Performance-Based RSUs | | 42 | Individual Equity Determinations for the Named Executive Officers | | 42 | Chief Executive Officer | | 42 | Executive Chairman of the Board | | 42 | Other Named Executive Officers | | 43 | Cash Incentive Awards and Restricted Cash Awards | | 43 | Objectives of Cash Incentive Awards and Restricted Cash Awards | | 43 | Individual Long-Term Cash Incentive Award and Restricted Cash Award Determinations for the Named Executive Officers | | 44 | Retirement and Related Benefits | | 44 | 401(k) and Profit Sharing | | 44 | Nonqualified Deferred Compensation | | 45 | Change-in-Control Arrangements | | 45 | Perquisites and Other Benefits | | 46 | Significant Corporate Governance and Compensation Policies and Practices | | 46 | Clawback Policy | | 46 | Share Ownership Guidelines | | 46 | Limitation on Severance Payments |
Compensation Objectives and Philosophy
Compensation Objectives and Philosophy The overall objective of the Company’s compensation programs is to provide for fair pay opportunities, while aligning these opportunities with the Company’s business objectives and priorities, including the key strategic initiatives the Company establishes from time to time to support its business objectives and priorities. Pay-for-Performance; Shareholder View. In designing the Company’s executive compensation programs, the Committee believes in maintaining a strong and transparent pay-for-performance philosophy that is heavily weighted toward long-term incentive (“long-term incentive” or “LTI”) opportunities. For 2023, the Committee incorporated the following variable pay components into its executive compensation design:
Compensation Objectives and Philosophy
| • | a short-term performance-based cash incentive opportunity, of which the total value was based on the Company’s 2023 performance relative to performance metrics approved by the Committee in February 2023 because of their particular relevance to the Company and its stakeholders at the time; |
Compensation Objectives and Philosophy
| • | long-term equity incentive opportunities in the form of service-based, time-vesting restricted stock units (“RSUs”), the ultimate value of which will be tied to the Company’s stock price performance over multiple years; |
Compensation Objectives and Philosophy
| • | a long-term performance-based equity incentive opportunity in the form of performance-based RSUs, pursuant to which the number of shares to be received, if any, will depend on the Company’s ROIC (after-tax) less Excess Cash (as defined below in “Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation – Equity Awards – Performance-Based RSUs”) over multiple years; and |
Compensation Objectives and Philosophy
| • | a long-term performance-based cash incentive opportunity, pursuant to which the amount of cash to be received will also depend on the Company’s ROIC (after-tax) less Excess Cash over multiple years. |
2023 Short-Term Incentive Compensation
2023 Short-Term Incentive Compensation In first quarter 2023, consistent with its historic practices, the Committee established a target short-term incentive opportunity (the “STI Target Opportunity”) for each of the named executive officers, and each STI Target Opportunity was established as a percentage of the named executive officer’s base pay. In addition, total short-term incentive payouts could range from zero to 150 percent of a named executive officer’s STI Target Opportunity based on Company performance. Taking into account the breadth of Mr. Shaw’s responsibilities and internal equity considerations, the Committee increased Mr. Shaw’s STI Target Opportunity from 120 percent of base to 135 percent of base. The Committee did not approve any other year-over-year increases in the named executive officers’ STI Target Opportunities, but chose to remain consistent with the STI Target Opportunities established for 2022 in an attempt to maintain internal and external equity to the extent feasible and thereby mitigate retention risks. Therefore, (i) Mr. Jordan’s and Mr. Kelly’s STI Target Opportunity each remained at 200 percent of base, (ii) Mr. Watterson’s STI Target Opportunity remained at 150 percent of base, and (iii) Ms. Romo’s STI Target Opportunity remained at 135 percent of base. For 2023, each named executive officer’s STI Target Opportunity was based entirely on the Company’s performance relative to performance metrics set forth in the Company’s “Management Short-Term Incentive Scorecard.” In establishing 2023 performance metrics and related targets, the Committee focused on the imperative for the Company to demonstrate progress in operational resiliency and to continue progress towards returning to the Company’s historical levels of financial results, reliability, and efficiency. The 2023 quantitative performance metrics and related targets were set and approved by the Committee based on the Company’s financial and operational results and expectations without any adjustments due to the effects of the December 2022 operational disruption. The amounts earned were based on Company performance at 57.5 percent of target, a result that factors in negative impacts from the December 2022 operational disruption. The specific performance metrics and targets, the Committee’s associated rationales, and the Company’s performance results, are each disclosed below under “Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Short-Term Incentive Compensation.” The amounts paid to the named executive officers for 2023 Short-Term Incentive Compensation are included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for 2023.
2023 Long-Term Incentive Compensation
2023 Long-Term Incentive Compensation Equity Awards. The Committee believes that equity should constitute a strong component of overall compensation and a significant percentage of base pay. Consistent with prior years, each of the named executive officers received a portion of their equity award in the form of time-vesting RSUs and a portion in the form of performance-based RSUs. The performance-based RSUs will vest, if at all, depending on the Company’s financial performance over multiple years. Additional detail regarding these equity grants is included below under “Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation.” Cash Incentive Awards. During 2023, taking into account the PSP Pay Restrictions and internal equity considerations, the Committee included long-term cash incentive awards as an element of long-term incentive compensation for the named executive officers other than Mr. Kelly. Like the performance-based RSUs, the payout, if any, of the long-term cash incentive awards will be dependent upon the Company’s financial performance over multiple years. Additional detail regarding 2023 cash incentive awards is included below under “Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation.” Detail regarding the payout of performance-based cash incentive awards granted in 2021 for the performance period 2022 through 2023 is included below under “Payout of 2021 Performance-Based Cash Incentive Awards.” Restricted Cash Awards. During 2023, the Committee also included restricted cash awards as an element of long-term compensation for the named executive officers other than Mr. Kelly. These long-term restricted cash opportunities are service-based and time-vesting over multiple years. Additional detail regarding 2023 restricted cash awards is included below under
2023 Long-Term Incentive Compensation
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2023 Long-Term Incentive Compensation
“Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation.” The amounts paid to the named executive officers upon the April 15, 2023, vesting of portions of the 2022 restricted cash awards is included in the “All Other Compensation” column in the Summary Compensation Table for 2023. As shown below, the continued use of long-term cash incentive awards and restricted cash awards enabled the Committee to maintain consistency with its historical emphasis on long-term incentive opportunities, including a significant percentage granted as performance-based opportunities:
2023 Long-Term Incentive Compensation
| | Value of Time-Vesting Equity LTI Opportunity (RSUs) | Value of Performance-Based LTI Opportunity (Performance-Based RSUs and Performance-Based Cash) | Value of Time- Vesting Restricted Cash Award LTI Opportunity | Performance- Based LTI Opportunity as a Percentage of Total LTI Opportunity | Total LTI Opportunity as a Percentage of Base Pay | | Robert E. Jordan | $2,052,502 | $2,800,002 | $747,500 | 50% | 800% | | Tammy Romo | $987,592 | $1,207,592 | $220,000 | 50% | 450% | | Gary C. Kelly | $1,900,005 | $1,900,005 | $0 | 50% | 800% | | Andrew M. Watterson | $1,116,003 | $1,437,503 | $321,500 | 50% | 500% | | Mark R. Shaw | $922,817 | $988,817 | $66,000 | 50% | 400% |
2023 Long-Term Incentive Compensation
Payout of 2022 Restricted Cash Performance Awards. During 2022, taking into account the increased risk of losing key performers during the COVID-19 pandemic period, the Committee introduced restricted cash performance awards as an additional element of the named executive officers’ compensation. The amount of cash received pursuant to each restricted cash performance award, which could have ranged from zero to 100 percent of the award, was subject to the Committee’s assessment of the individual’s contributions to the Company’s strategic plan and the individual’s continued employment through April 15, 2023. During 2023, the Committee certified the restricted cash performance award for each named executive officer at maximum value of 100 percent. The amounts paid to the named executive officers upon vesting of the 2022 restricted cash performance awards on April 15, 2023, is included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for 2023. The Committee did not grant any additional restricted cash performance awards in 2023. Payout of 2021 Performance-Based Cash Incentive Awards. During 2021, as the Company was still facing challenges resulting from the COVID-19 pandemic, and taking into account the PSP Pay Restrictions, the Company introduced performance-based cash incentive awards that were dependent on the Company’s cumulative net income (earnings) before interest, taxes, depreciation, and amortization (“EBITDA”), excluding special items as disclosed from time to time in the Company’s earnings releases and filings with the SEC, for the performance period from January 1, 2022 to December 31, 2023. Under the performance-based cash incentive awards, each of the named executive officers was provided with a 300 percent maximum payout opportunity should the Company achieve EBITDA targets for the performance period. The Committee’s determination of the appropriate metrics and targets for the performance-based cash incentive awards encompassed considerations of what would motivate and retain existing talent as the Company sought to stabilize the business and recover from the COVID-19 pandemic. The Committee chose cumulative EBITDA as the performance metric to further align the Company’s incentive compensation with the Company’s publicly-reported change in primary focus to liquidity, reflecting what the Company believed would be most important to Shareholders at the time. The 300 percent payout opportunity was selected as an impermanent maximum performance level to incentivize and reward extraordinary performance and underscore the significance of a result that would align with Shareholder interests. For the performance-based cash incentive awards granted in 2021, amounts paid in February 2024 to the named executive officers other than Mr. Kelly were 276.3 percent of target opportunity, based solely on pre-established performance criteria. With respect to Mr. Kelly’s payout, in addition to taking into account attainment of performance criteria, the Committee considered the transition of the Chief Executive Officer role from Mr. Kelly to Mr. Jordan during the performance period and internal equity relative to Mr. Jordan. Exercising its discretion and judgment, the Committee approved a payout of 100 percent of Mr. Kelly’s target opportunity, an action supported by Mr. Kelly. The amounts paid to the named executive officers upon vesting of 2021 performance-based cash incentive awards on February 21, 2024, is included in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table for 2023.
2023 Long-Term Incentive Compensation
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Role of Independent Compensation Consultant; Benchmarking; Market Data
Role of Independent Compensation Consultant; Benchmarking; Market Data The Committee receives information and input from its independent compensation consultant regarding, among other matters, market data and competitive compensation trends and practices. With respect to 2023, for the named executive officers other than Mr. Kelly, the data provided by the independent consultant included reviews of the named executive officers’ base salaries, annual bonus/short-term incentive compensation opportunities, total cash compensation opportunities (base salary plus annual bonus/short-term incentive compensation), long-term incentive compensation opportunities (equity), and total direct compensation opportunities (total cash compensation plus long-term incentive compensation) relative to similar positions reported in the databases below.
Role of Independent Compensation Consultant; Benchmarking; Market Data
| General Industry – Comparable Companies | Willis Towers Watson 2022 General Industry Executive Compensation Database(1) From this database, the compensation consultant identified 29 comparable companies that were considered to be a representative sample of a select group of companies focused on transportation, brand, hospitality, and consumer-oriented businesses. | | General Industry – Total Sample | Willis Towers Watson 2022 General Industry Executive Compensation Database (534 companies) | | Airline Data | American Airlines Group Inc.; Delta Air Lines, Inc.; United Airlines Holdings, Inc.; Alaska Air Group, Inc.; and JetBlue Airways Corporation(2) |
Role of Independent Compensation Consultant; Benchmarking; Market Data
| (1) Where appropriate, the data was adjusted by the independent consultant to take into account differences in company size. |
Role of Independent Compensation Consultant; Benchmarking; Market Data
| (2) The independent consultant considered these five airlines to be the most relevant (e.g., from a competitive hiring standpoint). The airline data was based on 2021 compensation data reported in these airlines’ 2022 proxy statements and was not aged. The independent consultant provided the Committee with data representing the average for the largest three airlines (American Airlines Group Inc.; Delta Air Lines, Inc.; and United Airlines Holdings, Inc.), a smaller carrier average (Alaska Air Group, Inc. and JetBlue Airways Corporation), and the midpoint between the largest three airline average and the smaller carrier average. |
Role of Independent Compensation Consultant; Benchmarking; Market Data
When monitoring the data regarding the Company’s peer groups, the Committee reviewed information on comparable companies in transportation, brand, hospitality, and consumer-oriented businesses (General Industry – Comparable Companies), a group historically viewed by the independent consultant and the Committee as representative of organizations that have been particularly relevant for monitoring the adequacy of the Company’s executive pay levels and enabling the Committee to identify potential retention risks. Other airlines are constituents of this group, and for 2023, the independent consultant called out practices of select airlines for additional context on key positions and pay practices. In addition, to provide broader market context, the independent consultant provided the Committee with general industry data (General Industry – Total Sample). With respect to Mr. Kelly, prior to the effective date of the 2022 Letter Agreement, the independent consultant noted that the market data for non-Chief Executive Officer Executive Chair positions varies considerably due to factors including (i) the ongoing managerial responsibilities of the position and (ii) the expected tenure of the position. Due to the Committee’s expectation of Mr. Kelly’s continued service as an active executive Employee with significant duties and responsibilities, the independent consultant provided the Committee compensation data for (i) all S&P 500 Executive Chairs, including those in short-term transitional roles, (ii) all S&P 500 Executive Chairs serving in the role for each of the past three fiscal years at that time, and (iii) all Executive Chairs as reported to the General Industry – Total Sample survey noted for the Willis Tower Watson 2021 General Industry Executive Compensation Database. The Committee also considered the relationship between Executive Chair compensation and Chief Executive Officer compensation using data provided by the independent consultant, for (i) all S&P 500 Executive Chairs serving in the role for each of the past three fiscal years at that time, and (ii) all S&P 500 Executive Chairs, not considered founders of the company.
Role of Independent Compensation Consultant; Benchmarking; Market Data
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Role of Independent Compensation Consultant; Benchmarking; Market Data
The Committee does not directly tie named executive officer compensation to specific market data, but instead views market data as an input, as opposed to a determinant of appropriate pay. In addition, (i) available market data is not necessarily comprehensive; (ii) in particular with respect to airlines, the amount of available data is limited and will typically reflect positions with combinations of responsibilities that do not correspond directly to the roles that are included in available market data; and (iii) with respect to Mr. Kelly, market data for non-Chief Executive Officer Executive Chair positions varies considerably due to various factors. For 2023, available market information was somewhat less informative than for prior years because of the number of companies, both within and outside of the airline industry, that were impacted by the pandemic to varying degrees and thus modified their compensation programs in different manners and to different extents, including, for some, PSP Pay Restrictions similar to those affecting the Company’s compensation arrangements. In addition, because the pandemic impacted different industries in different ways, the Company faced a risk of losing talent to companies that did not experience similar negative impacts from the pandemic and that were not limited by the PSP Pay Restrictions or otherwise harmed to a significant financial extent as a result of the COVID-19 pandemic. Therefore, the Committee also referenced the broader compensation data provided by general industry surveys, which can serve as indicators of the named executive officers’ potential value to other organizations who might seek to hire them.
Internal Equity; Role of Management
| • | The Company’s People Department leaders worked with the Committee Chair and the Committee’s independent consultant to provide market data and recommendations with respect to Mr. Jordan’s compensation. |
Short-Term Incentive Compensation
Short-Term Incentive Compensation Objectives of Short-Term Incentive Compensation. The Committee believes short-term incentive compensation opportunities are prevalent in the market in which the Company competes to attract and retain Employees. Therefore, short-term incentive compensation opportunities are offered for Leadership and certain professional level positions. The Committee believes short-term incentive compensation opportunities are particularly important at the officer level in order to create both accountability and incentive for performance and to remain competitive in attracting and retaining qualified executive talent. The short-term incentive opportunities at this level are intended to (i) reflect the additional time, responsibility, and accountability associated with these positions, in particular senior executive positions; (ii) help create total compensation opportunities that are within a reasonable range of median in the marketplace; and (iii) further incentivize management to contribute to the Company’s overall performance. Approach to 2023 Short-Term Incentive Compensation. General. In 2023, the Committee continued to apply a structured and transparent approach to establishing the named executive officers’ short-term incentive opportunities, pursuant to which each of the named executive officer’s STI Target Opportunity was awarded pursuant to the Company’s Senior Executive Short Term Incentive Plan (the “STI Plan”), which provides for the payment of cash bonuses based on performance measures and targets that are pre-established by the Committee. In recent years prior to 2023, 80 percent of each named executive officer’s STI Target Opportunity was based on performance measures and targets pre-established by the Committee while 20 percent was based on a subjective determination of the named executive officer’s performance and individual contributions. In order to more closely align pay outcomes with Company performance and Shareholder interests, in 2023, 100 percent of the value of each named executive officer’s STI Target Opportunity was based on the Company’s 2023 performance relative to measures and targets approved by the Committee. The Committee established STI Target Opportunities for each of the named executive officers in the first quarter of 2023. The STI Target Opportunities were equal to a percentage of each of the named executive officer’s respective base pay amounts, with differences in percentages generally reflecting differences in levels of responsibility. Taking into account the breadth of Mr. Shaw’s responsibilities and internal equity considerations, the Committee increased Mr. Shaw’s STI Target Opportunity from 120 percent of base to 135 percent of base. The Committee did not approve any other year-over-year increases in the named executive officers’ STI Target Opportunities, but chose to remain consistent with the STI Target Opportunities established for 2022 in an attempt to maintain internal and external equity to the extent feasible and thereby mitigate retention risks. Therefore, (i) Mr. Jordan’s and Mr. Kelly’s STI Target Opportunity each remained at 200 percent of base, (ii) Mr. Watterson’s STI Target Opportunity remained at 150 percent of base, and (iii) Ms. Romo’s STI Target Opportunity remained at 135 percent of base. As discussed below, the short-term incentive payout for each of the named executive officers could range from zero to 150 percent of the named executive officer’s STI Target Opportunity shown above. Performance-Based Short-Term Incentive Compensation Opportunities under the Short Term Incentive Plan and Related Payouts. Pursuant to the STI Plan, since 2013, the Committee has annually established performance metrics and targets in connection with the named executive officers’ STI Target Opportunity using a Management Incentive Scorecard (the “Scorecard”). The Committee believes the Scorecard mechanism has remained relevant and effective despite the significant and varying challenges faced by the Company over the years, including the challenges posed by the pandemic and the Company’s December 2022 operational disruption. In addition, the Committee believes there is value in maintaining a consistent structure
Short-Term Incentive Compensation
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Short-Term Incentive Compensation
for assessing short-term incentive payouts. In designing the Scorecard for 2023, the Committee deemed it of paramount importance for the Company to demonstrate progress in operational resiliency and to emphasize progress towards returning to the Company’s historical levels of financial results, reliability, and efficiency. The Scorecard included specific weighted metrics corresponding with the Company’s business objectives and priorities and related major initiatives. The Committee also chose these metrics because of their relevance to the Company’s Shareholders, Employees, and Customers for 2023. In particular, the Committee continued to use EBITDA, excluding special items as disclosed from time to time in the Company’s earnings releases and filings with the SEC, as the financial metric in the Scorecard, and increased the Scorecard EBITDA financial metric weighting from 45 percent to 50 percent. The 2023 quantitative performance metrics and related targets were set and approved by the Committee based on the Company’s financial and operational results and expectations without any adjustments due to the effects of the December 2022 operational disruption. The specific 2023 Scorecard metrics, targets, and weightings, as well as the results and payout percentages for 2023, are set forth in the table below.
2023 Management Incentive Scorecard
| (7) Payout percentage based on reported rounded actuals. |
2023 Management Incentive Scorecard
| (8) 100% of STI will be determined by Company scorecard. |
Enhance Cross-Team Collaboration
| • | because the Scorecard goals are designed to be highly relevant to the Company and its Shareholders, Customers, and Employees, there is a strong correlation between the Scorecard and the manner in which the Company manages and measures its own performance; and |
Enhance Cross-Team Collaboration
| • | the use of a multi-dimensional and balanced guide for short-term incentives mitigates the risk that can be created when financial results are the only drivers of incentive payments. |
Enhance Cross-Team Collaboration
When determining the performance level in the Scorecard, the Committee’s philosophy is to adhere to the payout specified for the quantitative level of performance almost without exception. The merit of this rigorous, balanced approach was evident in light of the December 2022 winter storm that led to a significant disruption of service affecting many customers. With respect to the Company’s 2022 Scorecard, no exception or adjustment was made for this event and the negative effect on the achievement of the financial, on-time, and customer satisfaction metrics reduced what otherwise would have been an excellent overall performance level to 69.9 percent. Similarly, with respect to the Company’s 2023 Scorecard, no adjustments were made to the quantitative metrics and related targets and performance levels in light of the December 2022 operational disruption, which resulted in negative impacts to the Company’s 2023 EBITDA, ontime performance, and ontime net promoter score and, in turn, the overall performance level. The payouts for 2023 were based on the Company’s performance at 57.5 percent of target, a result that factors in negative impacts from the December 2022 operational disruption.
Enhance Cross-Team Collaboration
| • | The Company ended 2023 with liquidity of $12.5 billion, including $11.5 billion in cash and cash equivalents and short-term investments and a fully-available revolving credit line of $1.0 billion, well in excess of debt outstanding; |
Long-Term Incentive Compensation
Long-Term Incentive Compensation During 2023, the Committee granted long-term incentive awards in the form of RSUs, performance-based RSUs, performance-based cash awards, and restricted cash awards. As discussed further below, the Committee continued to believe long-term incentive compensation should constitute a significant percentage of total compensation and thereby serve as (i) the primary method for bringing total direct compensation opportunities in line with market, (ii) a driver of the Company’s long-term performance through alignment of compensation opportunities with the Company’s long-term objectives, and (iii) a significant retention vehicle. The Committee believes the continued use of RSUs, performance-based RSUs, cash incentive awards, and restricted cash awards, enabled the Committee to maintain consistency with its historical emphasis on long-term incentive opportunities, including a significant percentage granted as performance-based opportunities. For 2023, the performance-based components of the aggregate long-term incentive awards constituted 50 percent of the total long-term incentive opportunity for each of the named executive officers. The Committee believes these structures aligned the named executive officers’ long-term incentive compensation with Shareholder interests without unnecessarily reducing the retention value of these awards.
Equity Awards
Equity Awards Objectives of Equity Compensation. Equity awards are used by the Company to (i) further align the interests of the Company’s senior leadership with the interests of the Company’s Shareholders, (ii) serve as a performance-based method to address the competitiveness of the Company’s compensation, and (iii) also serve as a long-term retention vehicle by incentivizing and rewarding achievement of the Company’s long-term objectives. In 2023, the Committee awarded equity incentive opportunities to attract and retain Employees at the manager level and above, as well as other targeted positions where equity awards are prevalent in the market in which the Company competes for those positions. With respect to other Employees, the Company has typically placed more emphasis on cash compensation. Approach to Equity Compensation. The Committee has a long-held and consistent view that equity should constitute a strong component of overall compensation and a significant percentage of base pay. The Committee applies its judgment in determining the size of equity awards, which involves (i) informing itself of practices and levels of equity pay in the market for a given position and (ii) thereby also informing itself of potential retention risks. For 2023, however, the Committee was also required to take into account the PSP Pay Restrictions. Because equity is valued at its full grant date fair value for purposes of calculating Total PSP Compensation, to comply with the PSP Pay Restrictions, the aggregate value of each of the named executive officer’s equity awards for 2023, other than with respect to Mr. Kelly, was lower than would have otherwise been granted by the Committee for 2023.
Equity Awards
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Equity Awards
The Committee granted equity awards in the form of service-based, time-vesting RSUs and performance-based RSUs that are each settleable in shares of common stock. Total equity for the named executive officers consisted of 50 percent time-vesting RSUs and 50 percent performance-based RSUs. This allocation reflects the Committee’s desire to maintain performance-based compensation as a significant percentage of total compensation. RSUs. The RSUs granted to the named executive officers in 2023 are settleable in shares of common stock and are scheduled to vest with respect to one-third of the shares covered thereby annually, which vesting began on February 21, 2024. Other than in connection with death, disability, or a “qualified retirement,” vesting is subject to the individual’s continued service as an Employee, Board member, or advisor through the vesting date. In the event of an individual’s death or disability, any of the individual’s RSUs that have not yet vested will (i) in the case of time-vesting RSUs, fully vest as of the date of termination, and (ii) in the case of performance-based RSUs, remain outstanding as if the individual’s service has not terminated and will continue to vest in accordance with the schedule set forth in the notice of the grant. If an individual’s service has terminated no earlier than 12 months after the date of grant, in the event of a “qualified retirement,” any outstanding unvested RSUs will remain outstanding as if the individual’s service has not terminated and will continue to vest in accordance with the schedule set forth in the notice of the grant. An individual’s termination of service will be considered a “qualified retirement” if (a) the individual has completed at least 10 years of continuous service, (b) the individual’s age plus completed years of continuous service equal at least 65 at the time of the individual’s termination of service, and (c) the individual has not been terminated for cause. Performance-Based RSUs. Performance-based RSUs are also settleable in shares of common stock. Performance-based RSUs granted in 2023 will vest, if at all, on February 21, 2026. As shown in the table below and the Grants of Plan-Based Awards in Fiscal 2023 table, the number of shares that will be received by each of the named executive officers, as of the vesting date, if any, will be determined based on the Company’s achievement of the average ROIC (after-tax) less Excess Cash targets set forth in the table below over a three-year period; provided that, (i) in the event the Company’s ROIC (after-tax) less Excess Cash for the three-year performance period is greater than zero and its return on invested capital relative to a specified peer group, as determined by the Committee using its reasonable efforts to assess return on invested capital on a comparable basis across the peer group (“Relative ROIC”), exceeds the median (i.e., 50th percentile) of the specified peer group, the minimum number of performance-based RSUs that will vest and the minimum number of shares of common stock to be issued as of the vesting date will be equal to the grant amount times 50 percent; and (ii) in the event the Company’s Relative ROIC ranks highest in the peer group, the minimum number of performance-based RSUs that will vest and the minimum number of shares of common stock to be issued as of the vesting date will be equal to the grant amount times 100 percent. In the event this peer group qualifier is used, the number of shares of the Company’s common stock to be issued as of the vesting date will be determined based on the Company’s relative position within the top half of the peer group. The Committee chose ROIC (after-tax) less Excess Cash as the primary long-term performance metric to further align the Company’s incentive compensation with the Company’s focus on its effectiveness in generating returns to its Shareholders. With respect to performance-based RSUs granted in 2021 and 2022, the Committee selected an impermanent maximum payout opportunity of 300 percent to reward extraordinary results and to motivate and retain existing talent while aligning executive incentives with Shareholder interests. In 2023 with the business stabilized and recovery from the COVID-19 pandemic underway, the Committee returned to its historical and more typical approach of setting the maximum performance level at 200 percent. Consistent with the approach taken in establishing performance-based short-term incentive compensation opportunities for 2023, the quantitative performance metrics and related targets for the 2023 performance-based RSU grants were set and approved by the Committee based on the Company’s financial and operational results and expectations without any adjustments due to the effects of the December 2022 operational disruption.
Equity Awards
| Performance Period | Vesting Date | ROIC (after-tax) less Excess Cash in Performance Period(1) | Number of Performance-Based RSUs Vesting and Settleable in Common Stock as of the Vesting Date(1)(2) | | January 1, 2023 through December 31, 2025 | February 21, 2026(3) | 8.0% or greater | Grant Amount x 10% | | | | 10.0% | Grant Amount x 100% | | | | 14.0% or greater | Grant Amount x 200% |
Equity Awards
| (1) “ROIC (after-tax) less Excess Cash” means After-tax Adjusted Operating Income divided by Adjusted Average Invested Capital excluding Excess Cash. “After-tax Adjusted Operating Income” means Operating income (calculated in accordance with Accounting Principles Generally Accepted in the United States (GAAP)) as adjusted to reflect the impact to Operating income from (a) fuel contracts (net), (b) special items, as disclosed from time to time in the Company’s earnings releases and filings with the Securities and Exchange Commission, (c) aircraft leases (net), and (d) fuel hedge premium expense, with each such adjustment tax affected, as appropriate. For any individual year in which the After-tax Adjusted Operating Income is a loss, it will be set at zero. “Adjusted Average Invested Capital” for an individual year in the three-year performance period means an average of the five most recent quarter end balances of debt, net present value of aircraft |
Equity Awards
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Equity Awards
| leases, and equity adjusted for hedge accounting. “Excess Cash” means the average annual cash and cash equivalents and short-term investments balances in excess of $6.0 billion, which is subtracted from the Adjusted Average Invested Capital in each period’s ROIC calculation. ROIC (after-tax) less Excess Cash for the entire Performance Period will be the average of the ROIC (after-tax) less Excess Cash of the three individual years in the performance period. For purposes of the ROIC (after-tax) less Excess Cash calculation, the assumed federal tax rate is 24 percent. In addition, in the event of a change in the corporate tax rate that the Committee deems to significantly impact the Company’s ROIC (after-tax) less Excess Cash results, the Committee shall have the authority to adjust the ROIC (after-tax) less Excess Cash calculation in its sole discretion. The percentage of performance-based RSUs that will vest, if any, based on ROIC (after-tax) less Excess Cash, will be interpolated between the ROIC (after-tax) less Excess Cash targets set forth above only after the minimum performance level has been achieved. |
Equity Awards
| (2) In the event the Company’s ROIC (after-tax) less Excess Cash for the three-year performance period is greater than zero and its Relative ROIC exceeds the median (i.e., 50th percentile) of the specified peer group, the minimum number of performance-based RSUs that will vest and the minimum number of shares of common stock to be issued as of the vesting date will be equal to the grant amount times 50 percent. In the event the Company’s Relative ROIC ranks highest in the peer group, the minimum number of performance-based RSUs that will vest and the minimum number of shares of common stock to be issued as of the vesting date will be equal to the grant amount times 100 percent. In the event this peer group qualifier is used, the number of shares of the Company’s common stock to be issued as of the vesting date will be determined based on the Company’s relative position within the top half of the peer group. |
Equity Awards
| (3) Other than in connection with death, disability, or a “qualified retirement,” vesting is subject to the individual’s continuous service as an Employee, Board member, or advisor from the date of grant through the vesting date. In the event of an individual’s death or disability, the individual’s performance-based RSUs will remain outstanding as if the individual’s service had not terminated. If the individual’s service has terminated no earlier than 12 months after the date of grant, in the event of a “qualified retirement,” such individual’s performance-based RSUs will remain outstanding as if the individual’s service has not terminated and will otherwise be settleable in accordance with the notice of grant and applicable terms and conditions; however, the number of shares received upon settlement will be prorated based on the individual’s number of days of service between the date of grant and the end of the Performance Period. An individual’s termination of service will be considered a “qualified retirement” if (a) the individual has completed at least 10 years of continuous service; (b) the individual’s age plus completed years of continuous service equal at least 65 at the time of the individual’s termination of service; and (c) the individual has not been terminated for cause. |
Equity Awards
Individual Equity Determinations for the Named Executive Officers. Chief Executive Officer. Taking into account the PSP Pay Restrictions, the Committee granted Mr. Jordan long-term equity incentive awards with a total grant date fair value of $4,105,004 for 2023, representing a thirteen percent year-over-year increase in value. Mr. Jordan’s aggregate equity award increased as a percentage of his base pay ($700,000 effective February 1, 2022) from 518 percent in 2022, to 586 percent in 2023. This increase reflects the Committee’s emphasis on equity as a percentage of the Chief Executive Officer’s total direct compensation opportunity while taking into account the PSP Pay Restrictions. Factoring in the cash incentive awards and restricted cash awards discussed below, Mr. Jordan’s total long-term incentive opportunity for 2023 remained at 800 percent of his base salary. Executive Chairman of the Board. Taking into account the PSP Pay Restrictions, the Committee granted long-term equity incentive awards to Mr. Kelly with a total grant date fair value of $3,800,011. Mr. Kelly’s aggregate equity award increased as a percentage of his base pay ($475,000 effective February 1, 2022) from 763 percent in 2022, to 800 percent in 2023. This increase reflects the Committee’s emphasis on equity as a percentage of Mr. Kelly’s total direct compensation opportunity while taking into account the PSP Pay Restrictions. Mr. Kelly received the entirety his 2023 long-term incentive compensation in the form of equity awards and was not granted any additional cash incentive awards or restricted cash awards in 2023. Other Named Executive Officers. Also in accordance with the Committee’s philosophy that equity should constitute a strong component of total compensation, but taking into account the PSP Restrictions, as shown in the table below, each of the other named executive officer’s equity as a percentage of their base pay also increased for 2023 compared with 2022.
Equity Awards
| | February 2022 Aggregate Equity Grant(1) | February 2023 Aggregate Equity Grant(2) | | Tammy Romo | 315% | 368% | | Andrew M. Watterson | 270% | 388% | | Mark R. Shaw | 328% | 373% |
Equity Awards
| (1) Calculation is based on the named executive officers’ base pay amounts for 2022 on an annualized basis, as approved by the Committee in February 2022. |
Equity Awards
| (2) Calculation is based on the named executive officers’ base pay amounts for 2023. |
Equity Awards
| 42 | | Southwest Airlines 2024 Proxy Statement |
Equity Awards
In connection with Mr. Watterson’s increased responsibilities associated with his promotion to Chief Operating Officer in October 2022, effective February 1, 2023, the Committee increased Mr. Watterson’s total long-term incentive opportunity, including cash incentive awards and restricted cash awards, from 450 percent of his base salary to 500 percent of his base salary. During 2023, Ms. Romo’s total long-term incentive opportunity remained at 450 percent of her base salary and Mr. Shaw’s total long-term incentive opportunity remained at 400 percent of his base salary.
Cash Incentive Awards and Restricted Cash Awards
Cash Incentive Awards and Restricted Cash Awards During 2023, taking into account the PSP Pay Restrictions, the Committee continued to incorporate performance-based long-term cash incentive awards as an element of the named executive officers’ long-term incentive compensation, other than with respect to Mr. Kelly. The payout of these awards will be dependent upon the same metrics and targets as are discussed above with respect to the named executive officers’ performance-based RSUs; however, in accordance with SEC rules, these awards are not included within the calculation of total compensation in the Summary Compensation Table for 2023. Therefore, they are also not included in the calculation of Total PSP Compensation. The grant of these awards is, however, shown in the Grants of Plan-Based Awards table. Amounts earned pursuant to these awards, if any, will be reported in the Summary Compensation Table for the year ending December 31, 2025. In addition, during 2023, taking into account the retention risk for critical positions during the PSP Limitation Period, the Committee continued to incorporate restricted cash awards as an additional element of the named executive officers’ long-term compensation, other than with respect to Mr. Kelly. The restricted cash awards granted to the named executive officers in 2023 are settleable in cash and are scheduled to vest with respect to one-third of the cash covered thereby annually, which vesting begins on February 21, 2024. Other than in connection with death, disability, or a “qualified retirement,” vesting is subject to the individual’s continued service as an Employee, Board member, or advisor through the vesting date. In accordance with SEC rules, the restricted cash awards are not included within the calculation of total compensation in the Summary Compensation Table for 2023. Therefore, they are also not included in the calculation of Total PSP Compensation. Amounts earned pursuant to these awards, if any, will be reported in the Summary Compensation Table for the year in which the amounts are paid. Objectives of Cash Incentive Awards and Restricted Cash Awards. As discussed above, the continued incorporation of performance-based long-term cash incentive awards enabled the Committee to maintain consistency with its historical emphasis on providing fair compensation opportunities in the form of long-term incentive compensation, including a significant percentage granted as performance-based opportunities, while driving performance to serve the best interests of Shareholders. The Committee believes the continued incorporation of restricted cash awards served as an additional method for bringing total direct compensation opportunities in line with market. In addition, both of these awards enabled the Committee to deliver what it believed to be fair long-term compensation opportunities in an attempt to mitigate retention risks. The Committee deemed it prudent to position the Company to retain its current leaders while continuing its work to fully recover from the COVID-19 pandemic and focus on its effectiveness in generating Shareholder returns. Individual Long-Term Cash Incentive Award and Restricted Cash Award Determinations for the Named Executive Officers. The potential value of long-term cash incentive and restricted cash awards, when combined with equity awards as part of long-term compensation, was designed by the Committee to achieve what the Committee believed to be a fair future total direct compensation opportunity for each of the individual named executive officers, while addressing Shareholder interests by retaining an equal mix of time-based and performance-based long-term incentive awards. Furthermore, the incorporation of these awards enabled the Committee to maintain internal equity for the named executive officers relative to each other and also relieve some of the pay compression that would have otherwise resulted with respect to the rest of the Company’s employee population. As shown in the table below, in 2023 the named executive officers received cash incentive awards and restricted cash awards as follows:
Cash Incentive Awards and Restricted Cash Awards
| | 2023 Cash Incentive Awards | 2023 Restricted Cash Awards | Total | Percentage of 2023 Base Pay | | Robert E. Jordan | $747,500 | $747,500 | $1,495,000 | 214% | | Tammy Romo | $220,000 | $220,000 | $440,000 | 82% | | Gary C. Kelly | $0 | $0 | $0 | 0% | | Andrew M. Watterson | $321,500 | $321,500 | $643,000 | 112% | | Mark R. Shaw | $66,000 | $66,000 | $132,000 | 27% |
Cash Incentive Awards and Restricted Cash Awards
| Southwest Airlines 2024 Proxy Statement | | 43 |
Cash Incentive Awards and Restricted Cash Awards
The target value of each named executive officer’s total long-term incentive opportunity, inclusive of cash incentive and restricted cash awards, as a percentage of their 2023 base pay is provided above under “2023 Components of Base Pay – 2023 Long-Term Incentive Compensation – Equity Awards.”
Change-in-Control Arrangements
Change-in-Control Arrangements The Company has established change-in-control arrangements for all of its Employees for the purpose of offering protection in the event of a termination of employment following a change-in-control. All officers of the Company, including the named executive officers, are parties to the Company’s Executive Service Recognition Plan Executive Employment Agreements. In general, in the event of termination subsequent to a change-in control, these agreements provide for a maximum incremental benefit approximately equal to (i) one year of salary and (ii) two years of bonus. The PSP Pay Restrictions did not affect the terms of the Company’s Executive Service Recognition Plan Executive Employment Agreements for any named executive officers. The terms of these arrangements are discussed in detail below under “Potential Payments Upon Termination or Change-in-Control.” The remainder of the Company’s Employees are provided change-in-control benefits through the Company’s Change of Control Severance Pay Plan (to the extent they are not otherwise beneficiaries of an enforceable contract with the Company providing for severance payments in the event of a reduction in force or furlough). The Company’s change-in-control arrangements were all put in place in the 1980s and do not have any impact on the Company’s other compensation elements because any incremental benefit from these arrangements is not triggered unless there is a termination of employment following a change-in-control. The Company believes it is appropriate to keep these arrangements in place, in particular for the Company’s officers, because the Company believes they serve to (i) continue to attract and retain well-qualified executive personnel and (ii) enhance the ability of the Company to retain officers to carry on the Company’s business as usual in the event of any real or rumored possibilities of a change-in-control of the Company. In particular, with respect to the Chief Executive Officer, a change-in-control arrangement is intended to provide some assurance that, should the Company receive proposals from third parties with respect to its future, he can, without being influenced by the uncertainties of his own situation, (i) assess such proposals, (ii) formulate an objective opinion as to whether or not such proposals would be in the best interests of the Company and its Shareholders, and (iii) take any other action regarding such proposals as the Board might determine to be appropriate.
Significant Corporate Governance and Compensation Policies and Practices
Significant Corporate Governance and Compensation Policies and Practices Clawback Policy. The Committee has adopted an amended and restated clawback policy, pursuant to which in the event the Company is required to prepare an accounting restatement of any of the Company’s financial statements (i) due to the Company’s material noncompliance with any financial reporting requirement under U.S. securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements or (ii) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Committee shall, unless determined to be impracticable, take reasonably prompt action to recoup all recoverable compensation from any person who receives recoverable compensation. For purposes of this policy, “recoverable compensation” shall mean all incentive-based compensation (calculated on a pre-tax basis) received after October 2, 2023, by a person: (i) after beginning service as an executive officer; (ii) who served as an Executive Officer at any time during the performance period for that incentive-based compensation; (iii) while the Company had a class of securities listed on a national securities exchange or national securities association; and (iv) during the applicable period, that exceeded the amount of incentive-based compensation that otherwise would have been received had the amount been determined based on the financial performing measures, as reflected in the restatement. This policy is in addition to (and not in lieu of) any right of repayment, forfeiture or off-set against any executive officer that may be available under applicable law or otherwise (whether implemented prior to or after adoption of the policy). The Company has included its amended and restated clawback policy as an exhibit to its Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Share Ownership Guidelines. The Committee has adopted share ownership guidelines for the Company’s executive officers and Board members. The Company’s Chief Executive Officer is expected to meet a share ownership level with a value equal to or exceeding five times his annual base salary, and all other executive officers are expected to meet a share ownership level with a value equal to or exceeding three times their annual base salary. Members of the Board are expected to meet a share ownership level with a value equal to or exceeding three times their annual cash retainer for Board services. “Share ownership” is defined to include shares of the Company’s common stock (including shares held in the Company’s profit sharing plan), unvested RSUs, and performance shares held pursuant to the Company’s Outside Director Incentive Plan. The Company’s executive officers are expected to meet the stated ownership levels within five years of becoming an executive officer. Members of the Board are expected to meet the stated ownership level within three years of becoming a Board member. The Committee has the authority to monitor and adjust these ownership guidelines as it deems appropriate from time to time. All of the Company’s executive officers, including the named executive officers, and all of the Company’s Board members meet the requirements of the Company’s share ownership guidelines. In addition to the Company’s share ownership guidelines, (i) the Company’s Insider Trading Policy prohibits Employees (including officers) and the Company’s Board members from entering into hedging transactions with respect to the Company’s securities; and (ii) the Company’s Blackout and Pre-Clearance Procedures, which supplement its Insider Trading Policy, prohibit the Company’s officers and Board members from holding Company securities in a margin account or pledging Company securities as collateral for a loan. Limitation on Severance Payments. The Board has adopted a limitation on severance payments within the Company’s Corporate Governance Guidelines. The Company will not enter into any agreement that provides for severance payments to an executive officer subject to §16(b) of the Securities Exchange Act (“Executive Officer”) directly related to the Executive Officer’s termination of employment, in an amount that exceeds 2.99 times the sum of (i) the Executive Officer’s base salary plus (ii) target annual bonus opportunity, without seeking Shareholder advisory or other approval of such agreement. Severance payments do not include: (1) accrued but unpaid base salary or vacation pay through the termination date and reimbursement for any expenses validly incurred prior to the termination date; (2) any payment in respect of the Executive Officer’s bonus for the year of termination or other unpaid bonus or award owed by the Company to the Executive Officer under any compensation plan or agreement; (3) any payment in consideration for services provided to the Company following the termination date (e.g., consulting or advisory services); (4) any payment arising from the Executive Officer’s death or disability; or (5) settlements of claims asserted against the Company by the Executive Officer. Unless otherwise delegated to the Committee, the Board shall make all determinations regarding the application and operation of these severance guidelines in its sole discretion.
Summary Compensation Table
Summary Compensation Table The following table provides information with respect to compensation earned by the named executive officers for the years ended December 31, 2023, 2022, and 2021.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | | Robert E. Jordan Chief Executive Officer & President | 2023 | 700,000 | — | 4,105,004 | 4,096,504 | — | 405,791 | 9,307,298 | | | 2022 | 676,875 | 195,720 | 3,626,960 | 782,880 | — | 51,525 | 5,333,960 | | | 2021 | 510,709 | 103,481 | 1,954,029 | 405,645 | — | 75,472 | 3,049,336 | | Tammy Romo Executive Vice President & Chief Financial Officer | 2023 | 536,700 | — | 1,975,185 | 2,748,910 | — | 368,773 | 5,629,568 | | | 2022 | 534,737 | 101,292 | 1,691,178 | 405,166 | — | 48,730 | 2,781,103 | | | 2021 | 516,658 | 104,898 | 1,957,521 | 411,199 | — | 76,048 | 3,066,324 | | Gary C. Kelly Executive Chairman of the Board | 2023 | 475,000 | — | 3,800,011 | 4,337,688 | — | 446,279 | 9,058,978 | | | 2022 | 509,375 | 132,810 | 3,624,972 | 531,240 | 141,026 | 129,780 | 5,069,203 | | | 2021 | 643,750 | 201,016 | 3,945,578 | 787,984 | 128,205 | 113,223 | 5,819,756 | | Andrew M. Watterson Chief Operating Officer | 2023 | 575,000 | — | 2,232,006 | 1,892,268 | — | 315,611 | 5,014,885 | | | 2022 | 538,754 | 110,535 | 1,450,188 | 442,140 | — | 47,694 | 2,589,311 | | | 2021 | 487,512 | 94,668 | 1,800,089 | 371,098 | — | 69,650 | 2,823,017 | | Mark R. Shaw(7) Executive Vice President & Chief Legal & Regulatory Officer and Corporate Secretary | 2023 | 494,400 | — | 1,845,634 | 1,637,786 | — | 203,436 | 4,181,256 | | | 2022 | 492,600 | 82,941 | 1,619,613 | 331,763 | — | 46,659 | 2,573,576 |
Summary Compensation Table
| (1) The table below shows annual base salaries effective during 2022 and 2023. Differences between the annualized numbers and the salaries reported in the table above reflect the fact that salary adjustments were not always in effect for the full year periods. |
Summary Compensation Table
| | Base Salary Effective Dates | | | | | 2022 | | 2023 | | Name | February 1 | October 1 | March 1 | | Robert E. Jordan | $700,000 | — | $700,000 | | Tammy Romo | $536,700 | — | $536,700 | | Gary C. Kelly | $475,000 | — | $475,000 | | Andrew M. Watterson | $536,700 | $575,000 | $575,000 | | Mark R. Shaw | $494,400 | — | $494,400 |
Summary Compensation Table
| (2) In accordance with the SEC’s rules, for each year, the amount disclosed reflects bonuses/non-equity plan compensation earned with respect to such year, whether or not actually paid in such year. |
Summary Compensation Table
| (3) Awards consist of RSUs and performance-based RSUs that are settleable in shares of common stock. The values included in this column represent the grant date fair value of these awards computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 determined without regard to forfeitures. The assumptions used in calculating the values for fiscal 2023 are included in Note 10 to the Company’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023. |
Summary Compensation Table
| The ultimate value of each of the named executive officer’s performance-based RSUs granted in 2023, and the number of shares to be issued, if any, as of the vesting date will be based on (a) the Company’s achievement of Adjusted ROIC (after-tax) less Excess Cash for the performance period from January 1, 2023, through December 31, 2025 and (b) the Company’s Return on Invested Capital for the same performance period, but relative to the Company’s peers. The maximum potential value of each of the named executive officer’s performance-based RSUs is set forth in the table below; however, the value of these performance-based RSUs is completely at risk. |
Summary Compensation Table
| 48 | | Southwest Airlines 2024 Proxy Statement |
Summary Compensation Table
| Name | Value ($) | | Robert E. Jordan | $4,105,004 | | Tammy Romo | $1,975,185 | | Gary C. Kelly | $3,800,011 | | Andrew M. Watterson | $2,232,006 | | Mark R. Shaw | $1,845,634 |
Summary Compensation Table
| (4) For 2023, amounts consist of (i) short-term incentive compensation earned based upon performance measures and targets established in the 2023 Scorecard pursuant to the Company’s STI Plan, (ii) restricted cash performance awards granted in 2022 under the Company’s STI Plan that paid in 2023, and (iii) cash payouts made in 2024 for performance-based cash incentive awards granted in 2021 under the Company’s STI Plan for the performance period of 2022-2023. For years prior to 2023, amounts disclosed consist of short-term incentive compensation earned based upon performance measures and targets established pursuant to the STI Plan. In accordance with the SEC’s rules, for each year, the amount of short-term incentive compensation disclosed reflects bonuses/non-equity plan compensation earned with respect to such year, whether or not actually paid in such year. The STI Plan and the awards earned thereunder are discussed in detail above under “Compensation Discussion and Analysis.” |
Summary Compensation Table
| Name | Short-term Incentive Compensation | Restricted Cash Performance Awards | Performance-based Cash Incentive Awards | | Robert E. Jordan | 805,000 | 1,284,000 | 2,007,504 | | Tammy Romo | 416,613 | 259,800 | 2,072,497 | | Gary C. Kelly | 546,250 | 612,000 | 3,179,438 | | Andrew M. Watterson | 495,938 | 177,600 | 1,218,730 | | Mark R. Shaw | 383,778 | 170,300 | 1,083,708 |
Summary Compensation Table
| (5) Consists of above-market earnings on deferred compensation provided pursuant to a deferred compensation arrangement between the Company and Mr. Kelly, which was in effect through January 31, 2022 (“Prior Letter Agreement”). |
Summary Compensation Table
| (6) For 2023, this column includes the following types of compensation, which are discussed in more detail above under “Compensation Discussion and Analysis” and below under “Nonqualified Deferred Compensation in Fiscal 2023”: (i) Company contributions to the Southwest Airlines Co. 401(k) Plan (“Company 401(k) Match”); (ii) Company profit sharing allocations earned with respect to 2023 and contributed to eligible Employees’ profit sharing plan accounts in 2024 (“Profit Sharing Contribution”); (iii) other than Mr. Kelly, a cash payout equal to the Company’s total profit sharing allocation rate times their eligible earnings above the Internal Revenue Code Section 401(a)(17) limit for tax-qualified plans (each referred to as a “401(a)(17) Excess Payout”); (iv) annual vesting of 1/3 of the time-vesting Restricted Cash Awards granted in 2022; (v) with respect to Mr. Kelly, perquisites including free travel on Southwest Airlines, an annual deposit of 245,000 Rapid Rewards points to Mr. Kelly’s Rapid Rewards account, Company paid physicals for Mr. Kelly and his spouse, and the Company’s reimbursement of all out-of-pocket expenses (including premiums and deductibles) that Mr. Kelly and/or his spouse incur under and Company medical benefit plan or program in accordance with Mr. Kelly’s 2022 Letter Agreement; and (vi) a one-time payout for unused paid time off hours. |
Summary Compensation Table
| Name | Company 401(k) Match ($) | Profit Sharing Contribution ($) | 401(a)(17) Excess Payout ($) | Vesting of Restricted Cash Awards ($) | Perquisites ($) | Paid Time Off Payout ($) | | Robert E. Jordan | 30,000 | 5,231 | 41,727 | 328,833 | — | — | | Tammy Romo | 30,000 | 5,231 | 18,503 | 120,667 | — | 194,373 | | Gary C. Kelly | 30,000 | 5,231 | — | 395,833 | 15,216 | — | | Andrew M. Watterson | 30,000 | 5,231 | 17,082 | 160,833 | — | 102,465 | | Mark R. Shaw | 30,000 | 5,231 | 13,386 | 59,667 | — | 95,152 |
Summary Compensation Table
| (7) In accordance with SEC rules, 2022 was the first year for which Mr. Shaw was required to be included in the proxy statement executive compensation tables. |
Summary Compensation Table
| Southwest Airlines 2024 Proxy Statement | | 49 |
CEO Pay Ratio
CEO Pay Ratio In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the rules of the SEC, the Company is providing the following information about the relationship of the median of the total annual compensation of all Employees of the Company and the total annual compensation of Mr. Jordan, the Company’s Chief Executive Officer for 2023 (“CEO”). For 2023, the Company’s last completed fiscal year:
CEO Pay Ratio
| • | the total annual compensation of the Company’s median Employee was $89,699; |
CEO Pay Ratio
| • | the total annual compensation of the Company’s CEO, as reported in the above Summary Compensation Table, was $9,307,298; and |
CEO Pay Ratio
| • | based on this information, for 2023, the ratio of the total annual compensation of the Company’s CEO to the median Employee’s total annual compensation was reasonably estimated to be 103.8 to 1 (the “2023 Pay Ratio”). |
CEO Pay Ratio
The Company calculated 2023 compensation for the median Employee using the same methodology used to calculate the total annual compensation of the Company’s CEO, as reported in the above Summary Compensation Table. There were no material changes to the Company’s Employee population or compensation programs for 2023 that the Company believed would significantly impact the pay ratio disclosure for 2023, as compared with 2022. Therefore, as permitted by SEC rules, for purposes of determining the 2023 Pay Ratio, the Company used the same median Employee who was identified for purposes of the Company’s fiscal 2021 disclosure. The following describes the methodology used to identify the Company’s median Employee for 2021:
CEO Pay Ratio
| • | The Company determined that, as of October 10, 2021, its Employee population, for purposes of determining the median Employee under the SEC’s rules, consisted of approximately 58,313 individuals, whether employed on a full-time, part-time, or temporary basis. |
CEO Pay Ratio
| • | The Company used a consistently applied compensation measure to identify its median Employee by comparing the amount of compensation reflected in its payroll records, as reported to the Internal Revenue Service (“IRS”) on Form W-2 for 2021. |
CEO Pay Ratio
| • | The Company identified its median Employee by consistently applying this compensation measure to all of its Employees included in its analysis. The Company did not make any cost of living adjustments in identifying the median Employee. The Company annualized the compensation for its permanent Employees that were not employed for all of 2021. |
CEO Pay Ratio
| 50 | | Southwest Airlines 2024 Proxy Statement |
Pay Versus Performance Table
Pay Versus Performance Table As required by Item 402(v) of Regulation S-K, the Company is providing the following information regarding the relationship between executive compensation and the Company’s financial performance for each of the last four completed fiscal years. In determining the “compensation actually paid” (“CAP”) to the Company’s named executive officers (“NEOs”), the Company is required to make various adjustments to amounts that have been reported in the Summary Compensation Table (“SCT”), as the SEC’s valuation methods for this Pay Versus Performance Table (“PVPT”) differ from those required in the SCT. The dollar amounts reported in each column (c) below represent the amount of CAP to each principal executive officer (“PEO”), as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to the applicable PEO during the applicable year. The dollar amounts reported in column (e) below represent the amount of average CAP to the non-PEO named executive officers, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to the non-PEO named executive officers during the applicable year.
Pay Versus Performance Table
| Fiscal Year | SCT Total for First PEO ($) | SCT Total for Second PEO ($) | CAP to First PEO ($) (1) (3) | CAP to Second PEO ($) (1) (3) | Average SCT Total for Non-PEO NEOs ($) | Average CAP to Non-PEO NEOs ($) (2) (3) | Value of $100 Investment From 12/31/19 Based On: | | Net Income ($) (in millions) | Company -Selected Measure Adjusted ROIC (After- Tax) (%) (5) | | | | | | | | | TSR ($) | Peer Group TSR ($) (4) | | | | (a) | (b) | (b) | (c) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | 2023 | — | 9,307,298 | — | 8,542,469 | 5,971,172 | 5,374,278 | 55 | 63 | 465 | 5.7 | | 2022 | 5,069,203 | 5,333,960 | 4,168,811 | 4,758,729 | 2,747,309 | 2,695,718 | 63 | 48 | 539 | 7.6 | | 2021 | 5,819,756 | — | 6,016,459 | — | 3,143,196 | 3,170,562 | 80 | 74 | 977 | (7.3) | | 2020 | 9,235,103 | — | (2,617,790) | — | 4,011,450 | (430,772) | 87 | 76 | (3,074) | (23.2) |
Pay Versus Performance Table
| (1) Reconciliation of Equity Component of CAP—PEOs. |
Pay Versus Performance Table
| | 2023 | 2022 | 2021 | 2020 | | FIRST PEO (Gary C. Kelly) – SCT TOTALS | $— | $5,069,203 | $5,819,756 | $9,235,103 | | (Deduct): | | | | | | Fair value of equity awards granted during the year from the SCT | — | (3,624,972) | (3,945,578) | (7,125,017) | | Add (subtract) Equity Award Adjustments: | | | | | | Fair value at year end of equity awards granted during the year | — | 2,701,479 | 3,631,118 | 2,918,765 | | Change in fair value of equity awards granted in prior years that were unvested as of the end of the year | — | (180,578) | (227,060) | (7,980,600) | | Change in fair value of equity awards granted in prior years that vested during the year | — | 203,679 | 738,223 | 333,959 | | Equity awards granted in prior years that were forfeited during the year | — | — | — | — | | Dividends or other earnings paid on equity awards during the year | — | — | — | — | | Total Equity Award Related Adjustments | — | 2,724,580 | 4,142,281 | (4,727,876) | | CAP TOTALS | | 4,168,811 | 6,016,459 | (2,617,790) | | | 2023 | 2022 | 2021 | 2020 | | SECOND PEO (Robert E. Jordan) – SCT TOTALS | $9,307,298 | $5,333,960 | $— | $— | | (Deduct): | | | | | | Fair value of equity awards granted during the year from the SCT | (4,105,004) | (3,626,960) | — | — | | Add (subtract) Equity Award Adjustments: | | | | | | Fair value at year end of equity awards granted during the year | 3,327,323 | 2,702,960 | — | — | | Change in fair value of equity awards granted in prior years that were unvested as of the end of the year | 10,013 | 273,506 | — | — | | Change in fair value of equity awards granted in prior years that vested during the year | 2,840 | 75,263 | — | — | | Equity awards granted in prior years that were forfeited during the year | — | — | — | — | | Dividends or other earnings paid on equity awards during the year | — | — | — | — | | Total Equity Award Related Adjustments | 3,340,175 | 3,051,729 | — | — | | CAP TOTALS | 8,542,469 | 4,758,729 | — | — |
Pay Versus Performance Table
| The Company’s SCT does not include pension service cost or any prior service cost. In the fiscal years above for the PEOs, the Company did not have any equity awards that were granted and vested in the same year, and did not have any forfeitures of prior awards. Dividends are not paid on unvested shares. |
Pay Versus Performance Table
| Southwest Airlines 2024 Proxy Statement | | 51 |
Pay Versus Performance Table
| To compute CAP, the Company used “Total Equity Award Related Adjustments,” as noted in the reconciliations above, in place of “Fair Value of Equity Awards granted during the year from SCT” for each applicable fiscal year. |
Pay Versus Performance Table
| (2) Reconciliation of Equity Component of CAP – average for non PEOs. |
Pay Versus Performance Table
| | 2023 | 2022 | 2021 | 2020 | | NON-PEO NEOS AVERAGE SCT TOTALS | $5,971,172 | $2,747,309 | $3,143,196 | $4,011,450 | | (Deduct): | | | | | | Fair value of equity awards granted during the year from the SCT | (2,463,209) | (1,638,860) | (1,982,723) | (2,794,266) | | Add (subtract) Equity Award Adjustments: | | | | | | Fair value at year end of equity awards granted during the year | 1,996,561 | 1,221,346 | 1,824,701 | 1,144,672 | | Change in fair value of equity awards granted in prior years that were unvested as of the end of the year | (133,072) | 291,943 | (82,099) | (2,920,636) | | Change in fair value of equity awards granted in prior years that vested during the year | 2,826 | 73,980 | 267,487 | 128,008 | | Equity awards granted in prior years that were forfeited during the year | — | — | — | — | | Dividends or other earnings paid on equity awards during the year | — | — | — | — | | Total Equity Award Related Adjustments | 1,866,315 | 1,587,269 | 2,010,089 | (1,647,956) | | AVERAGE CAP TOTALS | 5,374,278 | 2,695,718 | 3,170,562 | (430,772) |
Pay Versus Performance Table
| The Company’s SCT does not include pension service cost or any prior service cost. In the fiscal years above for the non-PEO NEOs, the Company did not have any equity awards that were granted and vested in the same year, and did not have any forfeitures of prior awards. Dividends are not paid on unvested shares. To compute CAP, the Company used “Total Equity Award Related Adjustments,” as noted in the reconciliations above, in place of “Fair Value of Equity Awards granted during the year from SCT” for each applicable fiscal year. The NEOs included in this table are Tammy Romo for years 2020 through 2023; Michael G. Van de Ven for years 2020 through 2022; Thomas M. Nealon and Robert E. Jordan for years 2020 and 2021; Andrew M. Watterson for years 2021 through 2023; Mark R. Shaw for years 2022 and 2023; and Gary C. Kelly for 2023. |
Pay Versus Performance Table
| (3) See “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation – Equity Awards – Performance-Based RSUs” for discussion of the vesting provisions and requirements associated with the Company’s performance-based RSUs. The performance-based RSUs granted in 2019 and 2020 that were scheduled to vest in February 2022 and February 2023, respectively, lost all value and paid out at zero percent due to the Company’s performance results during the COVID-19 pandemic. The valuation of the performance-based RSU portion of the Equity Awards for purposes of computing CAP required the following valuation assumptions: |
Pay Versus Performance Table
| Performance- based RSU Grant Year | Percent Vesting Assumption at December 31, 2019 (%) | Percent Vesting Assumption at December 31, 2020 (%) | Percent Vesting Assumption at December 31, 2021 (%) | Percent Vesting Assumption at December 31, 2022 (%) | Percent Vesting Assumption at December 31, 2023 (%) | | 2023 | — | — | — | — | 100 | | 2022 | — | — | — | 100 | 150 | | 2021 | — | — | 100 | 300 | 276.3 | | 2020 | — | 0 | 0 | 0 | — | | 2019 | 200 | 0 | 0 | — | — | | 2018 | 200 | 151.3 | — | — | — | | 2017 | 196.3 | — | — | — | — |
Pay Versus Performance Table
| (4) The Company is using the NYSE ARCA Airline Index for calculating its peer group Total Shareholder Return (“TSR”) to be consistent with its 2023 Annual Report on Form 10-K. |
Pay Versus Performance Table
| (5) The Company-Selected Measure, ROIC (after-tax) less Excess Cash, is calculated in the manner set forth in “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation – Equity Awards – Performance-Based RSUs.” |
Narrative Disclosure to Pay Versus Performance Table
Narrative Disclosure to Pay Versus Performance Table Relationship between CAP and cumulative TSR. TSR is not a financial performance metric used by the Company to determine executive compensation for any of its named executive officers. However, as discussed in “Compensation Discussion and Analysis” in the Executive Summary section, the Company has granted RSUs and performance-based RSUs, the ultimate value of which will be tied to the Company’s stock price at the time of the respective vestings.
Narrative Disclosure to Pay Versus Performance Table
| 52 | | Southwest Airlines 2024 Proxy Statement |
Narrative Disclosure to Pay Versus Performance Table
The COVID-19 pandemic had a severely negative impact on the airline industry from 2020 to early 2022. The table below shows a comparison of annual TSRs, including cumulative TSRs, between the Company and its peer group. CAP for the Company’s NEOs generally correlated with the directional movement of TSR from 2020 through 2022. For 2023, CAP for the named executive officers began to be impacted by the vesting of long-term performance-based cash incentive opportunities granted in 2021, restricted cash performance opportunities granted in 2022, and long-term restricted cash opportunities granted in 2022, in each case causing misalignment between TSR and CAP.
Narrative Disclosure to Pay Versus Performance Table
| Year | Company TSR (%) | Peer Group TSR (%) | | 2023 | (12.70) | 31.25 | | 2022 | (21.25) | (35.14) | | 2021 | (8.05) | (2.63) | | 2020 | (13.00) | (24.00) | | Cumulative | (45.00) | (37.00) |
Narrative Disclosure to Pay Versus Performance Table
Relationship between CAP and GAAP net income. GAAP net income is not a financial performance metric directly used by the Company to determine executive compensation for any of its named executive officers. However, as discussed in “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Short-Term Incentive Compensation,” for 2023, GAAP net income was a component of the EBITDA calculation for determining 50 percent of the Scorecard results, in addition to being used for determining 45 percent of the 2022 Scorecard results. Further, as discussed in “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements – Long-Term Incentive Compensation – Equity Awards – Performance-Based RSUs,” for 2023, Operating income (a portion of GAAP net income) is a component of the ROIC (after-tax) less Excess Cash calculation used to determine the percent of performance-based RSUs granted in 2023 that will vest in 2026, in addition to being used to determine the percent of performance-based RSUs granted in 2022 that will vest in 2025. For 2021, GAAP net income was a component of the average daily core cash burn calculation for determining 30 percent of the 2021 Scorecard results. Also, for 2021, GAAP net income was a component of the EBITDA calculation used to determine the percent of performance-based RSUs granted in 2021 that vested in 2024. Operating income (a portion of GAAP income) has also been a component of (i) the ROIC calculation used to determine the percent of performance-based RSUs granted in 2020 that were scheduled to vest in 2023, (ii) the ROIC calculation used to determine the percent of performance-based RSUs granted in 2019 that were scheduled to vest in 2022, (iii) the ROIC calculation used to determine the percent of performance-based RSUs granted in 2018 that vested in 2021, and (iv) the ROIC calculation used to determine the percent of performance-based RSUs granted in 2017 that vested in 2020. As can be observed in the PVPT, CAP for the Company’s NEOs generally correlated with the directional movement of GAAP net income from 2020 through 2022. For 2023, CAP for the named executive officers began to be impacted by the vesting of long-term performance-based cash incentive opportunities granted in 2021, restricted cash performance opportunities granted in 2022, and long-term restricted cash opportunities granted in 2022, in each case causing misalignment between GAAP net income and CAP. Relationship between CAP and the Company Selected Measure (ROIC (after-tax) less Excess Cash). As discussed in “Compensation Discussion and Analysis”, a significant portion of the Company’s compensation for its named executive officers is in the form of performance-based RSUs and/or performance-based cash incentive opportunities. As further discussed in “Compensation Discussion and Analysis”, with respect to performance-based RSUs and performance-based cash incentive opportunities granted in 2023, the number of performance-based RSUs vesting and settleable in shares of common stock, as well as the payout of performance-based cash, at the 2026 vesting date is based entirely on the Company’s achievement of ROIC (after-tax) less Excess Cash targets, and can range from zero to 200 percent of the applicable performance-based RSU stock award and/or performance-based cash incentive opportunity. In addition, with respect to performance-based RSUs granted in 2022, the number of performance-based RSUs vesting and settleable in shares of common stock, as well as the payout of performance-based cash, at the 2025 vesting date is based entirely on the Company’s achievement of ROIC (after-tax) less Excess Cash targets, and can range from zero to 300 percent of the applicable performance-based RSU stock award and/or performance-based cash incentive opportunity. For 2023, the Company achieved ROIC less Excess Cash of 5.7 percent, and the Company accordingly maintained its percent vesting assumption at December 31, 2023, at 100 percent of the 2023 performance-based RSU stock award for each named executive officer.
Narrative Disclosure to Pay Versus Performance Table
| Southwest Airlines 2024 Proxy Statement | | 53 |
Narrative Disclosure to Pay Versus Performance Table
With the exception of 2021 when equity grants were made during the COVID-19 pandemic, the Company has historically granted performance-based RSUs using a form of ROIC as the sole performance metric for determining the number of performance-based RSUs vesting and settleable in shares of common stock at the applicable vesting date. For 2021, during the pandemic, the Company chose adjusted EBITDA as the primary long-term performance metric for performance-based RSUs and performance-based cash opportunities to further align the Company’s incentive compensation with the Company’s change in primary focus to liquidity, reflecting what the Company believed would be most important to Shareholders at the time. During 2020, the Company’s equity grants took place before the start of the COVID pandemic, and the Company used after-tax ROIC as the sole performance metric for determining the number of performance-based RSUs vesting and settleable in shares of common stock at the applicable vesting date. Those shares were scheduled to vest in February 2023, but lost all value and paid out at zero percent due to the Company’s performance results during the COVID-19 pandemic. For 2019 and 2018, the Company used after-tax ROIC as the sole performance metric for determining the number of performance-based RSUs vesting and settleable in shares of common stock at the applicable vesting date. Those shares vested in February 2022 and February 2021, respectively, and paid out at zero percent and 151.3 percent, respectively. For 2017, the Company used pre-tax ROIC as the sole performance metric for determining the number of performance-based RSUs vesting and settleable in shares of common stock at the applicable vesting date. Those shares vested in February 2020, and paid out at 196.3 percent. Prior to 2020 and the COVID-19 pandemic, the Company has also previously used ROIC for purposes of short-term incentive compensation. This change in the performance metric during the COVID-19 pandemic results in a minor misalignment between ROIC (after-tax) less Excess Cash and CAP as can be observed in the PVPT, although for most NEOs compensation decreased annually during the three year period from 2020 through 2022 while ROIC (after-tax) less Excess Cash increased. For 2023, CAP for the named executive officers began to be impacted by the vesting of long-term performance-based cash incentive opportunities granted in 2021, restricted cash performance opportunities granted in 2022, and long-term restricted cash opportunities granted in 2022, in each case causing misalignment between ROIC (after-tax) less Excess Cash and CAP. Tabular List of Performance Measures Linking Pay for all Named Executive Officers to Company Performance Financial
Narrative Disclosure to Pay Versus Performance Table
| • | ROIC (after-tax) less Excess Cash – See “Compensation Discussion and Analysis” for further information; |
Narrative Disclosure to Pay Versus Performance Table
| • | EBITDA - See “Compensation Discussion and Analysis” for further information; and |
Narrative Disclosure to Pay Versus Performance Table
| • | Company Stock Price. |
Narrative Disclosure to Pay Versus Performance Table
Non- Financial
Narrative Disclosure to Pay Versus Performance Table
| • | Ontime Performance - See “Compensation Discussion and Analysis” for further information; |
Narrative Disclosure to Pay Versus Performance Table
| • | Completion Factor - See “Compensation Discussion and Analysis” for further information; |
Narrative Disclosure to Pay Versus Performance Table
| • | Ontime Net Promoter Score - See “Compensation Discussion and Analysis” for further information; and |
Narrative Disclosure to Pay Versus Performance Table
| • | Company progress towards major initiatives (subjective determination by the Compensation Committee) - See “Compensation Discussion and Analysis” for further information. |
Narrative Disclosure to Pay Versus Performance Table
| 54 | | Southwest Airlines 2024 Proxy Statement |
Grants of Plan-Based Awards in Fiscal 2023
Grants of Plan-Based Awards in Fiscal 2023 The following table provides information with respect to grants of plan-based awards to the named executive officers in 2023.
Grants of Plan-Based Awards in Fiscal 2023
| Name | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | | | Estimated Future Payouts Under Equity Incentive Plan Awards(3) | | | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | Grant Date Fair Value of Stock Awards ($)(5) | | | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | | | | Robert E. Jordan | —(1) | N/A | 1,400,000 | 2,100,000 | — | — | — | — | — | | | —(2) | 74,750 | 747,500 | 1,495,000 | — | — | — | — | — | | | 2/1/2023 | — | — | — | 5,760 | 57,606 | 115,212 | — | 2,052,502 | | | 2/1/2023 | — | — | — | — | — | — | 57,606 | 2,052,502 | | Tammy Romo | —(1) | N/A | 724,545 | 1,086,818 | — | — | — | — | — | | | —(2) | 22,000 | 220,000 | 440,000 | — | — | — | — | — | | | 2/1/2023 | — | — | — | 2,771 | 27,718 | 55,436 | — | 987,592 | | | 2/1/2023 | — | — | — | — | — | — | 27,718 | 987,592 | | Gary C. Kelly | —(1) | N/A | 950,000 | 1,425,000 | — | — | — | — | — | | | —(2) | — | — | — | — | — | — | — | — | | | 2/1/2023 | — | — | — | 5,332 | 53,326 | 106,652 | — | 1,900,005 | | | 2/1/2023 | — | — | — | — | — | — | 53,326 | 1,900,005 | | Andrew M. Watterson | —(1) | N/A | 862,500 | 1,293,750 | — | — | — | — | — | | | —(2) | 32,150 | 321,500 | 643,000 | — | — | — | — | — | | | 2/1/2023 | — | — | — | 3,132 | 31,322 | 62,644 | — | 1,116,003 | | | 2/1/2023 | — | — | — | — | — | — | 31,322 | 1,116,003 | | Mark R. Shaw | —(1) | N/A | 667,440 | 1,001,160 | — | — | — | — | — | | | —(2) | 6,600 | 66,000 | 132,000 | — | — | — | — | — | | | 2/1/2023 | — | — | — | 2,590 | 25,900 | 51,800 | — | 922,817 | | | 2/1/2023 | — | — | — | — | — | — | 25,900 | 922,817 |
Grants of Plan-Based Awards in Fiscal 2023
| (1) This row shows cash incentive awards granted under the Company’s STI Plan with respect to the performance period from January 1, 2023 through December 31, 2023. This row shows the potential amounts to be paid based on achievement at target and maximum performance levels. The potential payouts were performance-driven and therefore completely at risk. The amount of the Compensation Committee determined payout for 2023, beginning at zero percent of the target payout, was interpolated between performance targets. The business metrics and targets used to determine the amounts of the awards paid are described above under “Compensation Discussion and Analysis.” |
Grants of Plan-Based Awards in Fiscal 2023
| (2) This row shows performance-based cash awards granted under the STI Plan with respect to the performance period from January 1, 2023 through December 31, 2025. These performance-based cash awards are scheduled to vest, if at all, on February 21, 2026 (the “Cash Award Vesting Date”), and are settleable in cash. This row shows the potential amounts to be paid upon vesting of the performance-based cash awards for each named executive officer based on achievement at the threshold, target, and maximum performance levels. The potential payouts are performance-driven and therefore completely at risk. The amount of performance-based cash awards that will vest and the amount of cash to be paid, if any, as of the Cash Award Vesting Date will be determined based on the achievement of ROIC (after-tax) less Excess Cash targets. The percentage of performance-based cash awards vesting will be interpolated between the ROIC (after-tax) less Excess Cash targets only after a minimum ROIC (after-tax) less Excess Cash level has been achieved as follows: |
Grants of Plan-Based Awards in Fiscal 2023
| 2023-2025 ROIC (after-tax) less Excess Cash | Cash Amount Payable | | 8.0% or greater | Target Value x 10% | | 10% | Target Value x 100% | | 14% | Target Value x 200% |
Grants of Plan-Based Awards in Fiscal 2023
| In the event the Company’s ROIC (after-tax) less Excess Cash is greater than zero and its ROIC relative to a specified peer group exceeds the median ROIC of the specified peer group, (i) the minimum amount of cash that will become payable pursuant to this award as of the vesting date will be equal to the target value times 50 percent, and (ii) in the event the Company’s relative ROIC ranks highest in the Company’s peer group, the minimum amount of cash that will become payable pursuant to this award as of the vesting date will be equal to the target value times 100 percent. In the event the peer group qualifier applies, the amount of cash that will become payable pursuant to this award as of the vesting date will be determined based on the Company’s relative position within the top half of the peer group (i.e., rank-based interpolation). |
Grants of Plan-Based Awards in Fiscal 2023
| Southwest Airlines 2024 Proxy Statement | | 55 |
Grants of Plan-Based Awards in Fiscal 2023
| “After-tax Adjusted Operating Income” means Operating income (calculated in accordance with GAAP) as adjusted to reflect the impact to Operating Income from (1) fuel contracts (net), (2) special items, as disclosed from time to time in the Company’s earnings release and filings with the Securities and Exchange Commission, (3) aircraft leases (net), and (4) fuel hedge program expense, with each such adjustment tax affected as appropriate. For any individual year in which the After-tax Adjusted Operating Income is a loss, it will be set at zero. |
Grants of Plan-Based Awards in Fiscal 2023
| “Adjusted Average Invested Capital” for an individual year in the three-year performance period means an average of the five most recent quarter end balances of debt, net present value of aircraft leases, and equity adjusted for hedge accounting. “Excess Cash” means the average annual cash and cash equivalents and short-term investments balances in excess of $6.0 billion, which is subtracted from the Adjusted Average Invested Capital in each period’s ROIC calculation. |
Grants of Plan-Based Awards in Fiscal 2023
| ROIC (after-tax) less Excess Cash for the entire performance period will be the average of the ROIC (after-tax) less Excess Cash of the three individual years within the performance period. |
Grants of Plan-Based Awards in Fiscal 2023
| For purposes of the ROIC (after-tax) less Excess Cash calculation, the assumed federal tax rate is 24 percent. In the event of a change in the corporate tax rate that the Compensation Committee of the Company’s Board (the “Committee”) deems to significantly impact the Company’s ROIC (after-tax) less Excess Cash results, the Committee shall have the authority to adjust the ROIC (after-tax) less Excess Cash calculation in its sole discretion. |
Grants of Plan-Based Awards in Fiscal 2023
| (3) The awards consist of performance-based RSUs granted under the Company’s Amended and Restated 2007 Equity Incentive Plan (the “2007 Equity Plan”) with respect to the performance period from January 1, 2023 to December 31, 2025 (the “Performance Period”). The performance-based RSUs are scheduled to vest, if at all, on February 21, 2026 (the “Vesting Date”), and are settleable in shares of common stock. These columns show the potential number of shares of common stock to be paid out upon vesting of the performance-based RSUs for each named executive officer based on achievement at the threshold, target, and, maximum performance levels. The potential payouts are performance-driven and therefore completely at risk. The number of performance-based RSUs that will vest and the number of shares of the Company’s common stock to be issued, if any, as of the Vesting Date will be determined based on the achievement of ROIC (after-tax) less Excess Cash targets. The percentage of performance-based RSUs vesting will be interpolated between the ROIC (after-tax) less Excess Cash targets only after a minimum ROIC (after-tax) less Excess Cash level has been achieved follows: |
Grants of Plan-Based Awards in Fiscal 2023
| 2023-2025 ROIC (after-tax) less Excess Cash | Number of Performance-Based RSUs Vesting and Settleable in Common Stock as of the Vesting Date | | 8% or greater | Grant Amount x 10% | | 10% | Grant Amount x 100% | | 14% | Grant Amount x 200% |
Grants of Plan-Based Awards in Fiscal 2023
| In the event the Company’s ROIC (after-tax) less Excess Cash is greater than zero and its ROIC relative to a specified peer group exceeds the median ROIC of the specified peer group, (i) the minimum number of performance-based RSUs that will vest pursuant to this award and the number of shares of the Company’s common stock to be issued as of the vesting date will be equal to the grant amount times 50 percent and (ii) in the event the Company’s relative ROIC ranks highest in the Company’s peer group, the minimum number of performance-based RSUs that will vest pursuant to this award and the number of shares of the Company’s common stock to be issued as of the vesting date will be equal to the grant amount times 100 percent. In the event the peer group qualifier applies, the number of shares of the Company’s common stock to be issued as of the vesting date will be determined based on the Company’s relative position within the top half of the peer group (i.e., rank-based interpolation). |
Grants of Plan-Based Awards in Fiscal 2023
| “After-tax Adjusted Operating Income” means Operating income (calculated in accordance with GAAP) as adjusted to reflect the impact to Operating Income from (1) fuel contracts (net), (2) special items, as disclosed from time to time in the Company’s earnings release and filings with the Securities and Exchange Commission, (3) aircraft leases (net), and (4) fuel hedge program expense, with each such adjustment tax affected as appropriate. For any individual year in which the After-tax Adjusted Operating Income is a loss, it will be set at zero. |
Grants of Plan-Based Awards in Fiscal 2023
| “Adjusted Average Invested Capital” for an individual year in the three-year performance period means an average of the five most recent quarter end balances of debt, net present value of aircraft leases, and equity adjusted for hedge accounting. “Excess Cash” means the average annual cash and cash equivalents and short-term investments balances in excess of $6.0 billion, which is subtracted from the Adjusted Average Invested Capital in each period’s ROIC calculation. |
Grants of Plan-Based Awards in Fiscal 2023
| ROIC (after-tax) less Excess Cash for the entire performance period will be the average of the ROIC (after-tax) less Excess Cash of the three individual years within the performance period. |
Grants of Plan-Based Awards in Fiscal 2023
| For purposes of the ROIC (after-tax) less Excess Cash calculation, the assumed federal tax rate is 24 percent. In the event of a change in the corporate tax rate that the Committee deems to significantly impact the Company’s ROIC (after-tax) less Excess Cash results, the Committee shall have the authority to adjust the ROIC (after-tax) less Excess Cash calculation in its sole discretion. |
Grants of Plan-Based Awards in Fiscal 2023
| (4) The awards consist of RSUs granted under the 2007 Equity Plan. The RSUs are settleable in shares of common stock and are scheduled to vest with respect to one-third of the shares covered thereby annually, which vesting began on February 21, 2024. The Company does not pay dividends on unvested RSUs. |
Grants of Plan-Based Awards in Fiscal 2023
| (5) The values included in this column represent the grant date fair value of these awards computed in accordance with FASB ASC Topic 718 determined without regard to forfeitures. The assumptions used in calculating the values for fiscal 2023 are included in Note 10 to the Company’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023. |
Grants of Plan-Based Awards in Fiscal 2023
| 56 | | Southwest Airlines 2024 Proxy Statement |
Outstanding Equity Awards at Fiscal 2023 Year-End
Outstanding Equity Awards at Fiscal 2023 Year-End The following table provides information with respect to RSUs (including performance-based RSUs) held by the named executive officers as of December 31, 2023. RSUs (including performance-based RSUs) were the only types of equity awards outstanding for the named executive officers at fiscal 2023 year-end.
Outstanding Equity Awards at Fiscal 2023 Year-End
| | Stock Awards | | | | | Name | Number of Shares or Units of Stock That Have Not Vested (#)(1) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | | Robert E. Jordan | 120,913(4) | 3,491,967 | 9,773(5) | 282,244 | | Tammy Romo | 76,246(6) | 2,201,984 | 4,642(7) | 134,061 | | Gary C. Kelly | 128,316(8) | 3,705,766 | 9,343(9) | 269,826 | | Andrew M. Watterson | 82,966(10) | 2,396,058 | 4,736(11) | 136,776 | | Mark R. Shaw | 80,456(12) | 2,323,569 | 4,382(13) | 126,552 |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (1) The awards consist of RSUs that are settleable in shares of common stock, including RSUs acquired upon the satisfaction of performance criteria underlying an award of performance-based RSUs for the performance period from January 1, 2022 to December 31, 2023. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (2) Market value is computed by multiplying the number of RSUs or performance-based RSUs by $28.88, which was the closing price per share of the Company’s common stock on December 29, 2023 on the NYSE. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (3) The awards consist of performance-based RSUs that are settleable in shares of common stock, including (i) performance-based RSUs that were granted on February 1, 2022, with respect to the performance period from January 1, 2022 to December 31, 2024, and that are scheduled to vest on February 21, 2025; and (ii) performance-based RSUs that were granted on February 1, 2023, with respect to the performance period from January 1, 2023 to December 31, 2025, and that are scheduled to vest on February 21, 2026. In accordance with SEC rules, the number of performance-based RSUs from the 2022 grant represents the threshold number of performance-based RSUs that may vest on the February 21, 2025 vesting date and the number of performance-based RSUs from the 2023 grant represents the threshold number of performance-based RSUs that may vest on the February 21, 2026 vesting date. The potential payouts are performance-driven and therefore completely at risk. The number of shares of the Company’s common stock to be issued, if any, as of the February 21, 2025 vesting date will be determined based on (i) the Company’s achievement ROIC (after-tax) less Excess Cash for the performance period from January 1, 2022 through December 31, 2024; and (ii) the Company’s ROIC for the same performance period, but in relation to the Company’s peers. The number of shares of the Company’s common stock to be issued, if any, as of the February 21, 2026 vesting date will be determined based on (i) the Company’s achievement of ROIC (after-tax) less Excess Cash for the performance period from January 1, 2023 through December 31, 2025; and (ii) the Company’s ROIC for the same performance period, but in relation to the Company’s peers. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (4) Of these RSUs, (i) 69,130 vested on February 21, 2024; (ii) 32,581 are scheduled to vest on February 21, 2025; and (iii) 19,202 are scheduled to vest on February 21, 2026. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (5) Of these performance-based RSUs, the threshold number that may vest on February 21, 2025 is 4,013; and the threshold number that may vest on February 21, 2026 is 5,760. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (6) Of these RSUs. (i) 51,530 vested on February 21, 2024; (ii) 15,477 are scheduled to vest on February 21, 2025; and (iii) 9,239 are scheduled to vest on February 21, 2026. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (7) Of these performance-based RSUs, the threshold number that may vest on February 21, 2025 is 1,871; and the threshold number that may vest on February 21, 2026 is 2,771. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (8) Of these RSUs, (i) 79,394 vested on February 21, 2024; (ii) 31,147 are scheduled to vest on February 21, 2025; and (iii) 17,775 are scheduled to vest on February 21, 2026. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (9) Of these performance-based RSUs, the threshold number that may vest on February 21, 2025 is 4,011; and the threshold number that may vest on February 21, 2026 is 5,332. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (10) Of these RSUs, (i) 56,736 vested on February 21, 2024; (ii) 15,790 are scheduled to vest on February 21, 2025; and (iii) 10,440 are scheduled to vest on February 21, 2026. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (11) Of these performance-based RSUs, the threshold number that may vest on February 21, 2025 is 1,604; and the threshold number that may vest on February 21, 2026 is 3,132. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (12) Of these RSUs, (i) 57,216 vested on February 21, 2024; (ii) 14,607 are scheduled to vest on February 21, 2025; and (iii) 8,633 are scheduled to vest on February 21, 2026. |
Outstanding Equity Awards at Fiscal 2023 Year-End
| (13) Of these performance-based RSUs, the threshold number that may vest on February 21, 2025 is 1,792; and the threshold number that may vest on February 21, 2026 is 2,590. |
Outstanding Equity Awards at Fiscal 2023 Year-End
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Option Exercises and Stock Vested During Fiscal 2023
Option Exercises and Stock Vested During Fiscal 2023 The following table provides information with respect to stock awards vested for the named executive officers during 2023. None of the named executive officers had stock options outstanding during 2023.
Option Exercises and Stock Vested During Fiscal 2023
| | Stock Awards | | | Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | | Robert E. Jordan | 31,550 | 1,065,128 | | Tammy Romo | 24,585 | 829,990 | | Gary C. Kelly | 59,756 | 2,017,363 | | Andrew M. Watterson | 20,440 | 690,054 | | Mark R. Shaw | 20,827 | 703,120 |
Option Exercises and Stock Vested During Fiscal 2023
| (1) Calculated by multiplying the number of shares acquired upon the February 21, 2023 vesting of RSUs and/or performance-based RSUs by $33.76, the closing price of the Company’s common stock on February 21, 2023. The performance-based RSUs granted in 2020 that were scheduled to vest in February 2023, lost all value and paid out at zero percent due to the Company’s performance results during the COVID-19 pandemic. |
Nonqualified Deferred Compensation in Fiscal 2023
Nonqualified Deferred Compensation in Fiscal 2023 As discussed above under “Compensation Discussion and Analysis – Retirement and Related Benefits,” the Company maintains tax-qualified 401(k) and profit sharing plans for its eligible Employees. The 401(k) plan for non-Pilot Employees provides for a Company match on non-Pilot Employee contributions. As discussed in more detail above under “Compensation Discussion and Analysis – Retirement and Related Benefits,” the profit sharing plan provides for a discretionary annual Company contribution to Employee accounts equal to an amount determined by the Board in its sole discretion. The Company also sponsors a Pilots’ 401(k) plan pursuant to which each eligible Pilot received a fully-vested non-elective Company contribution equal to 15.0 percent of such Pilot’s eligible compensation for 2023, whether or not the Pilot made his or her own contributions to the plan. This non-elective Company contribution increased to 17.0 percent after February 20, 2024, per the newly ratified Southwest Pilots’ Association contract. Further, beginning January 1, 2024, the Company accrues pay credits equaling one percent of Pilots’ eligible wages, which the Company is expected to contribute to a qualified cash balance plan. The Company is expected to establish this cash balance plan in 2024. The Company is expected to seek IRS approval to credit amounts above the Code Sections 401(a)(17) and 415(c) limitations to the cash balance plan, as well. The Company is expected to begin crediting these amounts after it receives approval to do so from the IRS, which the Company anticipates will occur in 2025. The cash balance accounts are expected to earn interest credits, which are tied to the performance of a market-based benchmark, targeting a 40 percent equity and 60 percent bond mix. Employees in the following workgroups receive non-elective contributions plus a dollar-for-dollar match, which combined equals up to 9.3 percent of their eligible income: Customer Service Agents, Customer Representatives, and Source of Support Representatives represented by the International Association of Machinists and Aerospace Workers, and Material Specialists represented by the International Brotherhood of Teamsters.
Nonqualified Deferred Compensation in Fiscal 2023
| 58 | | Southwest Airlines 2024 Proxy Statement |
Nonqualified Deferred Compensation in Fiscal 2023
The Company also offers a non-qualified excess benefit plan. This plan enables eligible Employees to defer Company contributions (“excess amounts”) that cannot be contributed to the 401(k) or profit sharing plans due to the qualified plan contribution limits of Section 415(c) of the Internal Revenue Code. The plan only allows contributions above the Code Section 415(c) limits and prohibits other Employee contributions to the plan. Under the excess benefit plan, Employees, including the named executive officers, with excess amounts of at least $1,000 may defer payment of their excess amounts. Employees are immediately 100 percent vested in their benefits under the excess benefit plan; however, the benefits are unsecured obligations of the Company in the event of its bankruptcy or insolvency. Before the beginning of each plan year, participants may select a rate of return to apply to the amounts to be deferred to the excess benefit plan for the upcoming plan year. In 2023, the excess benefit plan allowed participants to select a rate of return equal to returns in one or more of the following investment options:
Nonqualified Deferred Compensation in Fiscal 2023
| Fund Name | Ticker | 2023 Rate of Return | | Vanguard Target Retirement Income Fund | VTINX | 10.65% | | Vanguard Target Retirement 2020 Fund | VTWNX | 12.51% | | Vanguard Target Retirement 2025 Fund | VTTVX | 14.55% | | Vanguard Target Retirement 2030 Fund | VTHRX | 15.99% | | Vanguard Target Retirement 2035 Fund | VTTHX | 17.14% | | Vanguard Target Retirement 2040 Fund | VFORX | 18.34% | | Vanguard Target Retirement 2045 Fund | VTIVX | 19.48% | | Vanguard Target Retirement 2050 Fund | VFIFX | 20.17% | | Vanguard Target Retirement 2055 Fund | VFFVX | 20.16% | | Vanguard Target Retirement 2060 Fund | VTTSX | 20.18% | | Vanguard Target Retirement 2065 Fund | VLXVX | 20.15% | | Vanguard Target Retirement 2070 Fund | VSVNX | 20.24% | | Vanguard Institutional Index Fund Institutional Plus Shares | VIIIX | 26.26% | | Payden Absolute Return Bond Fund SI Class | PYAIX | 6.45% |
Nonqualified Deferred Compensation in Fiscal 2023
The prior Vanguard Institutional Target Retirement Funds were merged into the Vanguard Investor Target Retirement Funds noted above. This change was effective on February 11, 2022. Amounts deferred to the excess benefit plan before 2018 received a rate of return equal to one or more of the following, in accordance with the participants’ elections:
Nonqualified Deferred Compensation in Fiscal 2023
| Fund Name | Ticker | 2023 Rate of Return | | Vanguard 500 Index Fund Admiral Shares | VFIAX | 26.24% | | Fixed Income Fund Plus 2 Percent | N/A | 7.20% |
Nonqualified Deferred Compensation in Fiscal 2023
Once an excess amount is credited to a participant’s account, the participant may not change that investment election for that amount or transfer amounts between funds, but participants may change investment elections during annual enrollment for new excess amounts deferred. Participants may receive their accounts upon separation from service with the Company. They must elect the time and form of distribution of their accounts before their first year of participation in the excess benefit plan. Distribution may be in a lump sum payout or equal annual installments over a period of up to five years. It may be received or commenced (i) in the calendar year of separation from service or (ii) the calendar year following the year in which separation from service occurs. The Company also offers a separate nonqualified deferred compensation plan, the SMC Deferred Compensation Plan, which is designed to provide benefits with respect to Employee contributions that cannot be contributed to the Company’s 401(k) plans due to qualified plan limits established by the IRS. Under the SMC Deferred Compensation Plan, officers of the Company who are not eligible to participate in the Company’s 2005 Deferred Compensation Plan for Pilots may, before the beginning of each plan year, irrevocably elect to defer up to 50 percent of their salary otherwise payable to them for such plan year and 100 percent of any bonus amounts they earn for such plan year. In 2023, the SMC Deferred Compensation Plan provided a rate of return equal to one or more of the investment options shown in the table above for the excess benefit plan.
Nonqualified Deferred Compensation in Fiscal 2023
| Southwest Airlines 2024 Proxy Statement | | 59 |
Nonqualified Deferred Compensation in Fiscal 2023
Participant benefits are unsecured obligations of the Company in the event of its bankruptcy or insolvency. Participants may receive their accounts upon separation from service with the Company. They must elect the time and form of distribution of their accounts before their first year of participation in the SMC Deferred Compensation Plan. Distribution may be in a lump sum payout or equal annual installments over a period of up to five years. It may be received or commenced (i) in the calendar year of separation from service or (ii) the calendar year following the year in which separation from service occurs. Through January 31, 2022, Mr. Kelly had an individual deferred compensation letter agreement (the “Prior Letter Agreement”), pursuant to which the Company made contributions to Mr. Kelly’s account to the extent such amounts could not be contributed to the Company’s tax-qualified 401(k) and profit sharing plans due to contribution limits and compensation limits established by the IRS. The Prior Letter Agreement provided for accrual and crediting to Mr. Kelly’s account, each January, of simple interest at a rate of ten percent, compounded annually, on the accrued and unpaid balance of the deferred compensation credited to his account as of the preceding December 31. Effective February 1, 2022, Mr. Kelly entered into his 2022 Letter Agreement, and the Prior Letter Agreement was terminated. Under the 2022 Letter Agreement, deferred compensation contributions to Mr. Kelly’s account ceased after the 2022 plan year. In addition, beginning January 1, 2023, simple interest on the balance of the deferred compensation credited to Mr. Kelly’s account will be equal to 120 percent of the Applicable Federal Long-Term Rate for January 2023, compounded annually. Subject to any applicable requirements of Section 409A of the Internal Revenue Code, the deferred compensation credited to Mr. Kelly’s account will be paid to him at the rate of $200,000 per calendar year, beginning the calendar year following the year in which his separation from service occurs. The following table provides information with respect to nonqualified deferred compensation earned by the named executive officers for 2023.
Nonqualified Deferred Compensation in Fiscal 2023
| | | Nonqualified Deferred Compensation for Fiscal 2023 | | | | | | Name | Plan | Executive Contributions in Last Fiscal Year ($) | Southwest Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) | Aggregate Balance at December 31, 2023 ($) | | Robert E. Jordan | Excess Benefit Plan | — | — | 91,220(1) | — | 438,823(2) | | Tammy Romo | — | — | — | — | — | — | | Gary C. Kelly | Prior Letter Agreement | — | — | 146,194(1) | — | 3,343,289(3) | | | Excess Benefit Plan | — | — | 5,465(1) | — | 81,418(4) | | | SMC Deferred Compensation Plan | — | — | 740,898(1) | — | 7,819,593(5) | | Andrew M. Watterson | — | — | — | — | — | — | | Mark R. Shaw | — | — | — | — | — | — |
Nonqualified Deferred Compensation in Fiscal 2023
| (1) None of these earnings were above-market or preferential. Therefore, no portion of this amount has been reported as compensation to the named executive officer for the last completed fiscal year in the Summary Compensation Table. |
Nonqualified Deferred Compensation in Fiscal 2023
| (2) Of this amount, $113,111 has been required to be reported as compensation to Mr. Jordan in the Summary Compensation Table for previous years. |
Nonqualified Deferred Compensation in Fiscal 2023
| (3) Of this amount, $2,366,550 has been required to be reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years. |
Nonqualified Deferred Compensation in Fiscal 2023
| (4) None of this amount has been required to be reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years. |
Nonqualified Deferred Compensation in Fiscal 2023
| (5) Of this amount, $6,110,634 has been required to be reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years. |
Potential Payments Upon Termination or Change-in-Control
Potential Payments Upon Termination or Change-in-Control
Fiscal 2023 Director Compensation
Fiscal 2023 Director Compensation The following table provides information with respect to compensation earned by the non-Employee members of the Board of Directors for the year ended December 31, 2023.
Fiscal 2023 Director Compensation
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | All Other Compensation ($) | Total ($) | | David W. Biegler | 141,295 | 170,017 | — | 311,312 | | J. Veronica Biggins | 130,021 | 170,017 | — | 300,038 | | Roy Blunt | 52,082 | 170,020 | — | 222,102 | | Douglas H. Brooks | 135,521 | 170,017 | — | 305,538 | | Eduardo Conrado | 71,534 | 170,017 | — | 241,551 | | William H. Cunningham | 157,521 | 170,017 | — | 327,538 | | John G. Denison (3) | 69,425 | — | 75,000(4) | 144,425 | | Thomas W. Gilligan | 112,521 | 170,017 | — | 282,538 | | David P. Hess | 150,569 | 170,017 | — | 320,586 | | Nancy B. Loeffler (3) | 53,308 | — | 236,968(5) | 290,276 | | Elaine Mendoza | 121,034 | 170,017 | — | 291,051 | | John T. Montford | 142,521(6) | 170,017 | — | 312,538 | | Christopher P. Reynolds | 156,521 | 170,017 | — | 326,538 | | Ron Ricks | 180,521 | 170,017 | — | 350,538 | | Jill Soltau | 139,158 | 170,017 | — | 309,175 |
Fiscal 2023 Director Compensation
| (1) Awards consist of shares of common stock for each of the Company’s non-Employee members of the Board. Each non-Employee member of the Board on May 17, 2023, received 5,690 shares of common stock. Mr. Blunt, who did not join the Board until July 16, 2023, received 5,095 shares of common stock on August 2, 2023. The values included in this column represent the grant date fair value of these awards computed in accordance with FASB ASC Topic 718. Each amount is equal to the number of shares of common stock multiplied by the closing price of the Company’s common stock on the applicable date of the grant, which was $29.88 and $33.57, on May 17, 2023, and August 2, 2023, respectively. |
Fiscal 2023 Director Compensation
| (2) Through May 2009, non-Employee members of the Board received annual grants of performance shares pursuant to the Company’s Outside Director Incentive Plan, which terminated effective March 18, 2010, with respect to future grants. The aggregate number of performance shares outstanding under the Company’s Outside Director Incentive Plan at December 31, 2023, for each of the non-Employee Directors was as follows: Mr. Biegler — 5,000; Ms. Biggins — 0; Mr. Blunt — 0; Mr. Brooks — 0; Mr. Conrado — 0; Dr. Cunningham — 6,750; Mr. Denison — 0; Dr. Gilligan — 0; Mr. Hess — 0; Ms. Loeffler — 0; Ms. Mendoza — 0; Mr. Montford — 6,000; Mr. Reynolds — 0; Mr. Ricks — 0; and Ms. Soltau — 0. Pursuant to the terms of the Outside Director Incentive Plan, on the 30th calendar day following the date on which a non-Employee Director ceases to serve as a Director of the Company for any reason, the non-Employee Director is entitled to an amount in cash equal to the average fair market value of the Company’s common stock during the 30 days preceding the Director’s last date of service multiplied by the number of performance shares then held by such Director. |
Fiscal 2023 Director Compensation
| (3) Retired from the Board in May 2023. |
Fiscal 2023 Director Compensation
| (4) Amount was paid pursuant to the Southwest Airlines Co. Severance Plan for Directors. See the section titled “Southwest Airlines Co. Severance Plan for Directors” below for further information. |
Fiscal 2023 Director Compensation
| (5) Consists of (i) a retirement payment of $75,000 pursuant to the Company’s Amended and Restated Severance Plan for Directors; and (ii) a payout of $161,968 under the Company’s Outside Director Incentive Plan. Through May 2009, non-Employee members of the Board received annual grants of performance shares pursuant to the Company’s Outside Director Incentive Plan, which terminated effective March 18, 2010, with respect to future grants. Pursuant to the terms of the Outside Director Incentive Plan, on the 30th calendar day following the date on which Ms. Loeffler ceased to serve as a Director of the Company, she became entitled to an amount in cash equal to the average fair market value of the Company’s common stock during the 30 days preceding her last date of service multiplied by the 5,250 performance shares then held by her. |
Fiscal 2023 Director Compensation
| (6) Thirty percent of this amount (representing Mr. Montford’s cash retainer fees earned with respect to 2023) was deferred pursuant to the Company’s SMC Deferred Compensation Plan. |
Fiscal 2023 Director Compensation
| 64 | | Southwest Airlines 2024 Proxy Statement |
Fiscal 2023 Director Compensation
Non-Employee Directors’ cash retainer fees for Board membership and standing committees are generally paid on an annual basis. Board of Director and committee fees earned by the non-Employee Directors on an annualized basis with respect to 2023 are set forth in the table below:
Fiscal 2023 Director Compensation
| Board of Directors: | | | Retainer Fee (effective through June 30, 2023) | $85,000 | | Retainer Fee (effective July 1, 2023) | $90,000 | | Vice Chairman Retainer Fee | $35,000 | | Lead Director Retainer Fee | $35,000 | | Audit Committee: | | | Chair Retainer Fee | $30,000 | | Member Retainer Fee | $15,000 | | Compensation Committee: | | | Chair Retainer Fee | $25,000 | | Member Retainer Fee | $12,500 | | Nominating and Corporate Governance Committee: | | | Chair Retainer Fee | $20,000 | | Member Retainer Fee | $10,000 | | Safety and Compliance Oversight Committee: | | | Chair Retainer Fee | $20,000 | | Member Retainer Fee | $10,000 | | Executive Committee: | | | Chair Retainer Fee | $20,000 | | Retainer Fee for all Non-Employee Members of the Executive Committee | $10,000 | | Meetings in excess of regularly scheduled Board and Committee Meetings (includes Operations Review and Special Litigation Committees) | | | In-person or Telephonic Attendance Fee Per Meeting | $1,500 |
Fiscal 2023 Director Compensation
During 2023, the Company provided free travel on Southwest Airlines on a reserved basis for Board members, their spouses, and children of Board members. In addition, for 2023, Board members were provided up to 50 free oneway flight passes, which they could give to anyone on an unrestricted basis along with up to 50 free oneway flight passes, which they could request for use by qualified charitable and 501(c)(3) organizations. The non-Employee Directors’ current compensation program provides for the following travel privileges following a non-Employee Director’s retirement from the Board: (a) if the Director has served on the Board for at least ten years, the Director and his or her spouse are eligible for lifetime free travel on Southwest Airlines on a reserved basis; or (b) if the Director has served on the Board for less than ten years, the Director and his or her spouse are eligible for free travel on Southwest Airlines on a reserved basis for a period of time equal to the number of years served. In addition, non-Employee Directors may participate in professional development or continuing education programs, courses, seminars, and other similar events. The Company reimburses Directors for the costs associated with these programs, courses, and seminars, including reasonable travel expenses, membership fees, and registration fees. Southwest Airlines Co. Severance Plan for Directors. The Board of Directors adopted the Southwest Airlines Co. Severance Plan for Directors in 2000. Pursuant to this plan, upon retirement from the Board of Directors, a non-Employee Director who has served at least five years as of the date of retirement is entitled to a cash payment of $35,000, and a non-Employee Director who has served at least ten years as of the date of retirement is entitled to a cash payment of $75,000.
Fiscal 2023 Director Compensation
| Southwest Airlines 2024 Proxy Statement | | 65 |
Fiscal 2023 Director Compensation
| Audit Committee Report |
Fiscal 2023 Director Compensation
The Audit Committee has reviewed and discussed with management the audited financial statements of the Company for the year ended December 31, 2023. In addition, the Audit Committee has discussed with Ernst & Young LLP, the Company’s independent auditors, the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. The Audit Committee has also received the written disclosures and the letter from Ernst & Young required by applicable requirements of the PCAOB regarding Ernst & Young’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young its independence. Based on the foregoing review and discussions and relying thereon, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. AUDIT COMMITTEE John T. Montford, Chair Roy Blunt Eduardo F. Conrado William H. Cunningham Thomas W. Gilligan David P. Hess Elaine Mendoza
Fiscal 2023 Director Compensation
| 66 | | Southwest Airlines 2024 Proxy Statement |
Fiscal 2023 Director Compensation
| PROPOSAL 2 Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers |
Fiscal 2023 Director Compensation
In accordance with the Dodd-Frank Act, as well as Section 14A of the Exchange Act, and the rules promulgated thereunder, the Company is providing its Shareholders with the opportunity to cast a non-binding advisory vote on a resolution to approve the compensation of the Company’s named executive officers as disclosed in this Proxy Statement (the “Say-on-Pay Resolution”). This vote is not intended to address any specific element of compensation, but instead is intended to address the overall compensation of the named executive officers as disclosed in this Proxy Statement. As discussed in greater detail above under “Compensation of Executive Officers – Compensation Discussion and Analysis,” the Board and its Compensation Committee believe the compensation of the Company’s named executive officers for 2023 was reasonable and appropriate for the following reasons, among many others:
Fiscal 2023 Director Compensation
| • | The named executive officer compensation structure for 2023 reflects the Compensation Committee’s goal to balance the following objectives: (i) providing fair pay for performance, while maintaining a view from the perspective of the Company’s Shareholders; and (ii) retaining talent, while treating Employees consistently to the extent feasible. To link pay to performance and Shareholder interests, the Compensation Committee tied 100 percent of each named executive officer’s short-term incentive compensation opportunity to pre-established performance metrics. In establishing 2023 performance metrics and related targets, the Compensation Committee focused on operational integrity and financial success. In the Compensation Committee’s view, the resulting short-term incentive payouts for 2023 were fairly and appropriately aligned with Shareholder interests, as discussed in more detail above in “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements.” The named executive officers’ long-term incentive awards, which were granted in February 2023, reflected the Compensation Committee’s belief that long-term incentive awards, including equity, should constitute a strong component of overall compensation in order to (i) align a significant percentage of the named executive officers’ compensation opportunities with the interests of the Company’s Shareholders; (ii) serve as a performance-based method to provide appropriate total compensation opportunities relative to market, while also serving as a retention mechanism; and (iii) provide a sufficient percentage of total pay at risk when combined with short-term incentive compensation. Additional detail regarding the Compensation Committee’s rationale for its short-term incentive and long-term incentive determinations is provided above under “Compensation Discussion and Analysis – Determination of 2023 Executive Compensation; Analysis of Compensation Elements.” |
Fiscal 2023 Director Compensation
| • | During 2023, the Company provided minimal perquisites to the named executive officers and did not provide for tax gross-ups of executive compensation. |
Fiscal 2023 Director Compensation
| • | During 2023, none of the named executive officers, other than Mr. Kelly, was party to an employment contract with the Company. |
Fiscal 2023 Director Compensation
| • | The Compensation Committee has adopted an amended and restated clawback policy, pursuant to which, to the extent permitted by governing law, the Compensation Committee shall (unless determined to be impracticable) take reasonably prompt action to recoup executive officers’ erroneously awarded incentive-based compensation in the event the Company is required to restate its publicly reported financial statements due to material noncompliance with any financial reporting requirements. |
Fiscal 2023 Director Compensation
| • | None of the named executive officers has a severance arrangement related to termination of employment other than in connection with a change-in-control, and the change-in-control arrangements are “double trigger” in that they require both a change-in-control and termination of employment prior to any payout. Further, the Board has adopted a limitation on severance payments within the Company’s Corporate Governance Guidelines. |
Fiscal 2023 Director Compensation
| Southwest Airlines 2024 Proxy Statement | | 67 |
Proposal 6 – Improve the Right to Remove Unqualified Directors
Proposal 6 – Improve the Right to Remove Unqualified Directors Shareholders ask our Board of Directors to take the steps necessary to permit removal of directors by a majority vote of shareholders with or without cause. This proposal topic won more than 53% shareholder support at the 2023 Southwest Airlines annual meeting. This 53% support followed 47% support at the both the 2021 and 2022 Southwest Airlines annual meeting in spite of formidable management resistance. The Southwest Board went ballistic and published a statement of resistance that had 6-times as many words as the 2021 proposal itself. Plus there is no evidence that Southwest Airlines management subsequently talked to the large shareholders who voted in favor of the 2021, 2022 and 2023 proposals to determine the action they expected the Southwest Airlines Board to take. The 2021 Board resistance to this proposal topic stuck up for a practice that could allow 350 days to elapse between the time a director was arrested to the date the director could be removed. While the Board insisted that it should remain difficult to remove Southwest directors, there were signs that Southwest directors should take their jobs more seriously. These 3 Southwest directors each received more 29 million against votes in 2022: David Biegler, chair of the executive pay committee Veronica Biggins, chair of the nominating committee William Cunningham, age 79 These 4 Southwest directors each received between 40 million and 80 million against votes in 2023: David Biegler, age 77, chair of the executive pay committee Veronica Biggins, age 77, 80 million against votes, chair of the nominating committee William Cunningham, age 80 John Montford, age 80, chair of the audit committee This is the first opportunity for a shareholder proposal to be filed following the December 2022 Southwest Airlines scheduling crisis. This Southwest Airlines scheduling crisis suggests that the Board does not exercise proper oversight. Southwest Airlines extensively canceled flights including more than 60% of its flights on two days. Previously in June and October 2021 Southwest suffered flight mass cancellations—a dismissed heads-up event.
Proposal 6 – Improve the Right to Remove Unqualified Directors
| Southwest Airlines 2024 Proxy Statement | | 83 |
Proposal 6 – Improve the Right to Remove Unqualified Directors
By December 27, 2022 it became more clear that weather was not the sole cause of the mass cancellations; rather, the airline’s operational systems were struggling to recover from the disruptions. Antiquated computer infrastructure and software systems used for managing and crewing flights contributed heavily to the quantity of flight cancellations. The antiquated computer infrastructure was combined with the number of full-time tech workers at Southwest declining by 27% from 2018 to 2021. The airline’s hesitance to adopt new technology had almost become a running joke around the company. By January 6, 2023 Southwest stock had lost 8% of its value from immediately before the crisis. Southwest expected losses for the 4th quarter of 2022 of $725 million to $825 million. Please vote yes: