Three out of the four most highly paid executives at Alaska Air took pay cuts in 2020 — including a drop of more than 40% by its CEO — a year when the airline lost $1.3 billion due to the hit to air travel from the COVID-19 pandemic.

According to Alaska’s proxy statement filed on Friday, which details executive pay, the airline’s board in November partly alleviated the pay cuts through special awards of stock and options aimed at “retaining key team members who had been stewards of the Company through a pandemic.”

The one executive whose compensation increased last year was Ben Minicucci, who on Wednesday takes over as chief executive from highly regarded retiring CEO Brad Tilden. For that promotion, the board granted Minicucci stock and options worth $1.5 million that, along with the November awards, made up for the other hits to his total compensation.

As a result, Minicucci’s effective total compensation rose from $3.5 million in 2019 to $3.9 million in 2020.

In Friday’s filing, the board stated the special grant to Minicucci was “to recognize his heightened responsibilities as the Company’s next CEO, to acknowledge his instrumental role as President through the COVID-19 crisis … to sustain Mr. Minicucci’s engagement, and to align his long- term compensation” with Alaska’s long-term performance.

The proxy filing details total compensation in 2020 for Tilden and Minicucci, as well as Chief Financial Officer Shane Tackett, Chief Commercial Officer Andrew Harrison and Chief Operating Officer Gary Beck.

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Stock awards suddenly worthless

Both Tilden and Minicucci gave up their base salaries for the first seven months of the pandemic-driven airline crisis while the other executives took a 30% base pay reduction in the same period.

For executives, stock awards make up a much larger portion of total compensation than base salary. Those, too, were hit by the pandemic. A portion of the stock grants awarded in February 2020 and in the two previous years were dependent on hitting financial targets that just a month later it was clear would be impossible to meet.

For that reason, the figures listed in the “summary compensation table” in Friday’s financial filing — which appear to show that each executive earned more last year than in 2019 — are misleading.

Details elsewhere in the filing reveal that those figures include the expected value of stock awards on the day they were granted, millions of dollars that disappeared with the company’s abysmal 2020 financial performance.

Tilden, for example, was credited with 18,000 shares in February 2020 that were then valued at $1.2 million. But cashing in those shares required achieving financial returns now completely out of reach.

“As soon as COVID hit, from an accounting perspective, we wrote off the full value. The award of 18,000 shares in February 2020 are now worth zero,” said Chris Berry, Alaska’s vice president of finance, in an interview. “They were granted in February and became worthless in March.”

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The same applies to the portions of Tilden’s stock awards in 2019 and 2018 that were dependent on the company’s financial performance over a three-year period. The lost value of awards in those two years zeroed out an additional $1.7 million in Tilden’s expected 2020 compensation.

Retention grants reduce the pay hit

The upshot is that Tilden’s adjusted total compensation in 2020 was $3.2 million, down from $5.5 million in 2019, a more than 40% cut.

After Wednesday, Tilden remains chairman of Alaska’s board.

Tackett’s total compensation didn’t plunge so much, because he was promoted to CFO in March 2020 with a requisite increase in salary and stock awards. His adjusted total compensation in 2020 was $2 million, down from $2.1 million in 2019.

Harrison’s adjusted total compensation in 2020 was $1.5 million, down from $2.6 million in 2019.

Beck’s adjusted total compensation in 2020 was $1.8 million. He became COO only late in 2019 and so his total compensation for that year is not available.

Beck retires as COO on April 3, though he will stay on until February next year as special adviser to the CEO. Constance von Muehlen succeeds Beck as COO in April.

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All of the executives would have taken a bigger compensation cut if not for the board awarding the “retention grants” in November.

Tilden was granted stock and options worth $1 million. Minicucci’s were valued at $750,000 and those of Tackett, Harrison and Beck at $500,000 each.

These retention grants, which will pay out in equal installments in each of the next three years, are conditional on continued employment for that period, or in Tilden’s case continued service as board chair.

The proxy filing cites the present value of Tilden’s retirement package as $5.4 million.