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Southwest CEO 2010 Compensation More Than Doubled

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Gary Kelly

Southwest Airlines CEO Gary Kelly speaks to reporters at the airline’s corporate headquarters on September 27, 2010 in Dallas, Texas. (Photo by Lawrence Jenkins/Getty Images)

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DALLAS (AP) - Southwest Airlines Co. more than doubled the compensation for its CEO last year, to nearly $3.4 million, thanks mainly to a stock award worth $1.8 million.

Gary C. Kelly was rewarded for a big jump in Southwest’s income as passenger traffic rose sharply in a bounce-back year for the airline industry.

Southwest earned $459 million last year compared with $99 million in 2009, although the stock price did not appreciate as quickly — rising 14 percent in 2010. Kelly also engineered Southwest’s biggest acquisition ever, a $1.4 billion purchase of AirTran Airways that will increase Southwest’s size by one-fourth when it closes, which is expected in the next few weeks.

Southwest has been gaining passengers more quickly than other airlines, which Kelly attributes partly to Southwest’s policy of letting passengers check two bags for free.

In a Friday filing with the Securities and Exchange, Southwest said executive compensation for 2010 was supported by the company emerging “from the worst decade in U.S. aviation history without annual losses, without furloughs, and without degradation of its customer experience.”

Southwest, based in Dallas, started as a Texas puddle-jumper 40 years ago and now carries more U.S. passengers than any airline. It also faces challenges topped by rising fuel prices. Southwest’s on-time performance has suffered as Kelly has pushed into busy hub airports that the airline once shunned, and many longtime customers are angry over recent changes in the frequent-flier program.

Kelly’s 2010 salary rose only 5 percent but he got a bigger bonus of $930,000, up from $590,000 in 2009. The major difference in his compensation, however, was a stock award valued at $1.84 million when issued on May 19.

Other top executives also got stock awards that pushed their compensation sharply higher.

Unlike 2009, Kelly received no stock options in 2010. He got $112,668 in other compensation, including $49,433 in deferred income that the company said was earned for 2010 but paid this year. He got above-market earnings on deferred compensation of $7,902 in 2010.

The Associated Press formula calculates an executive’s total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the Securities and Exchange Commission.

The value that a company assigned to an executive’s stock and option awards for 2010 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company’s stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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