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Chesapeake CEO Pay Package a 'Bailout,' Says Proxy Firm

Proxy adviser Glass, Lewis & Co. is recommending that Chesapeake Energy Corp. shareholders withhold their votes for three board members facing reelection because of CEO Aubrey McClendon's compensation package.

In a report to clients, the proxy adviser gave Chesapeake's compensation structure an "F." Among other things the report cited McClendon's $112.5 million pay package. The company also was criticized for not having more independent directors, for eliminating shareholders' rights to call special meetings, and for buying an antique map collection from McClendon for $12.1 million.

McClendon's generous pay package has been the subject of criticism since details emerged late last year (see NGI, May 4; Jan. 12). McClendon even addressed the criticisms in a meeting last month (see NGI, May 11).

The CEO was one of several executives forced by margin calls to sell stock late last year (see NGI, Oct. 13, 2008). Triggered by a 76% drop in the company's share price, last October McClendon sold around 31.5 million Chesapeake shares, or 94% of his holdings. Following the sale, rumors circulated that McClendon would be fired or might resign from the company that he co-founded in 1989.

The company's board appeared unwilling to let McClendon leave, and in a Securities and Exchange Commission filing the board said that because of "other entrepreneurial opportunities" and the forced margin calls, it wanted to provide McClendon "a retention incentive."

Glass, Lewis called the board's package a "bailout" for the founder and CEO.

"It appears to us that many aspects of Mr. McClendon's compensation arrangements for 2008 were designed to soften the blow of his personal losses rather than link pay with performance," the report said.

Chesapeake's annual meeting is scheduled for Friday (June 12) in Oklahoma City. The Glass, Lewis recommendations are not expected to have a direct effect on shareholder voting; the three directors up for reelection are unopposed.

In "2008 Pay Dirt," Glass, Lewis analyzed the compensation practices of more than 3,000 U.S. companies using a proprietary algorithm and a model for measuring pay for performance. The report spotlighted those companies whose executive compensation practices exemplify some of the best and worst in corporate America, and it identified several that "have a pattern of overpaying executives, along with dozens of companies with exceptionally poor pay-for-performance practices."

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