The Ride at Chesapeake: More Fun for Some Than Others__»

May 5, 2010

It’s been a while since we—ve looked at Chesapeake Energy Corp. (CHK), where the past few years— events have been decidedly more exciting for some (CEO Aubrey McClendon and the NEOs come to mind) than for others (read: shareholders).

Last Friday, Chesapeake filed its annual proxy, so it seemed like a good time to check in on the company that footnoted readers voted had the —Worst Footnote of 2009.

The proxy confirms that McClendon got a 2009 base salary of $975,000, a bonus of $1,951,000, an award of 760,000 shares of restricted stock with a grant date fair value of more than $14 million, and —Other compensation of just under $1.6 million. Besides his personal use of the plane, the largest chunks of that “Other” include $623,366 in accounting support (some of which he apparently reimburses to the company), and $438,750 in matching contributions to his retirement plan.

The proxy also reveals that in September, 2009, Chesapeake entered into new employment agreements with Marcus Rowland, Steven Dixon, Douglas Jacobson and J. Mark Lester. According to page 40:

—Such agreements, which expire on September 30, 2012, provide for annual base salaries not to exceed $860,000 for Messrs. Rowland and Dixon, $800,000 for Mr. Jacobson and $775,000 for Mr. Lester; eligibility for annual bonus compensation not to exceed $1,361,000 for Messrs. Rowland and Dixon, $1,201,000 for Mr. Jacobson and $791,000 for Mr. Lester, eligibility for equity awards under the Company’s stock compensation plans and benefits, including club membership.

Whereas McClendon has unlimited use of Chesapeake’s fractionally-owned company aircraft —for safety, security and efficiency, (which cost the company $445,984 in 2009) the company allows the other NEOs personal use of the plane that range from 50 hours up to 175 hours a year.

The proxy also disclosed that Chesapeake (a founding sponsor of the NBA Oklahoma City Thunder, a team in which McClendon owns a 19.2% stake) spent more than $3.8 million to sponsor the team in 2009; it expects that sponsorship to cost more than $1.5 million in 2010.

McClendon’s own employment agreement was revised just before 2009 began. The December 31, 2008 agreement revised an employment agreement that was less than a year old. But, of course, 2008 was a roller coaster ride for everyone, including McClendon.

In the fall of 2008, McClendon had to sell approximately $552 million worth of Chesapeake shares to cover margin calls. The company helped him recoup some of those losses, though. By the end of 2008, Chesapeake had given him about $100 million, including the $75 million that the directors approved as a —well cost incentive award under the Founder Well Participation Program. To scrape up cash, McClendon even sold 9,000 bottles from his wine collection in two Sotheby’s auctions, which raised another $9 million. And, of course, footnoted readers will recall the post which reported that Chesapeake’s directors— paid McClendon $12.1 million for his antique map collection, which readers declared the —Worst footnote of 2009.

McClendon’s New Year’s Eve, 2008 agreement lowered the number of shares that Chesapeake required him to hold. As this article notes, after McClendon had to sell 94 percent of his Chesapeake shares because of those margin calls, he no longer held the equity stake that his prior employment agreement required. So the board lowered the requirement and gave him the $75 million award – just enough to buy a few shares back.

Finally, (only because of space constraints, not because there isn—t more worth reading), on pp. 24-25 of this year’s proxy, the company lists a number of awards that the company got in 2009, including some for —Best Investor Relations. Those awards might be particularly interesting to the Louisiana Municipal Police Employee Retirement System, which filed a —books and records demand in order to determine whether McClendon’s $75 million bonus could be justified, as well as to the numerous groups that submitted 13 pages— worth of shareholder proposals that will be considered at the June 11, 2010 annual meeting. Some of those proposals concern executive cash bonuses, —Executive Participation In Derivative Or Speculative Transactions Involving The Company’s Stock, and a request that shareholders be given an advisory vote on executive compensation. Without exception, the board opposes each proposal.

And so the ride continues….

Image source: Twicepix via Flickr

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