Chesapeake Energy Corporation (CHK) has initiated a new compensation policy for outside directors in response to the growing concern among its shareholders to improve its corporate governance. Another factor contributing to this was Chesapeake’s chief executive Aubrey McClendon’s undisclosed loans in excess of $1 billion against his interests in company wells.
Under the new arrangement, an outside director’s compensation has been trimmed by about 20%. It also puts an end to the usage of partly owned aircraft for personal travel by the outside directors.
Chesapeake’s new plan allows the outside directors to receive a total compensation of $350,000 per year. Of the total, $100,000 will be in cash and $250,000 in equity.
Per the recently filed proxy statement by Chesapeake, the company is appraising its compensation for 2012 and beyond. The new reimbursement arrangement made in consultation with an independent compensation advisor incorporates a number of alterations.
The changes consist of compensation cutback for the chief executive officer for 2011 and coordination of the entire executive management team’s compensation with the company’s performance for 2012 and beyond. Also included in the alterations is the retention of an independent compensation advisor for the board’s Compensation Committee.
Per the Bloomberg estimates, Chesapeake’s new compensation – even after the 20% cut – awards its directors 34% over the average $260,752 in compensation received by board members at 15 other upstream companies on the Standard & Poor’s 500 Index in 2011. Only three companies- Apache Corp. (APA), Anadarko Petroleum Corp. (APC) and EOG Resources (EOG) paid more to their board members in 2011.
Chesapeake holds a Zacks #3 Rank, which translates to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral recommendation on the stock.
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