Chesapeake Energy

Annual Meeting: May 22, 2015 Robert Lawler’s 2013 disclosed compensation of $22.4 million put Chesapeake Energy at number 15 in our overpaid CEO list last year. The regression analysis found excess pay of over $11 million. Shareholders have spoken clearly in opposition to pay for performance disconnect at the company. In 2012 it received one of the lowest votes. The compensation committee has taken steps that addressed some issues – total disclosed pay for 2014 was $14.7 million -  and in last year’s vote the compensation advisory vote received support level near the average. However, significant concerns remain:

  • The 2014 PSU performance goal is relative TSR measured over the three-year performance executives will still receive pay if performance lags the peer group. The company picked 12 peers to compare TSR to compare performance to and set out a different percentage of earnings depending on how the company ranks. Even if the Chesapeake’s TSR is number 9 out of 12 executives will receive more than half their target amount. This is a significant disconnect between pay and performance.
  • Discretionary bonus awards were given to Executive Vice Presidents Jason Pigotti and Christopher Doyle.
  • Doyle, Pigott and EVP and General Counsel James Webb each received a substantial increase in his target LTIP incentives during the past fiscal year. Increasing the target is a backdoor way of increasing payout, or maintaining it even if performance falls.
  • Salary for Webb was rose by 26%, a very significant increase.

Though pay is not as high as it has been in the past, it seems structured to reward executives even if the industry and shareholders suffer.