McClendon and Nickles, chairman of Chesapeake’s Nominating and Corporate Governance Committee, had both come under fire by Institutional Shareholder Services Proxy Advisory Services, an advisory firm that recommended that shareholders not re-elect McClendon as chairman and vote to oust Nickles from the board.
It is estimated McClendon has been compensated more than $152 million since 2008; during that time, the company’s stock prices fell because of decreasing natural gas prices. In 2008, McClendon was forced to sell around 94 percent of his Chesapeake shares due to margin calls, but the company granted him a $75 million bonus, $32.7 million in stock and purchased his antique map collection, The Wall Street Journal reported.
In 2010, the company’s stock has rebounded somewhat, although remains below 2008 levels, and McClendon received a compensation package worth $21 million.
“The board’s repeated failure to link CEO pay to pre-established performance criteria, coupled with the increasing opposition by shareholders to the re-election of incumbent member of the Compensation Committee, indicates poor stewardship by the Compensation Committee of the company’s pay practices,” the ISS recommendation stated. “Specifically, this is the third consecutive year that the company exhibited problematic pay practices in tandem with excessive nonperformance-based compensation for the CEO. Moreover, total CEO pay is well above the peer group median for (fiscal year) 2010 as was the case in previous years, specifically as manifested in the discretionary nature of total compensation afforded to the CEO.”
‘SKILLFUL NAVIGATION’
Last year, ISS also recommended stockholders not re-elect all director nominees because the board failed to take sufficient action in response to two shareholder proposals at 2009’s annual meeting.
At the June 10 meeting, however, McClendon and Nickles both were reelected to the board with about 80 percent of the vote.
“Given the developments leading up to the shareholders meeting, we are pleased with the broad support we received,” said Jim Gipson, Chesapeake director of media relations. “The nearly 80 percent of shareholders who voted to retain Aubrey on the board recognized his skillful navigation through some of the toughest economic times since the Great Depression.”
However, only 58 percent of voters endorsed the company’s pay plan. Gibson said Chesapeake would be more transparent when it comes to its pay plan, and has engaged a consultant to take a look at its compensation structure.
“Our company wants to lead when it comes to governance. As an example, the compensation committee of the board decided to engage a respected compensa tion consultation in Cogent to take a fresh, independent look at our compensation structure,” Gipson said. “In doing so, the consultants have been tasked by the board to develop an objective criteria-performance approach. Senior management supports the actions taken by the board. “ He said Chesapeake has enjoyed historically strong performance, delivering annualized returns of 20 percent or more during the past two decades, and noted that McClendon was one of only eight U.S. CEOs to make the Forbes 20-20 Club, a list of CEOs who have presided over a public company for at least 20 years and produced a minimum 20-percent annual return in share price during their tenure.
“This was no easy feat, and we congratulate Aubrey on this recognition,” Gipson said. “It represents the historical commitment to value creation for this management team, as well as our commitment to produce even higher value creation over the next decades.”
TELLING THE STORY
The ISS recommendation and the
subsequent vote of shareholders of the Oklahoma City-based Chesapeake
Energy was fairly big news in the business and natural-gas sectors.
The
Wall Street Journal published articles both prior to and after the June
10 vote, along with coverage from Businessweek, Forbes and CBS
MarketWatch, which also had stories and commentary regarding the ISS
recommendations and subsequent vote.
So how was it reported at home?
Chesapeake
is one of the state’s largest companies, the world’s second-largest
natural gas producer and employs one of the highest-paid CEOs of any
industry.
The Journal Record
published stories before and after the vote, both mentioning the ISS
recommendations, while the Tulsa World also carried a lengthy wire story
following the vote.
The day
after the vote, The Oklahoman, the largest paper in the state, carried a
three-sentence brief in its business section on Chesapeake board
elections, without mentioning the ISS recommendations. Four days after
the vote, a seven-sentence story briefly mentioning the ISS
recommendation ran.—Clifton Adcock
Read the complete ISS report.
