Chesapeake Energy Corp. promised a "more transparent" management pay plan after more than a third of shareholders refused to endorse the company's executive compensation.
"At the end of the day, you have to measure value creation, and there's lots of different ways to do that," Chairman and Chief Executive Officer Aubrey McClendon said on Friday after the company's annual meeting. The board has not "exactly set forth all the measurements by which we do that. It'll be more transparent."
MSCI Inc.'s ISS Proxy Advisory Services recommended on May 16 that shareholders reject the company's "problematic pay practices" and withhold votes for re-election of directors McClendon and former Sen. Don Nickles, R-Okla., at the meeting in Oklahoma City. The pay plan was endorsed by 58 percent of shareholders casting a nonbinding vote, the company said. Both McClendon and Nickles were re-elected by almost 80 percent of votes cast.
The shareholder advisory group said McClendon made $21 million in 2010, compared with a median of $10.6 million for his peers. The group also said the company is not linking pay to performance because McClendon's salary has increased 13 percent while total shareholder return was 1.42 percent last year.
The company said in a filing yesterday that the compensation committee of the board has hired Cogent Compensation Partners to review its pay practices.
"The compensation committee is committed to implementing an executive compensation system that includes objective performance criteria," Chesapeake said in the Securities and Exchange Commission filing.
That's "a step in the right direction" that will help reduce criticism of McClendon and the board, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York who has an "outperform" rating on Chesapeake shares and does not own any.
"Most people were unhappy with the fact that in the last three years Aubrey made what they considered to be a very high compensation relative to what happened to the stock," Gheit said.
Investor discontent surfaced in 2009 after the stock dropped 59 percent in 2008 and directors awarded McClendon $77 million in bonuses.
"It's been a rough three-year tussle," McClendon said. "I want to be a leader in governance."
Preliminary results of yesterday's vote showed 57.8 percent of shareholders were in favor of the company's pay plan, Treasurer Jennifer Grigsby said at the annual meeting. She did not give a breakdown of votes against or votes withheld. Nickles was re-elected to the board by 79 percent of shares voted and McClendon by 78 percent, Grigsby said.
"You have to remember that this guy founded this company," Gheit said, referring to McClendon. "He is the heart and soul of this like Michael Jordan and the Chicago Bulls."
Chesapeake, based in Oklahoma City, is the most active U.S. natural gas driller. Its stock fell 51 cents, or 1.7 percent, to $29.24. The shares have gained 13 percent this year.
