By James Saft
(Reuters) – As Chesapeake Energy Corp shows, fat executive compensation all too often comes twinned with lousy investor returns.
Shares of Chesapeake have tumbled in the last two weeks after revelations by Reuters of unusual and disturbing pay and other arrangements between the company and its CEO and founder Aubrey McClendon. McClendon borrowed up to $1.1 billion to fund private investments he was allowed to make in company oil and gas wells under its “Founder Well Participation Program,” a hilarious euphemism if ever there was one.
He also was, at least from 2004 to 2008, actively helping to manage a $200 million hedge fund that speculated in commodities his company produced.
McClendon is to relinquish his role as chairman, the SEC has launched in informal investigation and rating agency S&P has downgraded the company on corporate governance concerns. Meanwhile, since 2008 – the year McClendon was America’s top paid executive – Chesapeake shares are down more than 50 percent and have underperformed the S&P 500 by about 5,000 basis points.
Don’t say you weren’t warned. In 2008 the company awarded McClendon a one-time $75 million “Well Cost Incentive Award” (which I guess raised his already high incentive to be Aubrey McClendon) and agreed to buy his map collection – yes, his map collection – for $12 million. McClendon has since agreed to buy back the maps, with interest.