Director’s Compensation Project: Chesapeake Energy

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

One can see some of the effects of these rules when looking at the director compensation table from Chesapeake Energy (NYSE:CHK) 2011 Proxy Statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Aubrey K. McClendon	975,000	16,804,500	--	3,265,452	21,044,952
Richard K. Davidson	146,500	305,125	--	168,813	620,438
Kathleen M. Eisbrenner	23,083	214,100	--	11,487	248,670
V. Burns Hargis	146,500	305,125	--	128,626	580,251
Frank Keating	143,000	305,125	--	175,318	623,443
Charles T. Maxwell	146,500	305,125	--	15,401	467,026
Merrill A. (“Pete”) Miller, Jr.	139,500	305,125	--	163,324	607,949
Don Nickles	146,500	305,125	--	138,691	590,316
Frederick B. Whittemore*	146,500	305,125	--	25,443	477,068

*Retired as a director in 2011 after the annual meeting.

Director Compensation

All of the directors were present at the 2010 annual meeting. There were four in-person meetings and nine telephonic meetings of the board during 2010. Each director attended at least 80% of those meetings. Mr. McClendon and Mr. Nickles attended 100% of the Board Meetings. Ms. Eisbrenner attended 100% of the meetings after her admittance to the board in December 2010. Every director, except Mr. McClendon because he is an employee, receives $15,000 for being physically present at a meeting and $3,500 for being present telephonically. The maximum amount a director can receive for attending meetings is $110,000 per year.

Director Tenure

The longest tenured board member is Mr. McClendon. He has served since co-founding Chesapeake Energy in 1989. Kathleen M. Eisbrenner is the shortest tenured board member, starting in December 2010. Several directors also sit on other boards. Mr. Davidson is on the board of Thayer/Hidden Creek. Governor Keating is an advisory director to Stewart Information Services Corporation. Mr. Miller serves as a director of National Oilwell Varco, Inc. Mr. Maxwell is a director of American DG Energy Inc., Daleco Resources Corporation, and Lescarden, Inc. Senator Nickles is also a director of Valero Energy Corporation, Washington Mutual Investors Fund, American Funds Tax Exempt Series 1, and JP Morgan Value Opportunities Fund.

CEO Compensation

Aubrey K. McClendon is a co-founder of the company and has served as its CEO since the company was founded in 1989. In 2010, his total compensation was $19,768,776. This compensation included a base salary of $975,000, a bonus of $1,951,000, and stock awards of $16,804,500. Per his employment agreement, Mr. McClendon’s compensation will remain at this level from 2006 through 2013. Mr. McClendon was given a $75 million well cost incentive award in 2008, contingent upon a five-year clawback period. Mr. McClendon’s “all other compensation” includes his bonus, use of the company aircraft, personal accounting, personal security, and the company’s contributions to his 401(k) plan.

Steven C. Dixon is the company’s Executive Vice President – Operations and Geosciences and COO. His total compensation in 2010 was $10,421,294, including a salary of $860,000, a bonus of $3,764,125, and stock awards in the amount of $5,099,200. Mr. Dixon’s “all other compensation” was $697,969 and included country club fees, financial advisement, use of the company aircraft, and the company’s contributions to his 401(k) plan. Mr. Dixon also received 210,000 shares as a stock award that was up from 165,000 shares in 2009.