Chesapeake Energy (NYSE:CHK) announced May 8 that it would prepay $25 million in compensation to 21 of the company’s named executive officers and vice presidents. If you’ve owned CHK stock for a lengthy period, this is the latest in a series of moves by the company that helps explain why it’s on the precipice of bankruptcy.
When I have to write about sad-sack companies like Chesapeake, I always feel for the employees. Most of whom have mortgages to pay and won’t be getting $25 million in prepaid compensation to bury the business.
These are the people I feel sorry for, not the Doug Lawler’s — Chesapeake CEO since June 2013 — of the world. He’ll find another job, presumably with lots of cushy stock options and cash bonuses to go along with the million-dollar salary.
Executive Pay and CHK Stock
I particularly liked this part of Chesapeake’s announcement: “The Board and Compensation Committee, with the advice of their independent compensation consultant and legal advisors, determined that the historic compensation structure and performance metrics would not be effective in motivating and incentivizing the Company’s workforce,” the regulatory filing stated.
So, to keep half the $25 million in prepaid compensation, the 21 executives merely have to remain with the company for 12 months. The other half of the prepaid incentive pay can be kept my meeting specific incentive metrics.
If there’s one thing I’ve learned writing about executive compensation is that the hurdles are almost always easy to climb over.
What I’m curious to know is what the rank-and-file are receiving in the way of retention bonuses.
“The Company’s annual incentive plan will be converted into an opportunity for our employees to receive cash retention payments earned on a quarterly basis over a 12-month period, subject to their continued employment,” the regulatory filing stated.
You can be sure it will be peanuts compared to what the 21 executives are getting. Despite the fact, it’s the rank-and-file that will have to do the heavy lifting in any bankruptcy proceedings.
And for those pampered souls who are feeling sorry for executives such as CEO Doug Lawler, consider that since the chief executive has taken the reins, despite the stock falling from $4,368 ($21.84 adjusted for 200:1 reverse split) in June 2013 to $11.52 today, Lawler has taken home the following cash-related compensation:
| Year | Salary | Bonus | Non-Equity Incentive Plan Compensation | All Other Compensation | Total |
| 2019 | $1,335,000 | N/A | $1,917,338 | $639,769 | $3,892,107 |
| 2018 | $1,300,000 | $1,250,000 | $2,620,850 | $574,571 | $5,745,421 |
| 2017 | $1,300,000 | N/A | $2,224,950 | $628,948 | $4,153,898 |
| 2016 | $1,300,000 | N/A | $2,589,571 | $643,792 | $4,533,363 |
| 2015 | $1,348,462 | N/A | $2,691,000 | $628,523 | $4,667,985 |
| 2014 | $1,250,000 | N/A | $2,270,625 | $206,728 | $3,727,353 |
| 2013 | $649,038 | $2,000,000 | $1,619,260 | $155,033 | $4,423,331 |
| Overall | $31,143,458 |
Add to this compensation, the value of stock and option awards that actually vested during his tenure: $1.4 million in 2014, $1.8 million in 2015, $2.8 million in 2016, $2.8 million in 2017, $4.4 million in 2018, and $3.7 million in 2019, and we’re talking about an additional $16.9 million over six years.
As of March 16 Lawler held just 43,992 shares of Chesapeake stock. Three years earlier, he held 2.4 million shares. Most of those shares have been sold to monetize whatever he could from this sinking ship.
So, let’s assume the CEO was only able to monetize a quarter of the $16.9 million. This would mean he still averaged $5.1 million in annual cash compensation over his 7-year tenure.
The Bottom Line on CHK Stock
The last time I wrote about Chesapeake at the end of April, I called it a dog with fleas, whether it was trading at $32 or 15 cents. Since then, the bankruptcy drums have gotten louder. My InvestorPlace colleague, Ian Cooper, recently discussed the reasons it won’t survive 2020.
I’ve been saying for quite a while that CHK stock is not worth the paper it’s written on. Heck, as far back as April 2017, I was saying the business had major issues.
Now, as oil prices climb above $30, I’m sure some long-time shareholders are hoping it recovers. It won’t. If it had a chance, the CEO would own more than 44,000 shares.
But, hey, it’s good to know management will make out like bandits.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.