La Grenouille

The current sentiment is that the recession is over. Good times are back again. Back to being healthy, wealthy and wise (economy wise). Party like its two thousand and six.

But, The Economist begs to differ, a choice quote -

The danger is that sentiment has flickered higher rather as a dissected
frog’s leg will twitch when an electric current is applied.

It may or may not be an accurate analogy, but it sure is colourfull.

Thieving

For a good example of how a CEO and board steal from a company, read Chesapeake Energy's proxy statement.

Some choice excerpts:

Executive Officer Compensation :
Messrs. McClendon, Rowland and Dixon are responsible for analyzing, developing and recommending base salary adjustments, cash bonuses and restricted stock awards with respect to the executive officers, including themselves, for review, discussion and approval by the Compensation Committee at its regularly scheduled meetings in June and December of each year.

The CEO McClendon gets to decide how much he pays himself. I am sure he is extremely fair in deciding how deserving he is.

Non-employee director compensation currently consists of (i) an annual retainer of $55,000, payable in quarterly installments of $13,750; (ii) $15,000 and $3,500 payable for each board meeting attended in person and telephonically, respectively, not to exceed $110,000 per year for board meetings attended; and (iii) an annual grant of 12,500 shares of restricted stock, 25% of which vests immediately upon award and the remaining 75% of which vests ratably over the three years following the date of award. The annual grant of restricted stock is made from our Long Term Incentive Plan (see page 7, “Voting Item 3—Proposal to Amend Long Term Incentive Plan”) on the first business day in July of each year. No additional compensation is paid to directors for participating on or chairing a Board committee.

Under the Company’s 2003 Stock Award Plan for Non-Employee Directors, 10,000 shares of our common stock are awarded to each newly appointed non-employee director on his or her first day of service.

Under the Company’s policy regarding the use of fractionally-owned company aircraft, our directors are provided access to fractionally-owned company aircraft for travel to and from Board meetings. For Board meetings and other Company activities at which the attendance of a director’s spouse and immediate family members are also requested by the Company, we make tax gross-up payments to the director associated with the taxable compensation attributable to the spouse/family member travel. In addition, each non-employee director is entitled to personal use of fractionally-owned company aircraft seating eight passengers or fewer for up to 40 hours of flight time per calendar year in North America, the Caribbean and Mexico.

Given the stock price has been between $ 20 and $ 80, each director gets between $ 250,000 to $ 1mm a year, as well as a 'sign on' bonus of $ 200,000 to $ 800,000. As a director, you can pop down to the Caribbean with your family on a fractionally owned NetJet and have Chesapeake Energy foot the bill.

Richard K. Davidson - $ 739,673
V. Burns Hargis - $ 479,557
Frank Keating - $ 762,858
Breene M. Kerr - $ 784,687
Charles T. Maxwell - $ 620,526
Merrill A. Miller, Jr. - $ 542,024
Don Nickles - $ 753,379
Frederick B. Whittemore — $ 673,421

Each of the directors made close to a million dollars a in 2008 year just sitting on the company's board. The share price went from 40$ in the beginning of 2008 to 17 $ in the end of 2008. The average shareholder lost close to 58%. So much for alignment of management and shareholder interests.

Because of Mr. McClendon’s unique role as co-founder of the Company, he is the only executive officer with the opportunity to participate as a working interest owner in the natural gas and oil wells that the Company drills.

Special Incentive Compensation.

On December 31, 2008, the Company entered into a new five-year employment agreement with Mr. McClendon. The agreement recognized his leadership role in completing the four transactions in 2008 (discussed above under “2008 in Review” and detailed below) that were exceptionally advantageous to the Company and its shareholders, further aligned his long-term financial interests with those of the Company and its shareholders and obtained his long-term commitment to remain in his position as CEO. In addition to the cap on cash salary and bonus compensation described above, Mr. McClendon’s employment agreement includes the following provisions:

• A one-time $75 million well cost incentive award that, after reduction by state and federal withholding taxes, was structured as a net credit against future billings from the Company for well costs owed by Mr. McClendon under the FWPP, with a five-year clawback;
• A five-year employment commitment by Mr. McClendon;
• An extension of the non-competition period with respect to certain
  terminations by the Company; and
• A reduced stock holding requirement
  during 2009.

Mr. McClendon has given himself the opportunity to co-invest in company projects, and then have the company buy out his interest for lots of money. In this case $ 75 mm. This is in addition to the $ 1mm base salary and $ 15 mm bonus for non-performance.

In December 2008, the Company purchased an extensive collection of historical maps of the American Southwest from Mr. McClendon for $12.1 million, which represented his cost. A dealer who had assisted Mr. McClendon in acquiring this collection over a period of six years advised the Company that the replacement value of the collection in December 2008 exceeded the purchase price by more than $8 million.

In 2008, the Company became a founding sponsor of the Oklahoma City Thunder, a National Basketball Association franchise owned and operated by The Professional Basketball Club, LLC (“PBC”). Mr. McClendon has a 19.2% equity interest in and is a non-management member of the PBC. The Company paid $3,495,525 in 2008 and $1,165,175 in 2009 pursuant to its sponsorship agreement for the Oklahoma City Thunder’s 2008-2009 season.

Shocking to say the least. A public company being treated like your personal bank account. Didn't Enron, Worldcom and Tyco teach anyone anything? Why do shareholders put up with crap like this. The fruits of what is a nice business are being reaped disproportionately by those running it.