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18-05-2012 23:51:00

UPDATE: Chesapeake Energy Cuts Directors' Compensation By 20%

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--Beleaguered natural-gas giant cuts directors' pay

--Directors' personal use on partially owned company aircraft is also banned

--Pay cut may not soothe investors' ire

(Adds comments from board member, analyst, updated share price, in the fourth, ninth and 10th paragraphs.)

By Ben Lefebvre


HOUSTON -(Dow Jones)- Chesapeake Energy Corp. (CHK) Friday said it will cut total compensation for its board by 20%, the latest move by the beleaguered natural-gas giant to quell criticism over its corporate governance.

A series of revelations detailing possible conflicts-of-interest issues involving Chesapeake Chief Executive Aubrey McClendon has a brought fresh wave of criticism against the company and its board. Doubts about Chesapeake's governance, complicated finances and natural-gas prices near historic lows have cost Chesapeake billions of dollars in market value.

Annual pay for the nine board members will be cut immediately to $100,000 cash and $250,000 in company shares, the company said. Until now, the majority of board members had received total compensation of more than $500,000 a year, with Louis Simpson receiving nearly $600,000 a year in cash and stock awards, according to Chesapeake financial filings.

"We believe these latest changes to the directors' compensation will address concerns raised by shareholders and better align Chesapeake with its peers," said Merrill Miller, Chesapeake's lead independent director and chief executive of National Oilwell Varco Inc. (NOV).

The board also eliminated as a perk board member's personal use of aircraft partially owned by the company.

The changes did little to soothe analysts who have criticized the board as not practicing strong enough oversight of the company, the second-largest natural-gas producer in the U.S. In the latest example of shareholder anger, the custodian of a group of New York pension funds on Thursday called for a vote against the re-election of two board members, saying they failed to properly monitor McClendon in his use of personal stakes in company wells as collateral for loans from companies doing business with Chesapeake.

Meanwhile, S.A.C. Capital Advisors LP, Millennium Management LLC and other large hedge funds and investment-advisory firms have cashed out the majority of their stakes in Chesapeake since the first quarter.

The company's shrinking cash flow and reliance on borrowing have also spooked investors. Its stock has fallen 35.6% this year, settling at $14.36 on Friday.

"The company's problems run deeper than director compensation," Morningstar analyst Mark Hanson said.

Meanwhile, Chesapeake's search for an outside board chairman "is progressing," the company said. Last month, the board said it was stripping McClendon of his position as board chairman after a series of revelations detailing his taking loans from companies doing business with the natural-gas producer.

-By Ben Lefebvre, Dow Jones Newswires; 713-547-9201; ben.lefebvre@dowjones.com; Twitter: @bjlefebvre

(END) Dow Jones Newswires

May 18, 2012 17:51 ET (21:51 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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