When I read that Chesapeake Energy paid its CEO a year-end bonus of $75 million, despite losing $6 billion in the first quarter, I just had to write something about this glaringly obvious abuse of power. How in good conscience could Aubrey McClendon, Chesapeake's CEO, accept such a sum given the state of his business? According to McClendon, he works harder than most in the industry putting in 100-hour weeks for the last 20 years. Are shareholders actually buying into this? Evidently, yes. On June 12, they voted in favor of the three directors standing for re-election. All I can say is be careful what you wish for, you just might get it.
IN PICTURES: World's Greatest Investors

Top Five HoldingsFidelity Select Natural Gas Fund (FSNGX)

Company 2008 CEO Total Compen-sation TTM Operating Income Total Compen-sation to Operating Income
Denbury Resources (NYSE:DNR) $2.52M $712.00M 0.35%
Chesapeake Energy (NYSE:CHK) $100.07M $4.97B 2.01%
Range Resources (NYSE:RRC) $5.44M $755.00M 0.72%
Southwestern Energy (NYSE:SWN) $6.80M $214.00M 3.18%
Plains Exploration (NYSE:PXP) $25.30M -$2.87B N/A

Fair Compensation
I believe CEOs should receive a wage that recognizes the stress they endure as both the leader and visionary of their companies, but not so excessive that it sets them apart as saints and saviors. Without the hard work of those on the front line, chief executives wouldn't have a job, let alone one that pays $100 million or more annually. The fact that Mr. McClendon worked all those hours was his choice, and his alone. That shouldn't matter when setting his compensation today and into the future. It seems that R.W. Tillerson, Exxon's (NYSE:XOM) CEO is more than happy with his $22.41 million total compensation in 2008, despite his company generating $72.63 billion in operating income in the last 12 months. That's a ratio of 0.03%, much lower than the five listed above, including Mr. McClendon's company. (For more, read Executive Compensation: How Much Is Too Much?)

Leading By Example
Denbury Resources strikes me as a company that leads by example. CEO Gareth Roberts has been at the helm since 1992, and in that time his company has made money more often than not, including the past six years, increasing net income every year to the end of 2008. More importantly to shareholders, its stock is up 500%. I'd say that's money well spent on a CEO. Compare Debury to Chesapeake Energy. Chesapeake's also seen 10 consecutive years of profits, albeit losing ground in the past two years. Since the end of 2003, Chesapeake's stock is up 227.5%. That's good when compared to the S&P 500, not so good when compared to Denbury and its reasonably paid CEO. If you are a shareholder of Chesapeake Energy, why aren't you asking questions of your CEO? It strikes me as odd that more large institutions aren't doing so, especially with its stock down over 60% in the past year.

Bottom Line
It appears CEO compensation in the natural gas industry is no different than any other. There are those who set a good example and those who don't. Denbury is the former and Chesapeake the latter. You decide which is the better stock to own. (To learn more, check out our Oil And Gas Industry Primer.)

Related Articles
  1. Options & Futures

    Analyzing The 5 Most Liquid Commodity Futures

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!