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. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  7. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  8. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  9. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  10. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center