Executive Compensation: Value for the Money?

A common assertion among commentators is that perverse compensation incentives helped fuel the global economic crisis.   As a result, increased attention has been given to executive compensation and lawmakers have proposed establishing executive compensation schemes that are transparent, protect against bias and provide enhanced accountability.  The Financial Times recently published an article analyzing the compensation of executives in 35 energy companies ranging in market capitalization from $1.8 billion to $359 billion.  The process of conducting such a comparison brings to light the lack of clarity that often exists in the executive compensation structure in many of these companies.  Proxy statements rarely explain executive compensation in a clear comprehensible manner.  Contributing to the confusion is the fact that cash bonuses are not part of the SEC's summary compensation and that executives often receive incentive based compensation, which often dwarfs the size of the executive’s base compensation, and which is difficult to accurately value.  High on the Financial Times' "Worst Value" list was Aubrey McClendon, Chief Executive Office of Chesapeake Energy.  The Pomerantz firm recently commenced a lawsuit on behalf of the Louisiana Municipal Police Employees' Retirement System to recoup an extraordinary $75 million bonus awarded to McClendon. McClendon's total compensation for 2008 was $105 million, making him the highest paid executive in the country at a time when the company's earnings plummeted 50% and stock price tumbled 60%.  As the complaint alleges, the exorbitant compensation package awarded to McClendon was not the result of stellar leadership or increased financial results but rather the result of a company using corporate funds to insulate its CEO from the consequences of the corporate meltdown, while shareholders got stuck with their losses.  Though it is one of the more egregious examples, the Chesapeake scenario is hardly unique.  As such, the time to draw the line at excessive compensation is now.