The Oklahoma City-based company, co-founded by late wildcatter and outspoken natural gas proponent Aubrey McClendon, has been struggling with an unprecedented rout in oil and gas prices, as the coronavirus-driven economic downturn saps energy demand. Reuters reported last month that Chesapeake was in discussions to line up bankruptcy financing.
The move comes as investors are closely monitoring executive pay at struggling energy firms after Whiting Petroleum Corp and Diamond Offshore Drilling changed incentive programs for their senior management teams in the days before filing for Chapter 11 last month to award them cash sums.
“The board and compensation committee, with the advice of their independent compensation consultant and legal advisors, determined that the historic compensation structure and performance metrics would not be effective in motivating and incentivizing the company’s workforce,” Chesapeake said in a regulatory filing published on Friday.
Executive officers, including CEO Robert Lawler, will earn half their incentive compensation based on their continued employment for a period of up to 12 months and half based on achieving certain incentive metrics, the company said.
In exchange for receiving their 2020 incentive compensation now in cash, the executives waived participation in the company’s annual bonus plan and equity compensation awards in 2020. They will have to refund the incentive compensation if the targets are not met, Chesapeake said.
At the same time, the company’s four highest-paid executives agreed to cuts in their 2020 incentive compensation. Lawler, Chief Financial Officer Domenic Dell’Osso, Executive Vice President of Exploration and Production Frank Patterson and General Counsel James Webb had their 2020 incentive compensation cut between 28% and 34%.
Moreover, Chesapeake added it would convert its annual incentive plan for other employees into a program that would pay “cash retention payments earned on a quarterly basis over a 12-month period”. These payments are also contingent on continued employment, according to Chesapeake.
In an April 29 filing, Chesapeake had said Lawler would receive $15.4 million for 2019, of which $9.7 million was a bonus payment in shares and another $1.8 million was in stock options. Dell’Osso got $5.5 million, of which $3.5 million came in stock.
Chesapeake’s stock has fallen by 91% this year. The company completed a reverse stock split in April to avoid being delisted from the New York Stock Exchange.