Chesapeake's McClendon gets $75 million bonus

Chesapeake Energy Corp. agreed to a five-year contract with Chief Executive Officer Aubrey McClendon that includes a one-time $75 million "incentive award," the company disclosed Wednesday in a federal filing.

After deduction of required federal and state tax withholdings, the net incentive award is worth about $43.5 million, according to the filing with the Securities and Exchange Commission.

The award was structured as a credit for McClendon against future billings for well costs he owes as part of a program that allows him to participate with up to a 2.5 percent working interest in all the company's wells drilled in a calendar year.

The Oklahoma City-based company also agreed to a five-year contract with McClendon that caps his annual salary at the 2008 level of $975,000 and limits his annual cash bonuses to $1.95 million.

Chesapeake's stock took a roller coaster ride in 2008, dipping to $9.84 in December, its lowest trade since August 2003. Shares of Chesapeake had reached as high as $74 over the summer.

In October, McClendon was forced to sell 31.5 million shares - substantially all of his nearly 6 percent stake in the company - to meet margin loan calls.

The company said in its filing that its compensation committee considered the role McClendon played in several major transactions in 2008 involving agreements with Plains Exploration, BP America and StatoilHydro USA.

"The compensation committee further determined that an award to Mr. McClendon in the form of a drilling credit not only rewarded him for his role in the company's successful 2008 transactions, but also served to align his economic interests with those of the company," Chesapeake wrote in its filing.

As a result of McClendon's forced liquidation of his holdings in the company in October, the terms of his contract also were amended to reduce the required amount of shares McClendon must hold from 500 percent to 200 percent of his annual salary and annual cash bonuses.

The amended agreement is designed to provide McClendon time to acquire additional shares of the company's common stock and reverts to 500 percent beginning in 2010.

Shares of Chesapeake Energy closed down 80 cents at $18.29 on Wednesday.