Is Chesapeake Energy Corporation (CHK)’s New CEO Overpaid?

Chesapeake Energy Corporation (NYSE:CHK), the Oklahoma City-based oil and gas producer, recently got a new CEO. After months of searching for Aubrey McClendon’s replacement, the company chose Robert Douglas (“Doug”) Lawler, who previously led Anadarko Petroleum Corporation (NYSE:APC)‘s successful international and deepwater business, as chief executive.

His appointment to the top position at Chesapeake was generally well received, with most analysts expressing optimism about his ability to lead the company forward as it embarks on what it hopes will be a new era of value realization and shareholder returns.

But while there’s not much doubt about Lawler’s experience and abilities, is Chesapeake Energy Corporation (NYSE:CHK) paying him too much?

A generous pay package
According to a recent SEC filing, Lawler’s pay package at Chesapeake this year will be at least $22 million. He will receive a base annual salary of $1.25 million, a prorated cash bonus of at least $800,000, and an additional signing bonus of $4.5 million, of which $2 million will be awarded in cash and $2.5 million in stock awards. And that’s not all.

He’ll receive $10.5 million in shares, vested in equal installments over three years, as well as an additional $5 million in stock awards to compensate for the loss of his pension from his previous employer Anadarko. Moreover, if he stays on as chief executive for five years, he’ll get another $5 million worth of shares. And if he achieves his bonus targets, he stands to make even more.

Not only is Lawler’s total compensation more than Chesapeake Energy Corporation (NYSE:CHK)’s former CEO got paid last year, it’s also noticeably more than the chief executives of other energy companies with similar market capitalizations.

Comparing CEO compensations
Last year, McClendon received a base salary of $975,000 and a total compensation of $16.9 million. Meanwhile, chief executives atEnCana Corporation (USA) (NYSE:ECA) and Southwestern Energy Company (NYSE:SWN), two natural gas producers with very similar market capitalizations, had substantially smaller pay packages last year.

Randall K. Eresman, Encana’s former CEO, received $7.2 million in compensation for heading up a company with a roughly $13 billion market cap, only slightly less than Chesapeake Energy Corporation (NYSE:CHK)’s $13.5 billion, while Steve Mueller, CEO of Southwestern Energy, which has a market cap of just under $13 billion, got about $5.6 million.