Poison pill: Employee contracts may shield Chesapeake from takeover, Reuters reports

About  1,600 Chesapeake Energy Corp. employees may be in line for substantial bonuses, Reuters reports.

Those employees are guaranteed payments of up to $140 million if Chesapeake changes hands.

Chesapeake spokesman Michael Kehs said the company’s recent board shake-up was not enough to trigger the payment provision.

Reuters found the provision in the contracts of about 12 percent of Chesapeake’s employees.

The 1,600 employees represent positions across the company and its subsidiaries, the documents show. They include title attorneys, land men, lab technicians and senior security officers – not simply top executives who typically receive so-called golden parachutes.

Perhaps most unusual, the Chesapeake employees would be entitled to these “change-of-control” payments even if they kept their jobs at Chesapeake after the company changed hands. For some employees, that means cash payments of 50 percent of their salary plus 50 percent of their most recent annual bonus, according to contracts examined by Reuters.

Kehs would not discuss the rationale for the change-of-control language in employee contracts, which dates back to 2003.

The provision may have been designed to lure employees to the Oklahoma City-based oil and natural gas company.

 Most large companies have a “double-trigger” that pays bonuses to employees who lose their jobs after there is a change in control, instead of Chesapeake’s “single-trigger,” Reuters reported.

“The only rationale for a single trigger is to provide a windfall to management at shareowners’ expense, which is why they are increasingly rare,” said Michael Garland, head of corporate governance for New York City.

Garland and others suggested the clause could act as a “poison pill,” a provision that deters takeover attempts.