Here's a puzzle for you: What do you think of a certain company? Let me tell you a few things about it, instead of its name, and you see if it sounds like more of a millionaire-maker or a dud:

  • It has received a top rating of five stars in our Motley Fool CAPS investor community.
  • Despite dropping 58% in value last year, it has averaged an annual gain of around 27% over the past decade, and 12% over the past five years.
  • As of Tuesday's close, it was down 69% from its 52-week high.
  • It sports a 1.3% dividend yield.
  • It specializes in natural gas, a valuable energy source.
  • Its revenues have jumped at a 31% annual clip over the past two years.

It probably sounds pretty good, eh? Well, the company is Chesapeake Energy (NYSE:CHK). For a long time, I'd seen it recommended here and there and had formed a vaguely positive impression of the company. But lately, I've been reading some less rosy things. For example, check out the top five highest-paid S&P 500 CEOs in 2008, who recently appeared on a list from The Associated Press:

Company

CEO

Compensation*

2008 Stock Return

Chesapeake Energy

Aubrey McClendon

$112.5 million

(58.0%)

Motorola (NYSE:MOT)

Sanjay Jha

$104.4 million

(71.1%)

Walt Disney (NYSE:DIS)

Robert Iger

$51.1 million

(28.6%)

Goldman Sachs (NYSE:GS)

Lloyd Blankfein

$42.9 million

(60.1%)

American Express (NYSE:AXP)

Kenneth Chenault

$42.9 million

(63.0%)

Source: Associated Press, Yahoo! Finance.
*Compensation figures are taken directly from the AP and are based on the AP's formula, which adds up salary, perks, bonuses, preferential interest rates on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year.

Many of these executives saw their companies' shares plummet last year. But other highly paid CEOs succeeded in doing at least some damage control. JPMorgan Chase's (NYSE:JPM) Jamie Dimon, for instance, saw his company's stock lose 24% in 2008 -- not a great performance, but much better than both the S&P and competitors like Citigroup (NYSE:C).

If a CEO is responsible for the company earning billions, it's not necessarily crazy for him or her to earn millions. Still, finding your CEO near the top of such a list should raise some other questions. For example, are they working harder to pump up their compensation than their company's results?

Odd perks
Chesapeake has raised a lot of questions on this issue recently. The company bought some of McClendon's personal art collection for more than $12 million, and paid $4.6 million more to sponsor the NBA team in which McClendon owns a minority interest. The company's board of directors, who have been criticized mightily for their part in these transactions, as well as McClendon's pay package, explained that they were paying him more in order to keep him.

Again, these are not necessarily completely terrible things, but they sure don't look good to me. They make me try to imagine Warren Buffett selling a personal collection of ukuleles to his company. I just can't imagine it.

What to do
This is a good reminder for me -- and perhaps for you -- that it pays to poke around a lot when you're thinking of buying into a company. Look at financial statements to see how the company has done and how healthy it is. But also look at the footnotes and proxy statements to see how the executives are being compensated. You want to have confidence in your company, and not be worried about it or embarrassed by it.

That said, you may conclude that even with those problems, a company's worth investing in. Chesapeake isn't necessarily a stock to pass on -- our Motley Fool Inside Value team believes the company's business prospects outweigh its management woes. Just make sure you're comfortable with a stock before you buy.

You can dig up a lot of opinions on stocks of interest in our CAPS community. You can also learn more about how to assess companies in these articles:

Longtime Fool contributor Selena Maranjian owns shares of American Express. Walt Disney is a Motley Fool Stock Advisor selection. American Express, Chesapeake Energy, and Walt Disney are Motley Fool Inside Value selections. The Fool owns shares of American Express. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.