When a chief government succession race narrows to just some contenders, dropping doesn’t at all times imply dropping out. Current CEO contests have resulted in hefty compensation packages for the executives who got here in second.
When Disney earlier this month chosen Josh D’Amaro to succeed Bob Iger as CEO, the leisure large gave D’Amaro’s reported rival for the job, Dana Walden, a one-time $5.26 million inventory grant, plus a recurring annual goal compensation of about $27 million. And when Morgan Stanley named Ted Decide as its new CEO in 2023, it paid Decide in addition to Andy Saperstein and Dan Simkowitz, reportedly twin runners-up, particular bonuses valued at $20 million every.
The attention-popping awards cap a yearslong development during which corporations pay passed-over CEO contenders hundreds of thousands, seemingly to remain put. The massive bucks mirror the massive stakes of retaining prime expertise. A frontrunner who has ascended to the extent of CEO contender is probably going a excessive performer with broad institutional data and deep relationships, each inside and outdoors the agency. Such a star strolling out the door can scramble organizational operations, destroy crew morale, and dent an organization’s backside line, with prime government turnover usually costing many multiples of the particular person’s annual wage.
Paying for executives’ loyalty works—to an extent. A latest report from consultancy FW Prepare dinner discovered that the grants have “a strong, but limited, retentive effect—typically lasting approximately two to three years.” That timeframe possible displays the awards’ vesting schedules, says Marco Pizzitola, a marketing consultant at FW Prepare dinner and coauthor of its new report.
“Once you get either all of the award or the majority of the award, the retentive glue has passed,” Pizzitola says. “If you were someone who was going to leave the company anyway, whether it’s because you’re disappointed about not getting the CEO role or because you’ve simply reached the end of your career, or whatever reason; if the retentive grant is the one thing keeping you around, you’re likely to move on.”
The ‘just right’ retention bonus
FW Prepare dinner’s report examined 100 giant‑cap U.S. corporations and recognized 47 that swapped out their CEOs between 2016 and 2020. At roughly a 3rd of these corporations, boards rolled out succession-related retention grants to 39 named government officers who didn’t grow to be CEO.
Corporations have been greater than twice as prone to hand out the grants in the event that they employed exterior CEOs, suggesting “there’s greater concern” about an government exodus with an outsider chief government than with an inside promotion, Pizzitola says.
Executives who obtain retention grants and go away sooner than anticipated usually forfeit no matter portion stays unvested. It’s pretty widespread for rival corporations to poach passed-over executives and pay them no matter share of the grant they’re leaving on the desk.
The grants aren’t token gestures—they quantity to actual cash. For non‑CEO executives, the awards usually land between about $1.6 million and $5 million, with a median round $3 million {dollars}. Between $3 million and $5 million appears to be the Goldilocks zone: Recipients of awards in that vary have the longest common tenure—simply over 4 years put up‑succession. In the meantime, smaller awards purchase nearer to 3 and a half years of loyalty. Curiously, the most important packages correlate with executives heading for the exits even sooner, in simply over two and a half years. In these outlier instances, it appears as if no amount of cash will hold a scorned CEO candidate from leaping ship.
As for individuals who obtain no retention award, of the named government officers who ultimately depart the corporate, “those who did not receive such a grant typically leave within the first year,” the report says.
Actually, not each passed-over government deserves a good-looking bonus to steer them to remain. And the way the succession course of goes down could make a distinction, too: Some jilted candidates are so bruised by the expertise that it’s greatest for all concerned in the event that they go away.
Cash talks
Retention bonuses aren’t the one solution to hold flight-risk executives in place, Pizzitola says. “The other thing that we see is to give people a new opportunity, give them breadth of experience, rotate them into a different role,” he says. “If someone is looking for, say, an international post, you could rotate them into head of international business.”
Walden received each cash and alternative: Along with awarding her a one-time bonus, Disney promoted the Hollywood insider to president and chief inventive officer, making her the primary particular person to carry that title on the 102-year-old firm, and placing her in control of Disney’s films and streaming collection.
Giving runners-up “a new challenge” can incentivize them to stay round. However, Pizzitola says, “it very often comes down to dollars and cents.”
