I lost the CEO succession race. Here’s your multi-million dollar reward
Good morning. When the CEO succession race narrows to a few contenders, losing doesn’t always mean losing. I’ve noticed recently that some high-profile CEO contests have resulted in huge compensation packages for the CEOs who came in second place.
when Disney Earlier this month, the entertainment company tapped Josh D’Amaro to succeed Bob Iger as CEO D’Amaro’s stated rival for the position, Dana WaldenA One-time $5.26 million equity grantIn addition to an annual recurring target compensation of approximately $27 million. And when? Morgan Stanley Ted Pick was named its new CEO in 2023, and it paid Pick as well as Andy Saperstein and Dan Simkowitz, who were reported to be runners-up, special bonuses. Worth $20 million each.
The big money reflects the big risks of retaining the best talent. A leader who has risen to the level of CEO challenger is likely to be a high performer with extensive organizational knowledge and deep relationships, both inside and outside the company. Such a star walking out the door can disrupt organizational processes, destroy team morale, and impact the company’s bottom line. Top executive turnover typically costs several times the person’s annual salary.
Paying for executives’ loyalty – to a point. A recent report from consulting firm F.W. Cook It found that grants have a “strong, but limited, retention effect, usually lasting about two to three years.” This timeframe likely reflects award schedules, says Marco Pizzitola, a consultant at F.W. Cook and co-author of its new report.
The F.W. Cook report examined 100 large-cap U.S. companies and identified 47 that replaced their CEOs between 2016 and 2020. In approximately one-third of those companies, boards provided succession-related retention grants to 39 named executives who did not become CEOs.
Pizzitola says companies were more than twice as likely to hand out grants if they hired outside CEOs, suggesting “there is more concern” about CEO departure with an outside CEO than with an internal promotion.
You can read more about this trend, part two of our consolation package Disney Walden awarded-here.
Contact the CEO daily via Diane Brady at diane.brady@fortune.com
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CEO Daily is compiled and edited by Joey Abrams, Claire Zelman, and Lee Clifford.
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