When a chief executive succession race narrows to just a few contenders, losing doesn’t always mean losing out. Recent CEO contests have resulted in hefty compensation packages for the executives who came in second.
When Disney earlier this month selected Josh D’Amaro to succeed Bob Iger as CEO, the entertainment giant gave D’Amaro’s reported rival for the job, Dana Walden, a one-time $5.26 million stock grant, plus a recurring annual target compensation of about $27 million. And when Morgan Stanley named Ted Pick as its new CEO in 2023, it paid Pick as well as Andy Saperstein and Dan Simkowitz, reportedly dual runners-up, special bonuses valued at $20 million each.
The eye-popping awards cap a years-long trend in which companies pay passed-over CEO contenders millions, seemingly to stay put. The big bucks reflect the big stakes of retaining top talent. A leader who has ascended to the level of CEO contender is likely a high performer with broad institutional knowledge and deep relationships, both inside and outside the firm. Such a star walking out the door can scramble organizational operations, ruin team morale, and dent a company’s bottom line, with top executive turnover typically costing many multiples of the person’s annual salary.
Paying for executives’ loyalty works—to an extent. A recent report from consultancy FW Cook found that the grants have “a strong, but limited, retentive effect—typically lasting approximately two to three years.” That time frame likely reflects the awards’ vesting schedules, says Marco Pizzitola, a consultant at FW Cook and co-author 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 Cook’s report examined 100 large‑cap U.S. companies and identified 47 that swapped out their CEOs between 2016 and 2020. At roughly a third of those companies, boards rolled out succession-related retention grants to 39 named executive officers who did not become CEO.
Companies were more than twice as likely to hand out the grants if they hired external CEOs, suggesting “there’s greater concern” about an executive exodus with an outsider chief executive than with an internal promotion, Pizzitola says.
Executives who receive retention grants and leave earlier than expected typically forfeit whatever portion remains unvested. It’s fairly common for rival companies to poach passed-over executives and pay them whatever share of the grant they’re leaving on the table.
The grants aren’t token gestures—they amount to real money. For non‑CEO executives, the awards typically land between about $1.6 million and $5 million, with a median around $3 million dollars. Between $3 million and $5 million seems to be the Goldilocks zone: Recipients of awards in that range have the longest average tenure—just over four years post‑succession. Meanwhile, smaller awards buy closer to three‑and‑a‑half years of loyalty. Interestingly, the largest packages correlate with executives heading for the exits even sooner, in just over two-and-a-half years. In those outlier cases, it seems as though no amount of money will keep a scorned CEO candidate from jumping ship.
As for those who receive no retention award, of the named executive officers who eventually depart the company, “those who did not receive such a grant typically leave within the first year,” the report says.
Certainly, not every passed-over executive merits a handsome bonus to convince them to stay. And how the succession process goes down can make a difference too: Some jilted candidates are so bruised by the experience that it’s best for all involved if they leave.
Money talks
Retention bonuses are not the only way to keep 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 got both money and opportunity: In addition to awarding her a one-time bonus, Disney promoted the Hollywood insider to president and chief creative officer, making her the first person to hold that title at the 102-year-old company, and putting her in charge of Disney’s movies and streaming series.
Giving runners-up “a new challenge” can incentivize them to stick around. But, Pizzitola says, “it very often comes down to dollars and cents.”
