In recent years, a small number of companies offered mega grants (equity awards with an expected value in excess of $100 million) to their CEOs. We examine the outcomes of a sample of 40 grants issued to 28 CEOs, including how much realizable compensation was earned by the CEO and how the company’s stock-price performance compared to market benchmarks. We find most mega grants pay out a fraction of their originally expected value. We also find companies granting mega grants underperform.
We ask:
- How can shareholders determine whether a mega grant is the right incentive vehicle for improving potential performance?
- In what situations is it favorable to offer a single point-in-time award rather than annual equity awards?
- Does the shock value of a massive price tag with stake-in-the-ground performance targets amplify the incentive value of these awards or does it expose the company to too much risk?
- What adverse effects occur if it becomes apparent to the CEO that many of the trigger targets will not be achieved?