Mega Grants: Why Would a Board Approve Nine-Figure CEO Pay?

Abstract

Recent years have seen a reemergence of the practice of awarding “mega grants” to CEOs. Mega grants are large, one-time equity awards granted in lieu of or in addition to annual awards with the intended purpose of providing significant incentive to the CEO to achieve long-term targets. The practice of awarding mega grants is controversial because of their size. In this Closer Look, we examine the types of awards granted, the circumstances of their grant, and shareholder reaction.

We ask:

• Why would a board draw attention and controversy to itself by awarding a mega grant to its CEO?
• What added incentive does a CEO receive from a one-time, large award instead of multiple annual awards over time?
• Who actually initiates a discussion about a potential mega grant: the CEO or the board?
• What are the implications for the firm and its shareholders if targets are missed and the CEO perceives no chance of receiving a payout from the grant?

Keywords: Corporate governance, CEO compensation, equity awards, equity compensation, mega grants, stock options, Elon Musk, board of directors, proxy advisory firms, corporate governance research