You’ve lost the CEO succession race. Here’s your multi-million dollar bonus

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Good morning. When a chief executive succession race narrows to just a few contenders, losing doesn’t always mean losing out. I’ve noticed lately that some high-profile 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 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. Top executive turnover typically costs 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 coauthor of its new report. 

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.

You can read more about this trend—and the second part of the consolation package that Disney awarded Walden—here. 

Contact CEO Daily via Diane Brady at diane.brady@fortune.com

This story was originally featured on Fortune.com