Mega grants have made a comeback. 

The generous and controversial one-time compensation packages, usually made up of stock options and tied to specific business goals, are often deployed in hopes of keeping talented CEOs around longer. After rising to prominence in the late ’90s and then falling out of favor in the early aughts, they’re back in style. 

A few famous cases may have kicked off or accelerated the trend, according to researchers at Stanford University’s Rock Center for Corporate Governance in a recent paper. That includes Tesla’s 2018 award of roughly $2.6 billion for CEO Elon Musk, which was tied to ambitious targets and secured Musk’s service for another 10 years. Tesla’s enormous gamble inspired a series of huge grants by other companies, write coauthors David Larcker, professor at the Stanford Graduate School of Business and the Hoover Institution, and researcher Brian Tayan. 

The pair studied 52 mega grants—which they define as pay packages of $10 million or up—between 2016 and 2022 to understand how this type of award is given out, and its effect. They found that the median size of a mega grant was $54.7 million, while the average was $154.6 million. A wide range of companies were part of the data sample, including tech giants Oracle and Alphabet, but also quick-service retailer Sweetgreen, the pharmaceutical company Regeneron, and Freshpet, which makes petfood.

The trend has taken hold despite the potential for bad press, and the possibility a payout that high will face resistance from investors and proxy advisors, according to the researchers. Larcker was surprised by the explanations boards used to justify the awards in disclosure statements, which he tells Fortune are “a little thin.”

“I’m not saying they’re bad,” he says, but adds that considering the potential for negative publicity, the rationale companies offer for these big paydays is often vague. “It’s like, are you really going do this in a single sentence?”  

Some of the paper’s other eyebrow-raising findings include: 

—One-quarter of the mega grants studied were not tied to any performance conditions (they were simple retention bonuses that vested over time), while 44% had only one performance trigger. “You’d expect to see multiple,” says Larcker. 

—Shareholders often respond in a positive way to mega grant packages on the day they’re announced. This is contrary to what you might expect from investors, who as a whole have expressed concerns that boards that approve large grants are too beholden to their CEOs, or that the value of their own holdings was being diluted, the authors write. 

—There’s no proof mega grants make a business better, or that they actually incentivize a CEO; nor is there any proof that they don’t. But their existence could still contribute to a CEO-pay arms race.

Still, Larcker says that boards are “usually careful” and may have their reasons for greenlighting grants that look curious from the outside: “Who knows what really went on? Whose idea was it? Did the board have compensation consultants advising them? Or legal people?” Unfortunately, he says, those conversations are not available to outsiders.  

Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan

Noted

“If the idea is that the ex-CEO could then give the new CEO advice, why do you need an official role to make that happen? If the idea is that the ex-CEO should be telling the new CEO what to do, then why not just keep the old one on longer?”

—Peter Cappelli, a management professor at the University of Pennsylvania’s Wharton School, speaks to Fortune’s Geoff Colvin about the executive chair role, asking, “What is the problem this arrangement solves?”

On the Agenda

👓: Companies listed on Hong Kong’s Hang Seng Index must have at least one woman on their boards by the end of 2024. Lately, some large Chinese firms—including the smartphone maker Xiaomi and electric car company BYD—have revealed plans to add gender diversity to their all-male boards. 

🎧: Claire Hughes Johnson, a corporate officer and advisor at Stripe, appeared on the new Fixable podcast hosted by leadership experts Frances Frei and Anne Morriss, to talk about how to get meetings right. A pro tip: Assign a “process person” whose role is to ensure the meeting sticks to its agenda. 

📖: The mega grants paper mentioned in this newsletter was part of a series of studies from Stanford University’s Rock Center for Corporate Governance. Bookmark the “Closer Look” collection here. 

In Brief

— John Gates, CEO of the Americas markets at real estate company Jones Lang LaSalle, told Fortune that leaders who expect a surge of employees returning to the office after Labor Day may be delusional. “You won’t get consistent reactions from your people. They’re human beings,” he argues. 

— Researchers in Italy investigated which board features (composition, tenure, etc.) were associated with corporate growth among firms that make the Financial Times 1000 ranking. They found that high-growth firms had boards with younger directors who were highly educated (holding multiple degrees), but gender diversity on the board had no impact on a company’s trajectory.

— Ginger Graham, a longtime board member at Walgreens Boots Alliance and its lead independent director, has stepped in as interim CEO at the retailer in the wake of Roz Brewer's abrupt departure. But Graham isn't the only temporary C-suite executive at the company, which is also seeking a permanent CFO, writes Fortune's Paolo Confino in this look at Graham's career history and new assignment. 

—Michaels was among the many businesses to benefit from singer Taylor Swift's blockbuster Eras tour this year. Across the country, scores of Swifties, as fans are known, descended on the crafts store to purchase supplies for their trademark homemade friendship bracelets before Swift's concerts. Still, Ashley Buchanan, Michaels CEO and a board member at Macy's, is looking past the moment to find the innovative changes that will keep Michaels buzzing, he tells Fortune. 

The Long Read

If you didn’t get to the Wall Street Journal’s excerpt from Walter Isaacson’s new biography of Tesla CEO Elon Musk over the weekend, this is your reminder not to miss it. The sneak preview looks at Musk’s takeover of Twitter and offers revealing new details, such as the reason he rushed the deal (so he could fire executives with cause) and Musk’s assessment of former CEO Parag Agrawal after a secret pre-deal dinner. “Musk found Agrawal to be likable. ‘He’s a really nice guy,’ he says. But that was the problem,” Isaacson writes. “If you ask Musk what traits a CEO needs, he would not include being a really nice guy. One of his maxims is that managers should not aim to be liked. ‘What Twitter needs is a fire-breathing dragon,’ he said after that meeting, ‘and Parag is not that.’”