Effective CEO succession, the planning and execution of which can span several years, is critical to the potential success of a company. For a CEO to set and execute a winning strategy, a stable, engaged, and high functioning team is needed in the C-suite. However, CEO succession can often result in the departure of other senior executives – some of whom may have been candidates for the CEO role themselves, and some of whom may be less aligned with the strategy of the new leadership. Such departures are often those who are most respected in the market – and thus, essential to ensure investor and company confidence throughout the transition.
One common strategy to limit post-succession turnover is to make special retention grants to some or all of the leadership team. Retention grants include cash or equity awards, with delayed vesting, made in addition to regular, annual compensation. FW Cook investigated the effectiveness of this strategy and discovered that special retention grants have a strong effect in the immediate term, but that the impact wanes quickly.