Finding a CEO successor is an expensive undertaking. That’s why, when firms identify a promising successor in-house, they spare no expense to keep them. Goldman Sachs is a prime example.
In a January regulatory filing, the bank announced an $80 million retention bonus for 55-year-old John Waldron, its president and chief operating officer, who is widely viewed as the heir apparent to CEO David Solomon, 63. The bonus, awarded in restricted stock, vests only if Waldron stays for five years. He’ll also participate in Goldman’s new carried interest program, which grants top leaders a share of profits from the firm’s alternative investment funds.
Of course, nothing is set in stone—Goldman’s history is littered with would-be successors who never made it to the top—and the bank certainly isn’t alone in deploying golden handcuffs.
Citizens Financial Group recently locked in two potential future CEOs: head of consumer banking Brendan Coughlin and CFO John Woods, awarding them $12 million and $7 million, respectively, in mixed cash-and-stock bonuses—provided they stay until 2027.
Other banks, including KeyCorp, Truist Financial, and U.S. Bancorp, have also showered top executives with lavish retention awards, much to the dismay of some investors who grumble that these payouts aren't tied to any performance-based metrics.
Boards, however, defend the practice. A strong CEO successor ensures leadership continuity, preventing market uncertainty, investor panic, and operational disruption, they argue. Losing a successor can mean millions in additional recruitment costs and a destabilized company.
But are retention packages worth it? Sometimes. They make sense during mergers, acquisitions, and major leadership shakeups. They’re also justifiable if aligned with long-term success metrics, ensuring executives don’t just stay but also deliver value.
Yet, there are some unintended risks. Executives not receiving similar bonuses, for instance, may become disengaged or leave. And there’s no guarantee of loyalty; some may take the money, wait out the vesting period, and exit anyway, making it a costly, short-term fix.
Still, in an industry where top executives are prime poaching targets, companies will continue paying up to keep a carefully groomed successor in place. In the end, the real question isn’t whether retention bonuses are excessive—it’s whether firms can afford not to offer them.
Ruth Umoh
ruth.umoh@fortune.com
Today's newsletter was curated by Lily Mae Lazarus.
