Unfortunately, it seems to have become standard practice in just about every industry to reward executives with huge 7- and 8-figure bonuses. There seems to be a mindset at that level that, because we are such obviously superior people, we certainly deserve this largesse.
Plus, it tends to be kind of inbred at the upper echelons of businesses, and you might as well approve this guy's bonus, because next time it'll be you up for some nice chunk of change, and you wouldn't anyone to say NO now, would you?
It doesn't matter if the company goes well or tanks -- the common knowledge (hope?) is that there are these incredibly talented people (that you have to pay huge sums to) and that they will make your company a success. Study after study has shown that there is no relationship between pay and performance, but it doesn't matter -- see paragraph #2 above.
After all, these are "our kind of people" right?