I thought I knew approximately how the Grand Master was given (though I knew I didn't know the details) but it turns out my idea was less correct than I thought. (I.e., I was wrong.) What's supposed to happen is that you become a member of the SFWA by professionally publishing 3 stories or a novel. Then you run for office in the SFWA and become one of the President, Vice President, Secretary, Treasurer, or one of four regional directors (the Board). If your fellow professionally published SF/F/H writers elect you to President, you can call for a Grand Master award to be given to a distinguished living member. The Board then nominates candidates and the Board and past Presidents (many of whom are luminaries, even Grand Masters, in their own right) vote. If there's a tie, the President breaks it. The winner is declared a Grand Master.
So, in theory, John Scalzi (President), Mary Robinette Kowal (Veep), Amy Casil Sterling (Treasurer), Sean Williams (Overseas Regional Director), and other officers, and past Presidents such as Norman Spinrad, Robert J. Sawyer, Joe Haldeman (himself a Grand Master), Ben Bova, Greg Bear, Fred Pohl (also a GM), Robert Silverberg (ditto), and others could have cast the votes for this, though it's not to say this is actually what happened in detail. These are just the principles. Prestigious indeed.
Thanks to past-President Michael Capobianco for helping me with this but, as the saying goes, any errors are, of course, my own.
For the full legalese:
SFWA By-laws.
Note that, while those are the current rules, it used to be that only six Grand Masters could be made each decade when the award was created but the rule was changed in 1995, so this only fully affected the 80s when, alas, so many of the early masters began dying in significant numbers. But it explains why there are so many gaps in
GOLLUM's list before '95 and only one after. (This part, I knew.)
Also, while it's not clear, it seems to me that the emphasis is on written works but it seems other factors can play into being made a Grand Master. I may be wrong, and apologies if so, but it seems to me James Gunn has written some significant fiction (
Star Bridge,
The Listeners, etc.) but he's probably more important as a critic, teacher, promoter of science fiction, and for his innumerable scholarly endeavors. I suspect distinguished contributions in other areas doesn't hurt even for some authors who may primarily have received the award for their written SF.
Vertigo: FWIW, I haven't read Gunn's fiction, either. For the rest, in order of recommended urgency to get to them, I might rank them personally something like
Fritz Leiber
Jack Williamson
Philip Jose Farmer
Lester del Rey
Damon Knight
Connie Willis
with the proviso that I have read little del Rey and have much more to go, so he could likely change and it's hard to pick between Leiber/Williamson and Knight/Willis.