Equity Refresh Grants: How to Incentivize & Retain Talent

Equity refresh

Author:

Josh Steinfeld

|
Read time: 7 minutes

Published date: 4 April 2024

An equity refresh grant is a stock grant issued to tenured employees. Equity refreshes help retain top performers and offset the costs of recruiting.

Contents

What is an equity refresh grant?

Since equity is such a powerful tool for employee retention, it makes sense to grant equity throughout an employee’s time with your company, not just when they’re hired. An equity refresh is a stock grant issued to employees who have already received a new-hire grant (equity that’s granted to an employee when they first join a company).

While refresh grants are always aimed at employee retention, there are three main types of refresh grants.

1. Time-based, retention, or tenure grants

These grants are given to employees when they reach a set tenure milestone or are completing vesting of their new-hire grant. These are aimed at retaining employees beyond the cliff of their new hire grant and are generally issued when the initial grant has vested at least halfway.

Traditional annual refresh grant

Some startups treat equity refreshes like yearly salary raises and give a standard increase to all employees to stay competitive against the market. These grants start vesting immediately and vest over either one or four years on top of any other grants.

Boxcar grant

You grant equity to an employee at year two or three, but the new grant only starts vesting once the new hire grant is fully vested (after year four). These grants vest over one year vs. a traditional grant that vests over four years.

2. Promotion grants

These are granted at the time of a promotion to reflect the new role or level’s compensation. To determine the amount to issue for these grants, you’ll need real-time, accurate compensation data for what a new hire in that role would receive.

3. Performance grants

These are granted to reward top performers or when employees hit certain predetermined metrics. The vesting schedule may vary (vesting over one or four years), but they generally start vesting immediately to reward employees.

What is the typical size of an equity refresh grant?

Generally, our data shows that refresh grants are about 30% of what a new hire would be granted if that person were hired today for that same role or level.

When are companies issuing refresh grants?

According to Carta data, between 2022-2024, about 20% of employees received a refresh grant at year one. By year two, nearly 50% of employees received at least one additional grant beyond their new hire grant.

Best practices for equity refresh grants

The main goal of a refresh grant is to retain top talent and reward employees’ contributions, ensuring continued alignment between their interests and the long-term growth and success of your company.

Plan proactively

When it comes to implementing an equity refresh program, proactive compensation planning is essential. Key elements of proactive planning include:

Use relevant, accurate compensation data

To understand how much equity you should be granting, it’s important to have up-to-date and accurate equity compensation data to ensure your refresh grants are fair and competitive.

Communicate with employees

Making sure employees understand the value of their equity is crucial for a refresh program’s success. Companies that effectively communicate the value of their equity tend to have higher retention rates.

How Carta Total Compensation can help

Carta Total Compensation will proactively flag when employees are completing vesting of their new hire grant soon, ensuring accurate forecasting of equity pool allocations and dilution.

Download Carta's Equity Refresh Calculator

Calculate the number of shares to grant employees eligible for "refresh" or "tenure" grants with Carta’s Equity Refresh Calculator.