How Do Equity Refresh Grants Work as My Startup Scales?
Your startup has grown significantly over the past few years.
Some of your earliest employees have been with the company since the beginning. Their original stock option grants are almost fully vested, and recruiters have started reaching out with attractive offers that include fresh equity packages.
Suddenly, retention becomes a much bigger concern.
Many founders assume a standard four-year vesting schedule is enough to keep great employees engaged. In reality, employees often begin reassessing their opportunities once most of their original equity has vested.
This is where equity refresh grants become an important part of long-term compensation planning.
When structured thoughtfully, refresh grants help retain key employees, make equity compensation more predictable, and support future growth without creating unnecessary dilution.
What Is an Equity Refresh Grant?
An equity refresh grant is an additional equity award given to an existing employee after their original grant has substantially vested.
Rather than replacing the original grant, the refresh extends the employee’s long-term ownership incentive.
The goal is simple.
Employees who continue making meaningful contributions should continue participating in the company’s future success.
Refresh grants are commonly awarded before the original grant is fully exhausted so employees remain motivated to stay rather than seeking a new equity package elsewhere.
Why Refresh Grants Become Important After Several Years
Many startups experience increased employee turnover after key team members reach the later stages of their initial vesting schedules.
This often occurs around years three through five of employment.
At that point, employees may begin comparing their remaining equity opportunity with offers from other companies.
Replacing experienced employees can be expensive and disruptive.
Recruiting costs, onboarding time, institutional knowledge, and delayed product development all create significant business costs.
Providing additional equity before retention becomes a problem is often far less expensive than replacing a valuable team member.
How Large Should a Refresh Grant Be?
There is no universal formula. The appropriate size depends on the employee’s role, performance, market conditions, and the company’s available equity pool.
A common starting point is approximately 25% to 30% of the equity grant a comparable new hire would receive at the same level.
Companies may also provide larger refresh grants when employees receive promotions or assume significantly greater responsibilities.
Some businesses use stock options, while others use restricted stock units (RSUs), depending on their compensation strategy and stage of growth.
The important objective is maintaining long-term alignment without creating unnecessary dilution.
Why a Refresh Schedule Matters
One of the biggest differences between successful and unsuccessful equity programs is consistency.
Without a defined process, refresh grants often become reactive.
Employees receive additional equity only after expressing dissatisfaction or threatening to leave.
A predetermined refresh schedule creates a more predictable system.
It allows the company to estimate future option pool usage, model dilution before fundraising, and communicate compensation expectations more clearly.
Employees also gain confidence that long-term contributions will be recognized through an established process rather than individual negotiations.
Refresh Grants Should Fit Within the Option Pool Strategy
Every additional equity grant affects the company’s capitalization table.
Founders therefore need to evaluate refresh grants alongside hiring plans, future recruiting needs, and upcoming financing rounds.
Budgeting refresh grants in advance allows companies to estimate future option pool requirements rather than making unexpected adjustments during fundraising.
A structured approach also gives investors greater visibility into anticipated dilution.
Treating refresh grants as part of the company’s long-term compensation strategy often produces better outcomes than addressing retention concerns one employee at a time.
Promotions and Expanded Responsibilities May Justify Larger Grants
Not every refresh grant should be identical.
Employees who assume leadership positions, manage larger teams, or take on broader business responsibilities often receive larger equity awards than employees remaining in the same role.
This approach helps align ownership with increasing contributions to the company’s success.
Regularly reviewing both employee performance and changing responsibilities allows founders to allocate equity more effectively while maintaining fairness across the organization.
Common Founder Mistakes
- Waiting until employees are ready to leave before discussing refresh grants: A proactive refresh program is generally more effective than reacting after key employees receive outside offers.
- Making refresh decisions on an ad hoc basis: Without a defined process, option pool usage becomes unpredictable, dilution becomes harder to model, and employees may perceive compensation decisions as inconsistent.
- Failing to budget refresh grants within the option pool: Refresh grants should be incorporated into long-term equity planning rather than treated as unexpected exceptions.
- Giving identical refresh grants regardless of changing responsibilities: Employees who take on larger leadership roles or expanded responsibilities may require different equity awards than employees whose roles remain unchanged.
10-Minute Equity Refresh Self Check
- Do I know which employees are approaching full vesting?
- Do we have a written refresh grant policy or cadence?
- Have refresh grants been incorporated into our option pool planning?
- Do I know the current equity benchmark for new hires at each level?
- Have we decided when to use stock options versus RSUs?
- Do our refresh grants reflect promotions and expanded responsibilities?
If several answers remain unclear, additional review may be worthwhile.
Bottom Line
Equity refresh grants help startups retain experienced employees after their original equity awards begin reaching full vesting. A thoughtful refresh strategy allows founders to strengthen retention, manage option pool usage more effectively, and reduce unexpected dilution during future fundraising. Planning refresh grants in advance is usually more effective than negotiating additional equity only after valuable employees begin looking elsewhere.
Is Your Equity Refresh Strategy Ready for Your Next Stage of Growth?
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