Equity Refresh

An equity refresh is an additional stock option or RSU grant given to retained employees on top of their original new-hire grant. Also called a refresher grant, top-up grant, or annual equity grant. It is typically issued annually or at promotion events and designed to maintain ongoing equity incentive and retention as the original grant vests over its 4-year schedule. The refresh grant is typically 25-50% of the original new-hire grant size, vests on its own 4-year schedule (with or without cliff depending on company policy), and accumulates with the original grant to keep the employee's total equity meaningful as the company grows. It is a fundamental discipline for employee retention at growth-stage companies and a frequent source of operational decision-making.

The mechanics of equity refresh:

Why refresh grants matter:

• Original new-hire grant vests over 4 years. After year 4, an employee has nothing more vesting.
• Without refresh, retention incentive evaporates: employees fully vested have no equity reason to stay.
• Refresh grants extend the vesting horizon and maintain ongoing retention incentive.

Typical refresh grant structures:

Annual refresh (most common at growth-stage companies):

• Each year, retained employees receive a refresh grant.
• Size typically 25-50% of original new-hire grant.
• Vests on its own 4-year schedule (some companies use 1-year cliff; others vest from day one).
• Cumulative effect: employees always have 4 years of forward vesting between original and refresh grants.

Promotion-triggered refresh:

• Refresh occurs at promotion events (level change) rather than calendar annual.
• Size scales with the promotion (larger refreshes for bigger promotions).
• Less predictable for employees but sometimes more meaningful.

Performance-tied refresh:

• Refresh size varies based on performance rating.
• High performers get larger refreshes; lower performers get smaller or no refresh.
• Aligns equity to performance differentiation.

Year-4 mega-refresh:

• Some companies do a larger refresh in year 4 to specifically extend retention beyond the original cliff.
• The "cliff" is when employees might consider leaving (no more vesting from original grant); the mega-refresh addresses this directly.

The math of cumulative refresh grants:

Concrete example: an engineer is hired at year 0 with a 100,000-share new-hire grant vesting over 4 years. Annual refresh policy: 30% of original each year.

• Year 1: original grant 75% remaining (25% vested). Refresh: 30,000 shares. Total unvested: 105,000 shares.
• Year 2: original 50% remaining. Year-1 refresh 75% remaining (22,500 shares). New refresh: 30,000 shares. Total unvested: 102,500 shares.
• Year 3: original 25% remaining. Year-1 refresh 50% remaining. Year-2 refresh 75% remaining. New refresh: 30,000 shares. Total unvested: 97,500 shares.
• Year 4: original fully vested. Year-1 refresh 25%. Year-2 refresh 50%. Year-3 refresh 75%. New refresh: 30,000 shares. Total unvested: 90,000 shares.

The compounding effect: the employee always has 80-100K shares of forward vesting, providing ongoing retention incentive.

Capital implications:

• Refresh grants consume option pool over time. At scale-up companies, refresh grants are often the largest single category of option pool usage (more than new-hire grants in aggregate).
• The option pool refresh at financing rounds needs to anticipate refresh grants, not just new hires.

Operational considerations:

• Refresh decisions are typically made annually as part of performance review cycle.
• Manager recommendations + HR/comp committee review + board approval (for larger grants).
• 409A FMV at time of refresh determines strike price.
• Communication to employees about refresh policy (when they happen, how size is determined, what to expect).

What founders get wrong: Not establishing a refresh policy, then watching tenured employees leave once their original grants fully vest. The right discipline: establish a refresh policy by Series A or B, document it clearly (annual cadence, percentage of original grant, performance differentiation if applicable), include refresh costs in option pool planning at financing rounds, and communicate the policy to employees so they understand it's part of their long-term compensation. The retention benefit of a well-run refresh program compounds significantly over years.

Related: Stock Option · Employee Equity · Performance Review · Vesting · Option Pool

FAQ

What is an equity refresh?
An additional stock option or RSU grant given to retained employees on top of their original new-hire grant, typically issued annually or at promotion events. Designed to maintain ongoing equity incentive and retention as the original grant vests over its 4-year schedule.

How big should refresh grants be?
Typically 25-50% of the original new-hire grant size, depending on company stage and tenure of the employee. Some companies tie size to performance (high performers get larger refreshes). The cumulative effect over multiple refresh cycles is to keep employees with 80-100% of their original grant equivalent always in forward vesting.

When should companies start an equity refresh program?
By Series A or B. At earlier stages, original grants vest from day one without refresh, and the company is too small for the retention discipline to matter much. Once the company has 30+ employees and is approaching the 1-2 year mark since first hires, refresh becomes important for retention. By scale-up phase, refresh is a routine annual discipline.