Equity refresh grants: A complete guide

Key takeaways: 

• Refresh grants restore retention incentives once original grants mostly vest, while also rewarding performance and keeping pay market-competitive.

• Eligibility is usually based on tenure, performance rating, promotion, role criticality, or a mix of these.

• Sizing follows one of four models, percentage of original grant, target ownership top-up, peer benchmarking, or a burn-rate pool, typically landing at 25-50% of the original grant.

• Refresh grants open a new, independent vesting schedule (usually four years with a one-year cliff), which overlaps with any unvested shares left on the original grant.

• Tax treatment follows the underlying instrument (ISO, NSO, or RSU), but a refresh can trigger issues like the ISO $100K cap, a fresh 409A valuation requirement, or a second RSU withholding event.

What is equity refresh grant?

An equity refresh grant is a type of stock-based compensation that companies offer to their employees to refresh and update their existing equity holdings. This grant is designed to ensure that employees continue to have a vested interest in the company's growth and success, even as their initial equity grants mature or expire.  

Equity refresh grants are typically awarded to employees who have already received a new hire grant, usually upon joining the company. These additional grants are meant to provide further ownership in the company, encouraging employees to remain with the organization and support its long-term success.

Why do companies offer equity refresh grants?

Four reasons show up again and again across refresh programs:

• Retention past the vesting cliff. Once an original grant is largely vested, the reason to stay fades. A refresh grant puts that reason back in place.

• Performance motivation. A fresh award recognizes sustained contribution and gives strong performers a renewed stake in what the company builds next, over a pat on the back for work already done.

• Market competitiveness. Total equity on offer stays in line with current benchmarks for the role, so a competing offer from outside carries less weight.

• Long-term alignment. Continued ownership keeps the employee's interests and the shareholders' interests pointed at the same outcome.

What are the types of equity refresh grants?

The types of equity refresh grants include:

1. Time-based equity refresh grants: These grants are based on a predetermined schedule, such as annually or every two years, and provide additional equity to employees at specific points in time. Following a predetermined and regular timeline for distributing equity grants allows for more streamlined administration and transparent communication with employees regarding these incentives.

2. Performance-based equity refresh grants: These grants are tied to specific performance metrics, such as meeting certain targets or achieving specific milestones. This approach incentivizes high performers and aligns their interests with those of the company.

3. Promotion-based equity refresh grants: These grants are awarded to employees upon promotion to a higher level within the company. This approach recognizes and rewards employees for their career advancement and increased responsibilities.

Who is eligible for an equity refresh grant?

Companies typically use one or a mix of the following criteria:

• Tenure-based: The employee hits a service milestone, or the original grant is close to fully vested.

• Performance-based: The employee's rating in the last review cycle sits at or above a set bar.

• Promotion-based: The employee has moved to a higher level or a wider scope.

• Role criticality: The employee sits in a hard-to-replace or business-critical seat.

• Custom rules: A combination built around the company's own comp philosophy, tenure plus a minimum rating, for example.

How companies size an equity refresh grant

Most companies land on one of these approaches:

1. Percentage of original grant. A refresh set as a fraction of the original new-hire grant, commonly under half, scaled by role and performance. The exact ratio varies by company stage and sector, so it's worth checking current compensation survey data (Radford, Option Impact, or a similar benchmarking source) over relying on a fixed rule of thumb.

2. Target ownership model. The company sets a target equity value or percentage for each level and role, then tops up the employee's current holding to reach that target.

3. Peer benchmarking. Compensation data from market surveys (Radford, Option Impact, or a similar benchmarking source) sets the going rate for a given role and level, and the refresh closes the gap between what the employee holds and what the market pays.

4. Burn-rate-constrained model. The company works backward from an annual dilution budget set by the board, then distributes that pool across eligible employees by rating and tenure. The right budget varies by company stage and sector, so it's worth grounding this in the company's historical burn rate and current board-approved option pool rather than a generic industry figure.

Whatever the model, the size should track two things: how much of the original grant remains unvested, and how the employee's current package compares against the market rate for their role.

What is the approach to structuring an equity refresh program

Cliff-triggered refresh: A refresh grant fires automatically once an employee crosses a set vesting threshold on their original grant, the exact threshold is a policy choice each company sets for itself, commonly somewhere past the halfway point of the vesting schedule. 

Annual cycle refresh: Refresh decisions run alongside the yearly comp review, bundled with base pay and bonus decisions for a single conversation with each employee.

Evergreen refresh: A standing pool of equity gets replenished each year and distributed based on performance and retention risk, without a fixed individual schedule.

Hybrid model: A base annual cycle for most of the workforce, layered with off-cycle grants for promotions or retention risk flagged by a manager.

Vesting schedule for refresh grants

Refresh grants almost never inherit the original grant's vesting clock. A fresh grant typically opens a new four-year vesting schedule, often with a one-year cliff, running independently of any unvested shares left on the original grant.

This creates two active vesting tracks side by side once a refresh lands, the tail end of the original grant and the front end of the new one. Cap table software and equity management platforms track this overlap automatically; spreadsheets tend to lose accuracy here as headcount and grant count grow.

Benefits of offering equity refresh grants

For the company:

• Lower voluntary attrition among tenured, high-value employees

• A comp package that stays competitive without a base-salary bidding war

• A visible signal to the wider team that long-term contribution gets rewarded

• A structured, defensible process for equity decisions, over ad-hoc negotiation

For the employee:

• A renewed financial stake tied to the company's future growth, not only its past

• Recognition that arrives independent of a promotion or title change

• A clearer, longer-term picture of total compensation

Equity refresh grants vs New-hire grants

Tax considerations

Refresh grants carry the same tax treatment as the underlying instrument, ISO, NSO, or RSU, but the timing of a second grant can shift outcomes worth flagging to employees and the finance team:

• ISO $100K limit: The IRS caps the grant-date value of ISO shares that become exercisable for an employee in any calendar year at $100,000, counted across all ISO grants that person holds. If an employee already has ISOs turning exercisable that year, a new ISO refresh can push the combined total past that cap, and the excess gets taxed as an NSO instead.

• 409A valuation timing: Option-based refresh grants need a current 409A valuation at the grant date, so the strike price stays defensible for the new tranche.

• RSU withholding: RSU refresh grants trigger ordinary income tax on vest, same as the original grant, a second vesting track can mean a second, separate withholding event each year.

None of this is a substitute for advice from a tax professional or equity compensation specialist, refresh grant tax treatment depends on jurisdiction, instrument type, and the employee's full equity position, and a qualified advisor should confirm specifics before grants go out. 

Best practices for building a refresh program

The practices below cover the pieces that keep a program consistent, defensible, and easy to run as headcount grows.

1. Set the policy before the first grant goes out. Write down eligibility rules, the sizing formula, and the cadence, and share the policy with managers.

2. Benchmark against current market data. Use current compensation survey data over the numbers that set the original new-hire grants years earlier.

3. Model dilution across a 3-5 year horizon. Run that model before committing to an annual or evergreen cadence, so the board sees the long-term cost up front.

4. Pair the grant with a conversation. Tell the employee why the grant arrived, and tie it to the specific performance or tenure context that earned it.

Conclusion

A refresh grant works when it lands on the right schedule, at the right size, for the right people, sized off real benchmark data, timed before retention risk sets in, and explained to the employee when it arrives. Get those pieces right, and a refresh program keeps the people a company most wants to keep. As headcount grows, a cap table and equity management platform keeps the job simple, with every grant, vesting schedule, and dilution number visible in one place. 

How qapita can help with equity refresh grants

Qapita's stock plan management platform tracks every grant type, new-hire, refresh, promotion-based, on its own vesting schedule, with eligibility rules, dilution modeling, and 409A data connected in one system. Teams running refresh cycles get a live view of vesting overlaps and pool usage instead of piecing it together across spreadsheets. Book a demo

FAQs

How often do companies issue equity refresh grants? 

Most run on an annual or biennial cycle, timed with the performance review process. Some trigger refreshes off a vesting milestone over a fixed calendar date.

Do refresh grants apply to all employees? 

No. Most companies limit refresh grants to specific tiers, tenured employees past a vesting threshold, top performers, promoted employees, or a combination of these.

Are refresh grants the same size as new-hire grants? 

Usually smaller. A common range is 25% to 50% of the original new-hire grant, adjusted for role, performance, and current market benchmarks.

Do refresh grants restart the vesting clock? 

Yes, typically. A refresh grant opens its own new vesting schedule, separate from whatever remains on the original grant.

What happens to a refresh grant if an employee leaves? 

Standard vesting rules apply, unvested shares from the refresh grant are forfeited on departure, same as any unvested equity from the original grant.