Many companies face challenges when hiring and retaining key talent. When budgets are constrained, adding equity grants as part of compensation packages can help attract and keep key employees on your team. To succeed, companies must create a culture of building value, often requiring implementing equity grant programs or refreshing existing ones.
Equity programs are an attractive form of compensation granted to employees through company shares based on performance milestones or length of employment. Your equity program must have a detailed vesting schedule, requiring the employee to work for several years before ownership rights are fully activated.
If you have a program in place, you may want to consider an equity refresh program. Equity refreshes are additional grants issued to existing employees who receive new-hire grants. An equity refresh program aims to reward and recognize the employee’s contribution to date and align them with the company’s success and value growth going forward. According to a May 2022 article by Aon, equity refresh programs at many U.S. companies are evolving:
- Earlier: Companies are considering refresh programs earlier in both the company and employee lifecycle. This ensures compensation is competitive in the current talent environment and creates further retention and alignment with the future value of the organization.
- Frequent: More frequent, smaller grants have become increasingly favorable. This is a market shift away from the “Box Car” method, which emerged out of the Great Recession in 2009.
- Selective: While criteria may vary, refresh programs are focused and weighted toward top performers in critical functions.
- Value Communication: An emphasis on transparency around equity value is paramount to ensuring employees truly appreciate their holdings and understand how they may financially benefit with the company’s growth.
Source: Revising Equity Refresh Programs to Retain Talent at Private Companies, Aon, May 2022.
Why offering an equity refresh program is appealing to your employees:
- Retains value- Unless the value of your company’s share drops below $0, the employee will always receive some value when they sell their shares.
- Easy to understand- Compared to regular stock, equity refreshes have a clear vesting schedule and value calculation that is easy to understand and is in writing.
- Flexible- Once vested, the stock is theirs to do as they desire, even if they leave the company.
- No purchase required- The stock is given to the employee once they vest, versus paying for them.
Often, equity refreshes are granted to key employees such as top-performers or C-suite level managers that are critical to the growth and continuation of the company. You can implement more frequent equity grants based on growth projections, the timeline you want to retain the employee, and the financial state of your company.
AspenHR’s Executive Compensation and Benchmarking Benefits webinar held on June 8th, 2022, discusses equity refresh programs. Our team can help you benchmark your equity program against your industry competitors and help you design an equity refresh package to help retain top talent that is critical to your company’s success.