Expert Tips to Manage Equity Compensation During Your Next Salary Review

Equity compensation — giving employees partial company ownership through stocks or shares — has become a widely adopted practice across industries. Nearly half of public companies (43%) extend some form of equity to all employees. Among private companies, 35% have embraced equity-based rewards, and a whopping 70% of tech companies offer equity compensation. This widespread adoption reflects the growing importance of equity as a tool to stay competitive in the marketplace, improve retention, and align company and employee interests.

And if you’re reading this, chances are your organization already offers equity compensation. But as employees progress through their vesting schedules, managing equity strategically becomes an essential part of maintaining a fair and competitive total rewards package. This begs the question: How should equity be refreshed and re-upped during compensation reviews?

In this article, we’ll guide you through everything you need to know — covering topics like the importance of re-upping equity, setting equity bands, and managing refresh grants.

When and Why Should Organizations Re-up Equity?

Typically, companies offer equity on a set vesting schedule that could include a “cliff” for when an initial chunk of equity vests, with many of them adopting a four-year vesting schedule with a one year cliff. This means that employees need to stay with the company for at least a year to earn any shares. After that first year, 25% of their equity vests, with additional shares vesting monthly or quarterly over the next three years. 

So, let’s say a new employee joins your company and receives 10,000 shares as part of their equity package. Based on a standard vesting schedule, their timeline might look like this:

• Year 1: 2,500 shares vest after completing 12 months of employment (one-year cliff)
• Year 2: 2,500 shares vest evenly over the next 12 months (about 208 shares per month)
• Year 3: 2,500 shares vest evenly over the third year
• Year 4: 2,500 shares vest over the final 12 months, at which point the employee becomes fully vested with all 10,000 shares

Once this employee reaches the end of their vesting schedule, they stop receiving new stock options or shares as part of their compensation. This means that the value of their total rewards package decreases substantially, which could prompt them to seek new opportunities. This is why monitoring vesting schedules and re-upping equity is so important. It helps shield your organization from unnecessary turnover while strengthening employee loyalty and retention. 

The ideal time to re-up equity is during annual performance reviews. These reviews provide a natural opportunity to assess employee contributions and recognize top performers. But navigating equity compensation during salary reviews is often easier said than done, even for seasoned HR and Total Rewards professionals, which is why having equity bands in place is so important. In the next section, we’ll explore what equity bands are and how they work. 

What are Equity Bands and How Do They Work?

Equity bands are structured ranges that help you determine how much equity employees are eligible to receive based on their role, level, or seniority. Think of them as the equity version of salary bands. Just like you’d use salary bands to keep pay consistent and competitive across roles, equity bands also enable you to give employees at similar levels comparable equity packages. 

That said, equity bands can change over time based on market and company conditions. One nuanced factor is “new hire equity bands,” which apply specifically to incoming employees. As these bands shift, it can become challenging to make direct comparisons between employees. For instance, early-stage companies may use equity as a larger part of total compensation to attract talent in the high-risk, bootstrapping phase. So, someone among the first 10 or 20 hires at a startup might have a substantially different equity package than an employee who joins later, perhaps around 200 employees and after a Series B or C funding round.

Equity bands can be structured either by the number of shares (e.g., 5,000 to 10,000 units) or by a dollar range (e.g., $10,000 to $20,000 if the share price is $2). You can also offer bands in both dollar and unit values, toggling between the two. When setting a dollar amount, keep in mind that the equivalent number of units will vary based on the current fair market value (FMV) of each share.

Before you re-up equity for employees, make sure you have solid equity bands in place. This way equity refreshes and grants are consistent across the organization. 

When you’re building your equity bands, here are some key components to consider: 

• Role and seniority: Equity bands should correspond with the employee’s position and seniority. For example, offering executives and senior managers more equity than junior or entry-level not only motivates them, but it also reflects their higher level of responsibility within the organization. Bands may also differ across departments, so make sure to do market research about the equity norms within the market. 
• Tenure: As mentioned above, tenure can affect equity allocations. Early employees may have received larger grants when they first joined the company and their position on your current equity may be much higher when compared to less tenured employees. 

When considering new equity grants for more tenured employees, asking questions such as, “What’s the best way for us to structure new equity grants so we’re rewarding tenured employees while also offering fair opportunities to recent hires?” can help you approach future grants. This way, you’re addressing the needs of tenured employees while also creating meaningful ownership opportunities for newer hires.

• Location: Geographic location can also impact equity bands if your organization looks at equity as a proportion of an employee’s total compensation. In this case, roles that are remote or based in low-cost regions may receive less equity than employees in the same role located in a higher-cost-of-living area. 
• Market benchmarking: Your philosophy on equity and setting your equity bands can also be informed by market data (such as compensation benchmarking tools). When compared to cash based compensation, like base salary and bonuses, equity could look very different from one company to another. With that said, reviewing equity benchmarking data across different sources could be helpful in establishing your equity bands and ensuring that you are competitive in the market. 

The bottom line? Creating clear and well-defined equity ranges helps you make consistent decisions for new equity grants — not only for new hires, but also as a helpful framework for refreshing and rewarding equity for existing employees.

Expert Tips to Manage Equity Compensation within a Performance Review

Managing equity compensation during performance reviews takes more than just tracking vesting schedules. It’s also about aligning equity with individual performance, career progression, and market trends.

Three ways to achieve this are through equity refresh grants, equity grants for promotions, and performance-based equity grants. Leveraging these strategies effectively will help you maximize impact and keep employees motivated, engaged, and fully invested in your company’s success.

#1: Equity Refresh Grants

Equity refresh grants are designed for employees whose initial stock options or shares are nearing the end of their vesting schedule. The goal of these grants is to essentially “reset the clock on equity.” 

Generally speaking, a good time for a refresh is when the employee reaches or exceeds 75% vesting in their current grant. At this stage, the equity that is still vesting is limited, and it's a matter of time when the employee’s total rewards package value could decline substantially and make it less compelling for the employee to stay. 

Strategies to manage refresh grants and maximize their impact: 

• Set a schedule for issuing refresh grants: Group your grant refreshes with compensation review cycles. This way, employees know when to expect them, and you can keep a pulse on what percentage each employee’s equity is vested.
• Reward top performers: Your top performers are the people helping to build your business and make it successful - so reward them. In addition to offering refresh grants for tenure, you can also offer them once certain milestones have been reached such as meeting revenue targets, achieving a high performance rating (see performance-based equity grants), or helping launch a successful new product.
• Educate your employees about the value of these grants: If employees don’t understand what refresh grants are or how they can help build wealth, they’re less likely to appreciate or engage with them. Be transparent and walk employees through how the grants vest over time and how they could grow with the company’s success. 

To educate your employees about the value of these grants, consider using a Total Rewards portal that provides clarity on the value of equity compensation, vesting, and educational resources. You can even use scenarios to illustrate the potential benefits. For example, explain how a stock price increase of 2X or 3X could impact their grant's future value, or how long-term gains from holding shares could supplement retirement savings. 

At the end of the day, money talks. A well-structured equity grant strategy doesn’t just give you a competitive edge — it also keeps your tenured employees motivated and invested in your business. 

#2: Equity Grants for Promotions

Along with the standard salary bump when promoting someone to a new role, you can offer newly promoted employees additional equity that levels up their total compensation package. Equity grants for promotions are additional shares or stock options employees are issued when they step into new roles. The purpose of these grants is two-fold: to reward employees for their hard work and to keep them invested in the company. 

Approach A: Difference between Current Role and Promoted Role

Promotion equity should align with an employee’s new role, responsibilities, and market benchmarks. For example, if an employee moves from a mid-manager position to a director role, their equity package would be larger compared to someone moving from a junior role into a mid-level manager position. These jumps in equity compensation are typically reflected in your established equity bands. 

When determining the appropriate equity to award during promotions, it’s helpful to refer back to these bands. A consistent approach is to examine the difference between the equity band target (i.e. midpoint) of the employee’s current position to the proposed (promoted) position. 

Let’s look at an employee being promoted from a Senior Customer Success Manager to a Director of Customer Success.

In this example, the target equity for this employee’s current position of Senior Customer Success Manager is 8,000 units and for the promoted position of Director of Customer Success it’s 18,000 units. This means that when this employee is promoted, they’d be eligible for the difference — 10,000 units — as a new grant. 

Using this framework helps keep promotion-related grants aligned with the current equity band structure, rather than relying on the employee’s equity grant history.

Approach B: Percent of Promoted Role Equity Target

Another option is to apply a set percentage of the Equity Target for the promoted band. In this scenario, rather than comparing the difference between the current and promoted roles, you would base the grant solely on the target for the new position. So if you set the promotion equity grant at 50% of the target for the Director of Customer Success role, the employee would receive 9,000 units (or 50% of the 18,000 units) as part of their promotion. 

The key here is to make sure you’re recognizing all promotions across the organization in a consistent manner regardless of an employee’s tenure. 

 #3: Performance-Based Equity Grants

As the name suggests, performance-based equity grants are tied to performance milestones. We’re not talking Performance Stock Options (PSUs) that link vesting to the achievement of performance goals, but rather linking an employee's performance at the company to trigger an additional equity grant in general (i.e. they would still be stock options or RSUs with a standard time-based vesting but are granted as a recognition of an employee’s performance).

These grants can be awarded based on individual goals and objectives being met, or based on an employee’s performance rating where top performers receive varying grant sizes according to their ratings. When it comes to merit review cycles, it’s typical to link pay to performance through the use of a merit matrix. The merit matrix is used to set guidelines on salary increases based on performance rating. In this case, you would do something similar but tie performance ratings to the equity grants you wish to issue to your employees. 

For example, let’s say your performance review process rates employees on a scale from one (needs improvement) to five (exceeds expectations), any ratings below a three may not be eligible for any performance-based grants, whereas employees with ratings of four or five may receive a grant based on their overall rating and their current job title. This way, you can take into account the equity bands you’ve already established. 

As you’re setting the criteria for your performance-based grants, make sure to also take into account whether an employee who is being promoted is also eligible for these grants, as the promotion itself may already serve as recognition (i.e. you may not want to double dip). Meaning, do promoted employees get both a performance-based grant and also a promotion grant or do they only get one of the two equity grant types? 

How to manage performance-based equity grants: 

• Consider performance-based grants vs other grant reasons: How will your performance-based equity grants interact with other grant types such as refreshes and promotions? Perhaps it makes sense to set eligibility for performance-based grants to only apply in cases where employees are more than 75% vested (i.e. only provide refresh grants for high performers).  
• Explain how success will be measured: Is success dependent on the individual, team, company as a whole, or some combination of the three? Is there a ratings scale the employee should be aware of? When it comes to performance ratings, make sure you have a strong performance management review process in place.  Employees should know exactly how they’ll be rated and the criteria that applies. 
• Make sure the targets you set are realistic: Nothing kills motivation faster than a target that isn’t remotely achievable. If your performance-based grants are issued as a “spot bonus” of sorts in relation to the achievement of goals, make sure the goals are clearly stated and realistic.

Conclusion

The right equity strategy isn’t just a reward — it’s a strategic tool to motivate, reduce turnover, and engage employees throughout their journey. By knowing when to re-up equity, setting clear equity bands, and leveraging refresh, promotion, and performance-based grants, you can keep employees motivated while positioning your organization for long-term success.