Startup Equity Refresh Grants Explained
Your earliest employees joined with an equity grant that vests over a few years. As those grants approach full vesting, a quiet question appears: what keeps them motivated to stay? Equity refresh grants are one common answer. This guide explains startup equity refresh grants in plain language, when they make sense, how to size and vest them and how to plan them without losing control of your cap table.
Key takeaways
- A refresh grant is an additional equity grant to an existing employee, often given as their original grant nears full vesting.
- Refresh grants help retain key people, reward strong performance and keep equity meaningful after promotions.
- Plan them as a budget from your option pool, with clear rules on who qualifies, how much and when.
- New grants usually have their own vesting schedule and, for US options, a new exercise price based on the current 409A valuation.
- Equity and tax rules are complex and vary by country, so get legal and tax advice before you grant.
Most startups put a lot of thought into the first equity grant for each hire and then forget about equity for years. That works until your early team members look at their vesting schedules and realize they have little left to earn by staying. At the same point, newer hires may be joining with larger packages because the company has grown. Without a plan, you end up with your most experienced people holding the least unvested equity.
Refresh grants are a way to fix that imbalance deliberately rather than in a rush when someone hands in their notice. Mid-September, with Q4 budgets and next year's compensation planning on the horizon, is a good time to put a simple policy in place. A quick note: equity, tax and employment matters are complex, so this is general information, not advice. Work with a startup lawyer and a tax professional before you issue any grant.
What is an equity refresh grant?
A refresh grant is an additional equity award given to an existing employee on top of their original grant. It might be stock options, restricted stock units or, in some companies, restricted stock. In early-stage startups, it is most often stock options from the company's option pool.
The key idea is that a refresh grant adds new unvested equity. The original grant keeps vesting on its own schedule, and the new grant starts vesting from its own grant date. That gives the employee a reason to stay beyond the end of their first grant.
Refresh grants vs promotion grants
Some companies separate two types of additional grant. A promotion grant tops up equity when someone moves into a bigger role, so their package matches what a new hire at that level would get. A refresh grant is about retention and ongoing performance, often linked to the original grant nearing full vesting. Many small startups simply treat both as "additional grants," but it helps to know the difference when you write your policy.
Why refresh grants matter for startups
- Retention. When most of someone's equity has vested, the cost of leaving drops. A refresh grant restores a reason to stay.
- Fairness. Early employees took more risk. Without refreshes, later hires can end up with more unvested equity than the people who built the product.
- Recognition. Equity is a powerful way to tell someone their contribution matters to the company's future.
- Hiring signal. Candidates increasingly ask whether a company offers additional grants. A clear policy can help you compete for experienced people.
Common mistake
Only giving refresh grants when someone threatens to leave. This rewards people who negotiate hardest rather than people who contribute most, and it teaches the rest of the team that a resignation letter is the way to get equity. Use a regular, predictable review instead.
How refresh grants work in the US and UK
The mechanics depend on where your company and your employees are based. Here is the general picture.
United States
US startups usually grant stock options, either ISOs (incentive stock options) or NSOs (non-qualified stock options). ISOs can have more favorable tax treatment for employees if conditions are met, while NSOs are more flexible and can be granted to contractors and advisers. Options are usually priced at fair market value based on a 409A valuation. That means a refresh grant normally has a new, often higher, exercise price than the original grant if the company's value has grown. Exercising options and the resulting taxes can be complex, so encourage employees to speak with a tax professional.
United Kingdom
In the UK, EMI options are the main tax-advantaged scheme for small companies. Refresh grants can often be made under EMI if the company and the employee still qualify, but there are limits and conditions. Check the current HMRC rules with your adviser and make sure each grant is properly valued and notified.
Other countries
If you have employees in other European countries, local tax and securities rules may affect how grants work and how they are taxed. Ask your lawyer before granting outside your home country.
Designing a simple refresh grant policy
You do not need a complex compensation framework to get this right. A one-page policy with a few clear rules is enough for most early-stage companies.
- Set a budget. Decide how much of your option pool you are willing to use for refreshes over the next 12 months. Check with your board, since grants usually need board approval and future rounds may require topping up the pool.
- Define who is eligible. For example, employees who have been with the company for at least two years, or whose original grant is within a set period of fully vesting.
- Decide the trigger. Choose a regular moment, such as an annual compensation review, rather than ad hoc decisions.
- Choose a sizing method. Many companies size refreshes as a share of what a new hire at the same level would receive today, adjusted for performance. Write down the method so it is consistent.
- Set the vesting schedule. Decide whether refreshes vest over the same period as initial grants or a different one, and whether there is a cliff. Some companies skip the cliff for refreshes because the employee has already proven themselves.
- Get approvals and paperwork right. Board approval, an up-to-date 409A valuation in the US, EMI requirements in the UK and a signed grant agreement for each employee.
- Communicate clearly. Explain the grant, the vesting schedule, the exercise price and what the employee should consider about taxes.
Pro tip
Pair each refresh grant conversation with a simple one-page equity summary for the employee: total shares or options held, how many have vested, the vesting dates ahead and the exercise prices. Many employees have never seen their full picture in one place, and the summary makes the grant feel tangible.
Refresh grant planning template
Use this table to plan refresh grants across your team for the next review cycle. All names and numbers below are made up for illustration and do not reflect typical grant sizes.
| Employee | Start date | Original grant (example) | Unvested remaining | Performance | Proposed refresh (example) | Vesting | Board approval date |
|---|---|---|---|---|---|---|---|
| Engineer A | 2024-11-01 | 20,000 options | About 20% | Strong | 8,000 options | 4 years, no cliff | 2027-10-15 |
| Designer B | 2025-03-15 | 12,000 options | About 40% | Solid | 4,000 options | 4 years, no cliff | 2027-10-15 |
| Ops lead C | 2025-09-01 | 10,000 options | About 50% | Strong, recently promoted | 5,000 options (promotion) | 4 years, 1-year cliff | 2027-10-15 |
Add a final row that totals the proposed refreshes and compares them with your refresh budget and the remaining option pool. If the total is too high, adjust sizes or eligibility before the board meeting, not after.
Hypothetical example
Alex is the founder of a 20-person B2B software startup. Three of the first five employees are about a year from fully vesting their original grants. Alex realizes that a new senior engineer joining today would receive a package with more unvested equity than any of them. Working with the company's lawyer, Alex sets aside part of the option pool for refreshes, defines eligibility as two years of service, sizes refreshes as a portion of a current new-hire grant at the same level and schedules approval at the October board meeting. Each eligible employee gets a one-page equity summary and a conversation about the new grant. The details are invented, but the structure is one any small team can follow.
Talking to employees about refresh grants
A refresh grant can be a meaningful moment, or a confusing one. A few principles help.
- Be specific. Share the number of options or shares, the vesting schedule, the exercise price if relevant and the grant date.
- Explain why. Link the grant to their contribution and to the company's plans, not just to the calendar.
- Be honest about value. Equity in a private startup can be worth a lot or nothing. Avoid promising outcomes or putting a price on future value.
- Point to tax help. Remind employees that exercising options can have tax consequences and suggest they speak with a qualified tax adviser, especially in the US where the rules for ISOs and NSOs differ.
- Keep it confidential. Grants are personal. Do not share individual numbers across the team.
Your refresh grant checklist
- List every employee with their original grant, start date and vesting status
- Identify who is within a set period of fully vesting
- Agree a refresh budget from the option pool with your board
- Write a one-page policy on eligibility, sizing, timing and vesting
- Confirm your 409A valuation (US) or EMI position (UK) is up to date
- Fill in the planning template and check totals against the pool
- Get board approval and signed grant agreements
- Give each employee a one-page equity summary and an honest conversation
Frequently asked questions
Do refresh grants dilute existing shareholders?
Grants come from the option pool, which has already been set aside, so issuing them does not change ownership percentages on the fully diluted cap table. But using the pool faster may mean you need to expand it sooner, often at your next funding round, and that expansion does dilute shareholders. Plan refreshes as part of your overall pool budget.
Should every employee get a refresh grant?
Not necessarily. Many companies tie refreshes to tenure, performance or role. The important thing is to have clear, written criteria and apply them consistently, so the process feels fair even to people who do not receive a grant this year.
Can we give a cash bonus instead of equity?
Yes, and some startups use a mix. Cash is immediate and certain but uses your runway. Equity preserves cash and aligns people with long-term growth. Your choice depends on your cash position and what your team values. Get advice on the tax treatment of either option.
What happens to a refresh grant if the employee leaves?
Usually, unvested equity is forfeited when someone leaves, and vested options must be exercised within a set window under your plan rules. Check your equity plan documents and make sure employees understand the terms before they accept.
Related reading
The bottom line
Refresh grants keep equity meaningful for the people who helped build your startup. Budget them from your option pool, write a short policy on eligibility, sizing and vesting, and review grants on a regular schedule rather than in response to resignations. Get the paperwork and valuations right, and explain every grant clearly.
This week, list your team's vesting dates and flag anyone within a year or two of full vesting. That single list will tell you whether a refresh policy belongs on your next board agenda.
