An equity award, a type of long-term incentive that represents ownership in a company, plays a big role in retaining and motivating executives. By tying a significant portion of compensation to the long-term success of the company, executives are encouraged to focus on sustainable growth and performance, benefiting both the company and its stakeholders.
A company’s approach to executive compensation evolves as it matures. This includes how equity is distributed and managed as it scales.
To help you understand the current state of executive equity for VC-backed companies at different stages of growth, here are insights from Sequoia’s 2024 Compensation Practices Report:
Company Size: 1–99 Employees
Companies are usually strapped for cash and use equity to make up a significant portion of executive compensation. They’re focused on getting the right people on their teams, rather than rewarding people for tenure or performance.
Based on our data, approximately 90% of companies at this stage offer stock options to executives at the time of hire. However, equity is not exclusive to executives, and multiple levels of employees receive equity as part of their compensation.
Although three-fourths of these companies offer refresh grants — additional equity grants — they’re typically not part of a structured process and are awarded ad hoc.
Company Size: 100–499 Employees
Equity is still the primary component of executive compensation. Eligibility is consistent, but the size of equity grants is less generous than with smaller companies. Leaders are beginning to focus on slowing equity dilution and managing their cap table efficiently.
This is also when executive equity refresh programs start to take on more structure, with companies introducing performance-based equity and vesting to executives.
Our data finds that 82% of companies at this stage offer some form of refresh equity to their leaders. And 75% of companies at this stage use performance as one of multiple criteria for triggering refresh grants.
Company Size: 500–999 Employees
Companies begin to introduce formal equity plans both upon hire and with refresh grants, with 100% of companies offering equity at these points. The criteria for equity grant amounts are clearly defined, and companies benchmark their equity programs against market data.
Company Size: 1,000+ Employees
Equity programs are more competitive for talent than in earlier stages. Programs are well-structured, institutionalized and designed to balance equity management with talent retention and attraction.
Companies typically begin to expand beyond stock options to include restricted stock units (RSUs) and performance shares in executive equity packages. Performance metrics are clearly defined and may vary among executives.
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For more data on how VC-backed companies of all sizes are designing their compensation programs, download a Sneak Peek of our 2024 Compensation Practices Report.
