Inc. Magazine
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The tech gold rush is fading fast. Startups are sharply reducing employee equity refresh grants as venture funding tightens, with payouts down over 40 percent, while AI firms remain the only ones still offering strong stock rewards.
Startups Are Quietly Cutting Equity Payouts—Except at AI Companies
Author: Kayla Webster
Working in tech used to mean employees could expect big bonus payments, usually every four years through granting shares to employees of their still-private companies. Those days are disappearing. Instead of renewing their equity grants to employees, many startups are prioritizing performance as they change their compensation strategies.
Equity compensation gives workers shares in their company every four years—which is a pretty good reason for workers to stick around. Companies and their boards decide how much to award employees and create a vesting schedule that determines when workers receive payouts, according to the investment firm Charles Schwab. That’s why four year payouts became an industry standard over the past decade, but the current economic climate is prompting companies to tighten pursestrings so much that offering equity to every employee isn’t sustainable.That’s especially true for private companies that rely on venture capital for funding because equity growth is limited—the ultimate goal is to become publicly traded, or sold, to drive up the value of the company. In a bad economy, companies have to worry about overextending themselves by promising employees payouts, and many are pulling back on equity offers.
“It’s the economy and the funding environment—compared to two or three years ago, funding was coming all the time, and there were these very high valuations,” Dylan Hughes, senior market insights program manager at Sequoia, a benefits and compensation service for the tech industry, says. “A lot of companies, even VC firms, are rethinking risk. ‘We don’t want to put all this money in there. We don’t have as much funds as we used to and now we’ve given all of these companies two years ago all this money, and then now our funds are a little lower, like we can’t just do the same thing.’”
Since venture capital firms are being more conservative with their investments, companies must do the same. Employee equity is one place to cut back.
Data from Sequoia’s nearly 800 clients—companies mainly based in California and New York—shows these companies are still using equity compensation to attract new talent, but they no longer renew the benefit for existing employees, at least not the full amount of shares they were given as a new employee. When equity compensation is renewed for an existing employee, it’s called a refresh grant. In 2025, large refresh grants dropped 42 percent from 2023. High level executives aren’t immune from these cuts—refresh grants for leadership dropped 43 percent.
AI companies are the only exception to this trend—100 percent of these companies serviced by Sequoia refresh their workers’ equity compensation grants after making the first cash payout, according to the findings. Hughes says that’s because AI companies aren’t having trouble attracting investments, and “are about the only group that is just getting that level of capital inflow on a regular basis.”
It’s tough to compete with AI companies flush with billions in investor funds, dispensing headline-grabbing compensation packages for start talent, but other tech companies know they have to offer something to keep their high-performing employees. Sequoia’s clients are increasingly adopting spot bonuses to reward employees for completing certain projects—usually those that take up considerable time and effort, Hughes says.
This year, 48 percent of Sequoia clients plan to offer spot bonuses to reward employees, a more than 20 percent spike from last year. The reason? Spot bonuses are typically much smaller payouts than equity grants, between $500 to $1,000, and are easier to get approved because they don’t require approval from the company’s board of directors. If your employees completed a particularly challenging project, your company might want to consider thanking them this way.
“If you’re a CHRO, or you’re a manager, and you really want to reward employees, you’re going to get that pushed through significantly easier than trying to get [the board] to change a vesting schedule.”
Credits: TCA, LLC.