Retaining Top Talent: Equity Compensation for Mid-Stage Startups

In the early stages of a startup, equity is a powerful recruiting tool—offering long-term upside in exchange for early risk. But as startups progress into Series B and C rounds, the role of equity shifts. Early hires begin to fully vest, liquidity timelines stretch, and competition for top talent intensifies.

To retain the employees driving your growth, it may be time to think beyond the standard four-year vesting schedule. A more strategic approach to equity compensation can support long-term engagement, align incentives with business goals, and increase your team’s belief in the company’s future.

Download our free Equity Compensation Guide for Growing Startups

Start with Equity Education

Most employees don’t fully understand how equity works. In early stages, this gap may not matter as much—but as your startup grows, it may become a retention risk. If employees don’t see the value in their equity, they’re more likely to leave for what appears to be a better offer.

Make equity education a core part of your talent strategy:

• Introduce equity concepts during onboarding
• Host regular sessions to explain terms like vesting schedules, strike price, 409A valuation, dilution, and tax implications
• Use third-party professionals or tools to ensure credibility and encourage questions

An educated team is more likely to trust your compensation strategy, stay engaged, and understand the long-term value of staying with your company.

Re-evaluate Vesting Schedules as You Scale

The standard four-year vesting schedule with a one-year cliff may not fit a Series B or C company with new priorities and longer timelines.

Consider more strategic vesting options:

• Milestone-based vesting ties equity to business objectives—like revenue targets, product launches, or expansion goals—giving employees a clear connection between their efforts and their rewards.
• Extended time-based vesting schedules, such as five- or six-year plans, support longer retention and can be layered with refresh grants to maintain momentum over time.

Treat vesting not just as a default, but as a retention lever that evolves with your business. Be sure to involve HR and legal teams early to ensure compliance and clarity.

Use Refresh Grants to Maintain Motivation

By the time a company hits Series B or C, early employees may be fully vested in their initial grants. Without additional equity, there may be less incentive to stay—especially if there’s no clear timeline to liquidity.

Refresh grants can offer a solution. These are additional equity awards issued after the initial grant is fully (or mostly) vested. They:

• Keep compensation competitive
• Recognize performance and tenure
• Extend employees’ incentive horizons

There are several approaches to refresh grants:

• Boxcar vesting: New grants begin vesting only after prior ones are fully vested, but they are granted years in advance.
• Performance-based: High performers receive larger grants tied to impact
• Staggered timing: Grants are issued before the initial grant is fully vested to avoid retention gaps

You can create transparency by documenting a standard refresh grant policy and using equity management tools to simplify administration and keep your cap table clean.

Align Equity with Company and Individual Performance

Performance-based equity connects long-term company goals with individual contributions. It can reinforce accountability, reward outcomes, and increase employee buy-in.

For leadership roles, you can tie equity to company-level metrics like:

• ARR growth
• Market expansion
• Profitability milestones

For cross-functional teams, equity awards can be aligned to:

• Major product releases
• Operational improvements
• Strategic partnership success

You can use equity scenario modeling and dynamic cap table tools to forecast impact and you may want to ensure fairness across departments—including HR, legal, and operations, not just revenue-driving teams.

Evolving Equity Compensation for Sustainable Retention

To retain top talent, startups may want to rethink equity as more than a recruitment tool. It can be a long-term strategy for engagement and alignment.

To evolve your equity approach, some considerations are:

• Educate employees early and often
• Customize vesting schedules to match your growth trajectory
• Leverage refresh grants to reward ongoing impact
• Align equity awards with business performance across functions

A static equity plan likely won’t scale with a dynamic company. The more your business grows, the more your equity strategy might want to reflect it.

Ready to build a retention-focused equity plan? Download our Equity Compensation Guide for Growing Startups or schedule a demo to see how our equity management platform helps mid-stage companies scale smarter.

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