Startup Equity Vesting: Why Stay After Vesting?
Many startup employees, especially in competitive markets, leave shortly after their equity vests. Why is this, and what incentives encourage employees to stay long-term?
Why Founders Stay
Founders have strong reasons to remain committed even after vesting:
- Impact over Percentage: Holding 10%, 11%, or 12% is less critical than maximizing the overall value of that equity. Founders are driven to build something significant.
- Legacy: Leaving means relinquishing ownership of their creation and its future impact.
- Additional Grants: While often smaller, further equity grants can incentivize continued contribution.
- Company Performance: Startups often struggle when a founding CEO or CTO departs. New leaders rarely possess the same depth of understanding regarding product, customers, market, and company vision.
VP and Key Employee Retention
For VPs and employees with significant equity (e.g., 1% or more), the incentives are similar to founders, albeit slightly less pronounced. If the company has IPO potential, staying as long as they add value remains beneficial.
Challenges for Individual Contributors
It's harder for individual contributors to stay motivated beyond four years without a clear promotion path or additional equity grants ("reloads").
Equity Strategies for Retention
CEOs should consider reloading top performers' equity every two years with new vesting schedules. This ensures ongoing commitment. However, this strategy must be balanced with the available equity pool.
Prioritizing the top 10% of employees for regular equity refreshes is a practical approach to maximize impact and retain key talent.
