In the Bay Area startup scene, many employees leave before their equity fully vests, often within a year, according to saastr.com. However, founders and senior executives with significant equity stakes have strong incentives to remain even after full vesting. Staying on can increase the value of their shares and allow them to add material value to the company, which benefits their ownership.
The article explains that founders owning around 10% of a company are motivated to stay because their equity’s worth depends on the company’s success. Leaving means losing influence and legacy, as the equity no longer benefits them directly. For VPs with about 1% ownership, similar incentives apply, though slightly less pronounced. Companies often offer new equity grants every few years to top performers to encourage retention and continued contribution.
Retention is critical for startups, especially at the leadership level. The departure of founding CEOs or CTOs often leads to struggles, as replacements typically lack deep knowledge of the product, customers, and market. This dynamic underscores the importance of equity incentives and ongoing grants to keep key talent engaged. However, issuing new grants to all employees can dilute shares, presenting a challenge for companies balancing retention and equity distribution.
Saastr.com recommends that CEOs consider reloading top performers with new equity grants every two years, vesting over four to five years, to maintain motivation. This approach helps ensure that key contributors remain aligned with the company’s long-term success while managing share dilution risks.