What Is a Stock Refresher and How Does It Work?
Explore stock refreshers: how this equity compensation works, its strategic role for companies, and its value for employee wealth building.
A stock refresher is a form of equity compensation provided to existing employees, distinct from their initial grant. Unlike the initial stock award, which often incentivizes a new hire to join, a refresher aims to foster continued engagement and commitment from an employee already contributing to the company. It represents a subsequent award of company ownership designed to maintain competitive compensation over time.
Understanding Stock Refreshers
A stock refresher is an additional grant of equity, such as Restricted Stock Units (RSUs) or stock options, provided to an employee after their initial equity award has begun to vest or has fully vested. This supplementary grant ensures employees maintain a financial stake in the company’s ongoing success. It is an incremental award designed to extend an employee’s equity participation and acknowledge continuous contributions.
Initial stock grants are part of a new hire’s compensation package, serving as an incentive to attract talent. In contrast, refreshers are awarded to current employees to recognize their ongoing value. While the initial grant is a one-time event upon joining, refreshers are part of a continuous compensation strategy, often tied to performance or tenure.
Why Companies Use Refreshers
Companies use stock refreshers to retain and motivate their workforce. A primary motivation is employee retention, especially for valuable individuals in competitive industries. Refreshers incentivize employees to remain with the company, preventing them from seeking opportunities elsewhere once their initial equity grants have fully vested, a point sometimes referred to as a “retention cliff.”
Beyond retention, these grants also serve as a performance incentive, rewarding high-performing employees for their contributions. Refreshers help companies maintain a competitive compensation structure in the market. Providing periodic equity refreshers ensures an employee’s total compensation remains attractive compared to industry benchmarks.
Key Features of Stock Refreshers
Stock refreshers involve either Restricted Stock Units (RSUs) or stock options, though RSUs are commonly used for these grants. RSUs represent a promise to deliver company shares once specific vesting conditions are met, usually continued employment. Stock options provide the right to purchase company stock at a predetermined price, known as the strike price.
These refreshers come with their own distinct vesting schedules, separate from any previous grants. A common vesting period is three to four years, often with either “cliff” vesting, where a portion vests entirely after a set period (e.g., one year), or graded vesting, where shares vest incrementally over time. For example, a refresh grant might vest 25% annually over four years.
The frequency of stock refresher grants varies among companies, but they are often awarded annually or bi-annually. This timing frequently aligns with performance reviews or other significant company events. The size of a refresher grant is determined by several factors, including the employee’s performance, seniority level, current market conditions, and established company policy.
Implications for Employees
Stock refreshers significantly impact an employee’s total compensation, providing a continuous stream of potential value beyond their base salary. These ongoing grants help maintain a competitive overall pay structure. This extended equity participation can help prevent a noticeable drop in total compensation that might occur once initial grants fully vest.
For employees, refreshers foster long-term equity building within the company. By consistently receiving new grants, employees can accumulate a substantial ownership stake over many years. This growing ownership stake reinforces alignment with the company’s long-term growth and success.
Stock refreshers, like other forms of equity compensation, carry tax implications. When RSUs vest, their fair market value is considered ordinary income and is subject to federal income tax withholding, as well as Social Security and Medicare taxes. For stock options, tax events occur upon exercise and/or sale, depending on whether they are incentive stock options (ISOs) or non-qualified stock options (NSOs).