How To Effectively Reduce Equity Burn At Your Organization

I have heard a common question at nearly every roundtable dinner with total rewards and compensation leaders over the past months: “My comp committee is hounding me to bring down equity burn from X% to Y%. How can I do this while still being able to recruit and retain top talent?”

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The silver lining is this: scarcity can motivate and necessitate experimentation and innovation. We are in an “equity program redesign renaissance”.

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Here are seven levers I am hearing and seeing customers pull in order to reduce equity burn and stock-based compensation expenses, from most to least austere.

What Is Equity Burn Rate?

First, a refresher. Equity burn refers to the rate at which a company's equity is being allocated and distributed among its employees and executives. It's a critical metric for compensation teams to monitor, as it directly impacts a company's financial health and how it’s perceived by stakeholders—like boards, comp committees, and employees.

7 Levers to Reduce Equity Burn Rate

1. Reductions in Force/Layoffs

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We start the list with the most austere lever companies can pull to reduce equity burn.

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2. Accelerating Global Hiring

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Many talent pools around the world do not value and demand equity in the same way that Bay Area employees do, for instance.

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3. Modifying Discount Grant Sizes

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Specifically, consider rolling out equity grant geo discounts that are more pronounced than your salary/cash geo discounts.

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For instance, the chart below illustrates how companies are discounting equity grants between the three standard geo tiers within the USA.

4. Tightening New Hire Equity Eligibility

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Consider the dimensions of job level, job family, and job location.

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5. Tightening Refresh/Ongoing Equity Eligibility

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Again, consider the dimensions of job level, job family, job location, and additionally, performance rating.

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Previously, there was a mindset where all employees should receive refresh/ongoing grants for "surviving" at your company. However, many companies are switching into a pay for performance flavor of refresh grants where maybe only the top performers receive anything.

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6. Experimenting with Clever Vesting Durations and Structures

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For instance, there’s an uptick of companies (public companies in particular) adopting two- and three-year vesting schedules that sometimes have front-loaded (aka accelerated) vesting. The goal with these shorter, accelerated grants is mostly to increase up the perceived year-one take-home total direct compensation, while preserving optionality for incentivizing top performers with more ongoing equity over time (per lever 5 above).

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7. Introducing Choice Programs

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I’m hearing increased chatter around "choice programs" where employees can choose between cash (either one-time bonus payouts or salary increases) or equity grants.

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On the surface, these programs seem appealing. Psychologically, when humans have agency to choose between a portfolio of rewards, they may perceive that reward to be of greater value. So, why not meet each individual employee where they are at? This said, choice programs come with their own operational challenges.

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There are financial, cultural, and business dimensions to consider as you decide on the optimal balance of burn mitigation and equity program design changes for 2025. Whichever lever(s) you decide to pull, one constant is the importance to crisply and consistently communicate both the “what” and the “why” to your employees.

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