How Much is Enough? Sizing Equity Awards in Private Companies

The question is: how much?

Picture this: You’re a fast-growing private company, competing for top talent with limited cash, big goals, and dreams of a future exit. You can’t outpay the giants on salary—but you can offer ownership. The question is: how much?

Equity compensation is one of the most powerful tools startups and private companies have to attract, retain, and motivate talent. But it only works when sized strategically. Go too big, and you burn through your equity pool. Go too small, and your best candidates may walk away—or worse, feel underappreciated and disengage.

So how do you get it right?

Sizing equity grants isn’t just a math exercise. Without a structured approach, companies risk excessive dilution, misaligned incentives, and unmet employee expectations. That’s why establishing clear, consistent guidelines is essential.

In this article, we’ll break down:

• Why clear equity guidelines matter—and how they support fairness and sustainability
• How public and private company approaches differ—and why private companies can’t just copy public benchmarks
• The most common methods for sizing equity—from ownership percentage to dollar value to share count
• Where to find reliable benchmark data—and how to apply it based on your stage and sector
• How to manage burn rate and equity pool usage—so you stay in control as your company scales
• How sizing evolves over time—especially as expectations shift
• Tips for communicating grant size—so employees understand what they’re getting (and why)
• Key steps for planning future grants—from budgeting to board approval

Whether you’re building your first equity plan or revisiting your strategy ahead of your next funding round, this guide will help you take a more intentional, scalable approach.

Why You Need Equity Grant Guidelines

Equity is a finite resource. Without the right guardrails, you risk:

• Over-granting and exhausting your pool
• Under-granting and losing talent to competitors
• Inconsistency across roles, leading to internal equity issues
• Misaligned expectations between leadership and employees

Grant guidelines lay the foundation for consistency and strategic alignment. They help answer key questions: What’s typical for a new hire at each level? How should refresh grants be handled? What’s appropriate for advisors or board members? And how can you stay competitive while managing dilution?

Beyond internal fairness, clear guidelines reduce ambiguity in offer negotiation and protect companies from the “squeaky wheel” syndrome—where more assertive candidates secure better terms than their peers. Guidelines also help support inclusive hiring practices by reducing unconscious bias in how equity is allocated.

Why Public Company Models Don’t Always Work for Private Companies

Public companies typically size equity based on target value. For example, an executive might receive an annual grant worth $500,000, based on the fair market value of the stock on the grant date. This works because public companies benefit from:

• A liquid market for their shares
• Well-established compensation benchmarks
• Transparent valuations and consistent accounting standards

But private companies face very different conditions:

• 409A valuations are illiquid and often conservative
• Fundraising can introduce wide swings in valuation
• Lack of liquidity makes equity value harder for employees to grasp
• Retention timelines can be longer, with value realization often tied to a future liquidity event

Because of this, private companies must take a more flexible and narrative-driven approach, often combining data with storytelling to help employees visualize what their grant could mean.

Common Sizing Approaches in Private Companies

There’s no one-size-fits-all method, but these are the most common:

1. Percent of Total Equity (Ownership-Based)

Grants are awarded as a percentage of the company’s total shares outstanding (on a fully diluted basis).

• Pros: Easy to communicate ownership stake; strong alignment with company success
• Cons: Can become highly dilutive; must be recalibrated regularly as new funding is raised
• Best For: Early-stage startups offering meaningful ownership to early hires

Ownership percentages can feel more tangible for early employees—especially when your company has fewer than 20 people. These grants communicate, “You’re a true part-owner,” which can be motivating and create long-term commitment.

2. Value-Based

Grants are tied to a target dollar amount, divided by the FMV per share (from your 409A valuation).

• Pros: Mirrors public company practice; ensures consistent value across roles
• Cons: FMV may understate true market value; can inflate share counts at early stages
• Best For: Mid- to late-stage companies preparing for IPO or exit

This approach adds predictability to financial modeling and is easier to scale across job levels and functions. It also allows for alignment with total compensation philosophies.

3. Number of Shares

Fixed share amounts by role or level (e.g., “Senior Engineer gets 20,000 shares”).

• Pros: Easy to communicate and administer
• Cons: Doesn’t account for valuation changes; can create long-term equity imbalances
• Best For: Very early-stage companies without mature valuation models

This method is straightforward but can become outdated quickly. Companies using this approach should plan to evolve their methodology after the first major funding round.

Many companies use a hybrid approach—blending ownership-based sizing with value-based calibration as they grow, ensuring both competitiveness and consistency.

Where to Find (and How to Use) Benchmark Data

When it comes to sizing equity awards, benchmarking helps you stay grounded in market norms—but it’s not one-size-fits-all. Here’s how to approach it effectively:

1. Triangulate with Multiple Sources

No single dataset tells the full story, so the best approach is to combine insights from several sources. Each tool offers different strengths depending on your stage, industry, and geography:

Pave

Pave’s Calculated Benchmarks use predictive modeling and real-time data pulled directly from equity management systems, offering timely insights that may be more reflective of current market conditions—especially for early-stage and fast-growing companies.

Carta Total Comp

Carta provides access to a large dataset of private company equity and compensation information, with benchmarks available by role, level, and region. This can help inform decisions around hiring, retention, and overall compensation planning.

Radford (Aon)

Radford offers survey-based equity and compensation data commonly used by mature private and public companies. It can be a helpful reference point for organizations approaching an IPO or looking to support executive and board-level decision-making.

2. Make the Data Work for You

Using a “make it fit” approach—blending these sources with your own internal equity philosophy—can give you the most balanced and actionable view.

3. Ask If Benchmarking Is Really Necessary

Start with your equity pool and goals. How much reserve do you have? What are you trying to achieve—recruitment, retention, motivation? Sometimes your internal strategy outweighs what the market says.

4. Use Informed Judgment

If you’re confident in your plan design, you may not need precise market data. Instead, ask: What amount of equity value actually feels retentive for this role? For example, we all know a $20K grant over four years won’t move the needle for a senior engineer.

5. Look Inward

Your historical grant data is often the most relevant benchmark. Also listen to what you’re hearing from the field:

• Are candidates pushing back on offer sizes?
• Are exit interviews citing more competitive equity elsewhere?
  That’s valuable market intel in itself.

Communicating the Size and Value of a Grant

How you explain a grant can be just as important as how it’s sized.

For Executives or Experienced Hires

• Show % ownership, number of shares, and estimated value (FMV and strike price)
• Include future exit scenarios with realistic dilution assumptions
• Provide a clean summary: grant date, shares, strike price, and vesting terms
• Clarify key terms like “double trigger,” “cliff,” and “post-termination exercise window”

For General Employees

• Focus on number of shares and today’s estimated value
• Use plain-language scenarios to explain upside potential (e.g., “If we exit at $500M…”)
• Avoid using % ownership unless thoroughly explained—it often confuses more than it clarifies

Managing Burn Rate and Plan Reserve

Burn rate reflects the pace at which you use your equity pool. If unmanaged, you risk:

• Running out of shares before key milestones
• Unexpected dilution that catches your board or investors off guard
• Limited flexibility for future strategic hires

Best practices include:

• Modeling dilution quarterly or semi-annually
• Building a rolling three-year equity budget
• Updating your 409A at least annually
• Keeping investors and your board informed of plan reserve usage
• Monitoring share pool usage by cohort (e.g., new hires vs. refresh vs. exec)

Some companies even include a “future grant reserve” bucket in their models to account for unplanned needs, such as acquihire packages or executive transitions.

How Equity Sizing Evolves Over Time

As your company grows, your sizing approach should evolve:

• Seed Stage: Big ownership stakes, minimal structure, and high-risk/high-reward messaging
• Series A–B: Start introducing guidelines, often percentage-based; board plays a bigger role
• Series C–D: Shift toward value-based grants and formal pay bands; more data-driven
• Pre-IPO / Public: Fully transition to target value grants, structured refresh cycles, and public-grade governance

Final Thoughts

Sizing equity awards is part art, part science. There’s no magic number—but with clear guidelines, thoughtful modeling, and effective communication, you can build a program that’s both competitive and sustainable.

Think of equity not just as compensation—but as culture. It’s how you invite employees to become owners, share in your success, and build something that lasts.

As your company scales, your equity strategy should too. Done right, your equity plan won’t just support your hiring goals—it’ll fuel performance, loyalty, and long-term success.