Comment by gonehome

If you reprice equity comp each year then you lose most of the upside.

Compare the two following equity plans:

Example Year 1:

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PLAN 1

FMV: $1

Strike: $1

Total #: 40k ISOs

Vesting: 4yrs

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PLAN 2

FMV: $1

Strike: $1

Total #: 10k ISOs

Vesting: 1yr

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In the second plan you get granted new equity per year targeting some total comp.

This means if the equity goes up in value a lot in the first year, when your new amount is recalculated it'll be way less than 10k.

Example Year 2:

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PLAN 1

FMV: $2

Strike: $1

Total #: 40k ISOs (10k vesting in year 2)

Vesting: 1yr into 4yr period

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PLAN 2

FMV: $2

Strike: $2 (new grant)

Total #: 5k ISOs (The 10k from the first year, and now half that # determined by new FMV for a cumulative total of 15k instead of 20k ISOs).

Vesting: 1yr on new grant

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This lets the company keep the majority of the upside, taking it away from employees. It also hurts employees that stay longer or have a longer term interest in the company from capturing the value they helped create.

And the more the company goes up in value, the worse the trade off becomes.