It wasn’t long ago that companies were on hiring sprees. But as Sequoia’s 2025 Compensation and Equity report confirms, the focus has shifted. This year, companies are designing compensation programs around retention and engagement rather than growth.
There are several reasons for this change. Mass layoffs shook the tech industry in 2024 with at least 95,000 workers at US-based tech companies losing their jobs. But layoffs don’t just impact those who leave. They can also push remaining employees to quit and tank engagement. And it can take 18 to 24 months for engagement to rebound.
So how are companies approaching retention? Here are key compensation and equity trends from our latest report — including performance-based short-term incentives, performance-based equity refreshes, equity reissuances, and merit increases — that can help inform your compensation strategies in 2025.
Performance-Based Short-Term Incentives
Short-term incentives, once common primarily among larger, more established companies, are now becoming a standard part of compensation strategies across all stages. More early-stage startups are adopting these incentives and extending them to a wide range of employees. In fact, half of pre-seed companies offer short-term incentives to at least one employee group.
What’s driving this shift? With a sluggish IPO market, employees are waiting longer to benefit from their equity awards — if they see a payout at all. As a result, short-term cash incentives are becoming more attractive to them. Series C companies are leading the charge, increasing adoption of these incentives by 35% over Series B. At the Series C stage, companies need more diverse and competitive pay packages to attract employees who can drive market expansion, product diversification, revenue growth, and profitability.
Performance-Based Equity Refresh Grants
The adoption of performance-based refresh equity continued to grow in 2024 as companies increasingly tied compensation to performance outcomes, driving retention and engagement.
The number of companies who offer this type of refresh grant nearly doubled, with an 11% increase in these incentives for executives and a 6% increase for non-executives. We expect adoption to continue through 2025 as 20% of companies reported planning to shift their long-term incentive budgets toward performance-based vesting in the next 12 to 24 months.
Investor Pressure and the Shift in Equity Strategy
Investors, who focus on minimizing dilution and maximizing returns, play a significant role in shaping equity award strategies. With the current market conditions, investors want to make sure their portfolio companies operate more efficiently, spend carefully, and meet high-growth expectations.
Given these pressures, performance-based awards must be tied to metrics that drive business goals. However, the challenge for early-stage companies, especially those at Series C and D, lies in defining effective performance metrics beyond share price. Forecasting revenue and profitability can be difficult at these stages, making it challenging to tie equity awards to these outcomes.
Equity reissuance
Half of all companies that reissued equity to employees cited retention as the primary motivation. Notably, 72% of these companies were at Series C or earlier.
These adjustments can signal a long-term commitment to employees, but they must be executed carefully to be effective. Because equity reissuance often coincides with periods of financial constraint that can trigger fears around job stability and company performance, effective communication is key. Invest time and resources into helping employees understand the potential value of these equity adjustments.
Merit Increases
Merit increases, typically in the form of salary adjustments or one-time bonuses, are more critical than ever for motivating and retaining employees. As detailed in our merit cycle trends story, companies are focusing their budgets on rewarding existing staff rather than investing in new hires.
Merit increases by headcount
On average, merit increases were about 4% across companies, regardless of size — whether they had fewer than 100 employees or more than 500. This marks only a slight decrease from the previous year, showing stability in overall compensation strategies.
Merit increases by industry
The ongoing demand for AI expertise has led to more aggressive compensation packages across all job levels in that industry. So, it’s no surprise that AI companies delivered the largest salary increases in 2024, with employees at all levels receiving a median increase of 5% or more. Individual contributors at the professional level, which include critical roles like machine learning engineers, received the highest increases at 5.4%.
In contrast, life sciences companies, which saw lower deal volume, awarded the biggest increases to executives and management, with a median increase of 4.7%.
For all other tech companies, the median salary increase was 4%.
Off-cycle merit increases
Once a strategy reserved for larger organizations, off-cycle merit increases have become common across businesses of all sizes. Over half of all companies with fewer than 100 employees are using this strategy. The main driver is retention, with 80% of companies citing it as their top reason, compared to 50% the previous year.
To learn more about merit cycles, visit our full article about this trend.
No Matter the Strategy, Agility is Key
An agile compensation strategy supported by a data is always going to be on your side, especially in unpredictable markets. It’s important for companies to stay flexible and invest in the right strategies to drive retention outcomes. Being able to quickly roll out new programs, adjust existing ones, and effectively communicate those changes will help you stay competitive and retain top talent.
Get More Compensation and Equity Data
Get a year-over-year view of key compensation trends: Download Sequoia’s 2025 Compensation and Equity Trends report.
Learn how your company’s compensation strategy compares to your peers’: Sequoia’s compensation advisors are here to help benchmark your compensation strategy to our full 2025 Compensation and Equity report. Connect with an advisor to get started.
