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Important Disclaimer: This information is for general information purposes only and is not intended as business or commercial advice. We recommend that companies consult with legal and financial professionals when making decisions about their equity compensation pool.

The amount of equity that your company should allocate to the RSU equity pool varies depending on several factors, including your company's stage of development, size, industry, financial situation, and the competitiveness of the labor market. How much equity to allocate for employee compensation is ultimately a business decision that requires the consideration of several important factors.

At Upstock, we have worked with companies of different sizes and circumstances, each with different equity pool allocations depending on their specific requirements and needs. In general, companies tend to allocate 10% to 20% of their equity to employee compensation plans. However, companies with allocations as high as a 30% allocation or as low as 5% are not unheard of.

Again, this varies based on a lot of factors. The goal of this material is to give you a general idea on how companies that may be similarly situated as yours have set up their equity compensation pools. We will look at six (6) key considerations and factors that we believe should play an important role when you arrive at this decision.

1. Maturity

Factors

Common Equity Pool Percentages

Early-stage startup

15-20%

Mature startup

10-15%

For early-stage startups that are still in the process of building their teams, we’ve seen them allocate a higher percentage of equity to their RSU pools. These companies often employ their equity to attract top talent and may need to offer larger equity grants. Early-stage startups allocate between 15% and 20% of their total equity for this purpose.

On the other hand, more established startups that have already built out their teams may not need to allocate as much equity for their equity compensation pool. Mature startups may allocate between 10% and 15% of their total equity.

2. Size (Employee Count)

Factors

Common Equity Pool Percentages

Big

10-25%

Small

5-15%

Companies with a higher employee count typically have larger equity compensation pools to accommodate a larger number of employees. They need to offer more equity grants for recruitment and retention purposes which can be a challenge in a competitive labor market. This can be anywhere between 10% to as high as 25% of the total equity of the company.

By contrast, smaller or lower employee count companies may not need to allocate as much equity especially if they are looking to hire and maintain a smaller team. Smaller companies may allocate between 5% and 15% of their total equity.

3. Financial Situation

Factors

Common Equity Pool Percentages

Cash-strapped

10-20%

Well-funded

5-15%

Financial situation is another factor to consider when determining the appropriate size of an equity compensation pool.

Companies that are cash-strapped or those struggling to raise funds would generally want to allocate a larger percentage of their equity to employee compensation to, among others, save cash. This can be anywhere between 10% and 20%.

Well-funded companies, on the other hand, may have more flexibility and capacity to pay cash. Hence, they tend to allocate less of their total equity and this can range from around 5% to 15%.

However, note that the converse can also be true. Companies that lack funding may want to be more conservative with their equity allocations considering that it’s still an economic resource that is very valuable when you are trying to attract additional capital.

Similarly, companies with sufficient funding may also prefer to offer more equity instead of cash since its prospects and valuations may actually make equity compensation more attractive to workers and employees.

4. Labor Market Conditions

Factors

Common Equity Pool Percentages

Normal

10-15%

Competitive

15-25%

The competitiveness of the labor market is also an important consideration. In a competitive labor market, companies may need to offer larger equity grants in order to attract and retain top talent. This could result in them increasing the allocation which they may have previously set at a lower threshold. In a competitive labor market, companies could allocate between 15% to 25% of their total equity for recruitment and hiring purposes.

Whereas, in a normal or non-competitive labor market, companies may not need to offer as much equity compensation and may allocate between 10% and 15% of their total equity. 

5. Industry

Factors

Common Equity Pool Percentages

Tech

10-25%

Non-Tech

10-15%

The type of industry can also impact the appropriate or ideal size of your RSU pool.

As compared to non-tech companies, tech companies tend to allocate more equity for compensation packages which can range between 10% and 25% of the company’s equity. In highly-competitive industries where top talent can give you a significant advantage, the allocation is often on the higher end of the 10%-25% range.

Companies in non-tech industries, on the other hand, allocate 10% to 15% of their total equity. The allocation can be less for companies that reserve equity compensation only for executives or officers.

6. Public vs. Private

Factors

Common Equity Pool Percentages

Private

10-25%

Public

5-10%

For publicly traded companies, allocating too much equity for their equity compensation pool can dilute the interests of existing shareholders. As a result, it's common for publicly traded companies to allocate a smaller percentage or anywhere between 5% to 10% of their equity for compensation packages.

Private companies and startups, in comparison, don’t have this problem and often need to utilize equity compensation to keep up with larger and well-established competitors in terms of recruitment and retention. Thus, private companies usually allocate 10% to 25% of their equity for this purpose.

Conclusion

As you might see, determining the appropriate amount of equity to allocate to your RSU pool depends on a lot of considerations and factors. We suggest that you consider each of them in arriving at a percentage that is able to take into account your company’s unique situation.

This is not an easy task so it's almost always a good idea to consult with a legal or financial professional when making this decision.

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