Something changed in 2022 that most people missed.
Employee equity at startups dropped by 26%. Not temporarily. Permanently.
The data comes from Carta, which manages equity for tens of thousands of companies. When the market corrected in late 2022, companies slashed equity grants. Then something interesting happened: even as conditions improved, equity never came back.
We’re now three years into what appears to be a permanent reset.
Employees are getting less ownership than ever before. And unlike salaries, which have started climbing again, equity remains flat.
The Numbers Tell the Story
The shift happened fast. Between November 2022 and September 2023, the average equity grant for new hires fell by roughly 26%. That’s measured as a percentage of fully diluted shares—the actual slice of ownership employees receive.
Since then? Barely any movement. Carta’s H1 2025 report confirms that equity packages have “remained static” even as salaries rise.
Startup Compensation Trends (2022-2025)
Dropped in 2022-23, has not recovered
Up since January 2024
From 54% to 32% of vested options exercised
Source: Carta State of Startup Compensation Reports, 2024-2025
Here’s what makes this different from a normal market cycle: salaries are recovering, but equity isn’t.
Average startup salaries are up 5.8% since April 2022. Legal roles jumped 10% in just the past year. Product managers now earn on par with engineers at around $189K.
But equity? Still down. Still flat. Companies found they could pay less in ownership, and they’re not giving it back.
Jobs Create Income. Equity Creates Wealth.
What Actually Happened
Several forces collided in 2022 that fundamentally changed how startups think about equity.
Hiring collapsed. Startups made 523,000 hires in 2022. By 2023, that fell to 268,000—a 49% drop. The trend continued into 2025, with January hiring down another 17% year-over-year. When companies aren’t competing for talent, they don’t need to offer as much equity.
Down rounds reset expectations. When valuations fell, the dollar value of equity grants cratered. But companies didn’t increase grant sizes to compensate. They kept the percentages flat (or smaller), and employees got used to it.
Employees stopped exercising options. In 2021, 54% of departing employees exercised their vested options. By late 2024, that dropped to 32%. Nearly half of employees who earned equity are walking away from it. When options feel worthless, the whole equity narrative breaks down.
Time to liquidity stretched. The path from Series A to exit used to be around 8 years. Now it’s pushing past 10. A decade is a long time to hold illiquid paper.
The New Normal for Early Employees
If you’re joining a startup today, here’s what the equity landscape looks like.
According to Carta’s benchmarks, the first engineering hire typically receives about 1.5% of the company (four-year grant). But it drops off fast:
Typical Equity Grants by Hire Number
Median four-year grants, fully diluted. Source: Carta, 2025
If a founder hired their first five employees at market median, they’d give away roughly 3.6% total. That’s not generous. That’s not building an ownership culture. That’s treating equity as a cost to minimize.
Why This Matters Beyond Startups
The decline in employee equity represents something larger: a narrowing path to wealth creation.
Equity compensation has been one of the few mechanisms that let regular employees participate in upside. Not everyone can be a founder or an investor. But owning a piece of a growing company gave engineers, designers, and operators a shot at building real wealth.
That path is shrinking.
The top 10% of earners own 89% of all stocks. For most workers, wages are the only way to build savings. But wages don’t compound. They don’t create windfalls. They pay the bills.
When startups cut equity grants by a quarter—and never restore them—they’re not just reducing compensation. They’re closing a door that was already hard to get through.
This connects to an even larger issue: the 60 million gig workers who’ve never had access to equity at all. The wealth-building ladder is getting shorter at every rung.
What This Means for Founders
If you’re building a company, this environment creates both a challenge and an opportunity.
The challenge: Candidates are increasingly skeptical of equity. They’ve seen friends hold options for a decade with no exit. They’ve watched grants get diluted to near-worthlessness. Many now say “just pay me cash.”
The opportunity: If you structure equity in a way that actually aligns with contribution, you’ll stand out from every company offering the same shrinking grants.
Here’s what that looks like:
Track real contributions
Traditional equity grants are based on guesswork. “This role should get 0.5%.” Why? Because that’s what other companies give. It’s not tied to what the person actually does.
Dynamic equity flips this. Every contribution gets recorded. Ownership reflects who actually built the business, not who negotiated hardest at hiring.
Protect against early departures
The standard 4-year vesting schedule with a 1-year cliff was designed for a different era. When time-to-exit was 4-5 years, it made sense. When it’s 10+ years, you need a different approach.
Consider longer vesting periods, back-weighted schedules, or refresh grants that reward long-tenured employees.
Be transparent about the timeline
Don’t sell equity as “this could be worth millions” without being honest about the path. What’s the realistic exit timeline? What happens in a down round? What does dilution mean for their percentage?
Employees who understand the real picture trust you more—and stay longer.
What Employees Should Ask
The new equity landscape changes the conversation you should have when evaluating a startup offer.
| Question | Why It Matters |
|---|---|
| What’s the current 409A valuation? | You need to know what your strike price actually means |
| What’s the realistic exit timeline? | A 10-year hold is very different from 4 years |
| What happens to my options if I leave? | Standard 90-day exercise windows can be brutal |
| How much dilution should I expect? | If you’re at 0.1% now, what will you be at Series C? |
| What’s the exercise cost for my grant? | Can you actually afford to exercise? |
If the company can’t answer these clearly, that tells you something.
The Bigger Picture
Employee equity dropped by a quarter in 2022-2023. The market has recovered. Salaries are rising. But equity stayed down.
This wasn’t a temporary correction. It was a reset. Companies discovered they could offer less ownership, and when conditions improved, they kept the savings instead of restoring grants.
For founders building companies now, this is the environment you’re operating in. The old playbook of “give everyone small equity grants and hope the exit is big” is fraying.
Building a company where ownership is fair, transparent, and actually valuable is harder than ever. But it’s also more important than ever.
The companies that figure this out will attract better people and keep them longer. The ones that don’t will wonder why their best employees keep leaving for cash-paying jobs at big tech.
Frequently Asked Questions
How much did employee equity actually decline?
According to Carta’s data, the average equity benchmark for new hires dropped approximately 26% between November 2022 and September 2023. Since then, equity packages have remained flat—they haven’t recovered even as salaries have increased by nearly 6%.
Why are fewer employees exercising their stock options?
Exercise rates dropped from 54% in 2021 to 32% in late 2024. The main reasons: longer time to liquidity (10+ years in many cases), uncertainty about eventual exits, and the cost of exercising outweighing the expected return. When employees don’t believe equity will pay off, they don’t invest in exercising it.
What can founders do to make equity more meaningful?
Track actual contributions rather than guessing at grant sizes. Be transparent about realistic exit timelines and dilution expectations. Consider longer vesting schedules or refresh grants for long-tenured employees. Use dynamic equity approaches that align ownership with who actually builds the company.
Is this trend likely to reverse?
The data suggests no. Even as market conditions improved through 2024 and 2025, equity grants remained flat while salaries rose. Companies have settled into a “new normal” of smaller equity packages. The structural shift toward longer private company lifespans also means equity compensation needs to fundamentally adapt, not just return to old levels.
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