After the IPO: Evolution of Equity Practices

This blog post is the second in our series analyzing equity practices of technology and technology-enabled companies that IPOed during 2020 and 2021 (excluding companies with <$100M market cap at IPO).

Long-term incentive (LTI) programs are a critical component of executive compensation, designed to align the interests of executives and shareholders. These incentives typically take the form of equity-based awards, such as stock options, time-based restricted stock units (RSUs), and performance-based stock or stock unit grants. Technology companies in particular have historically leveraged equity as a significant component of executive compensation.

While privately held (pre-IPO), most growth-stage tech and tech-enabled companies grant equity broadly throughout the organization, often in the form of stock options, though later-stage private companies may introduce RSUs as well. By contrast, common practice at mature public companies is to tie at least half of executive LTI awards to specific performance metrics; of the technology companies in FW Cook’s 2025 Top 250 study, average CEO mix weights performance-based equity at 60% of total equity. Note that most of the companies in the Top 250 sample are long-standing public entities, and companies that have been public for two to three years often still grant less than 50% in performance awards.

Vehicle Prevalence: Shifts in LTI Strategy

The transition from an early-stage company to a steady-state public entity brings a shift in priorities. When companies are newly public, they often focus on rapid growth, with equity awards designed to encourage and reward large scale increases to stock price over a short time horizon. Companies at this stage also typically have difficulty projecting multi-year performance, which makes granting performance-based equity challenging and risky. However, as companies mature in the public market, there is a clear shift toward performance-based LTI structures.

At newly public technology companies, it is more common to grant time-based LTI only, with 77% using stock options, RSUs, or a mix of the two, and only 23% issuing performance-based LTI. After two to three years as a public company, however, 39% of the companies studied included some performance-based component.

Our analysis reveals notable changes in the prevalence of different LTI vehicles from one-year post-IPO to two to three years as a public company:

Long-Term Incentive Award Mix: Then and Now

The chart below outlines how companies have adjusted their LTI mix over time:

The shift in LTI award mix can likely be tied to two key factors:

• Focus on Company Performance: As companies mature, there is a greater emphasis on aligning executive compensation with long-term performance. This shift is typically characterized by introducing or increasing the amount of equity tied to performance against pre-determined financial goals.
• Market Expectations: Shareholders, investors, and proxy advisors increasingly demand a clear connection between pay and performance. The use of performance-based equity demonstrates a commitment to rewarding executives based on measurable financial / operational achievements.

Prevalence of LTI Mix: A Closer Look

The prevalence of different LTI mix combinations offers valuable insights:

Conclusion

Our analysis of recent technology IPOs reveals a clear shift in LTI vehicle prevalence and mix as companies move from their first year post-IPO to public companies with a few annual cycles of experience. The data show a move away from options, a continuing reliance on RSUs, and growing emphasis on performance equity. These changes reflect the evolving priorities of these companies as they strive to align executive compensation with long-term performance in an unpredictable market.

Looking ahead, we expect to see continued evolution in LTI mix strategies as companies adapt to ongoing market volatility and changing business conditions. The trend toward performance equity is likely to persist, driven by pressure to align executive rewards with long-term financial success.

Dana Etra
Managing Director & Head of Boston Office

Dana Etra advises boards and management teams across industries and has broad experience consulting to companies in varying stages of the business cycle on executive and board compensation. She works with clients on all aspects of compensation strategy and program design, including corporate governance considerations and tax, accounting, securities law, and other regulatory implications.