Introduction
What is stock repricing?
Stock repricing is the common term used to describe the process of adjusting the exercise price of employee stock options, usually to a lower price, when the company's stock has (significantly) declined in value. This is done to restore the net value (share price minus exercise price) of stock-based compensation such as options, ensuring that employees remain motivated and retain a financial incentive to contribute to the company’s success. Without repricing, stock options that were granted at a higher strike price may become momentarily worthless (underwater), making them ineffective as an employee retention and motivation tool.
When would stock repricing be recommended for a company?
Stock repricing typically occurs in the following situations:
- Market Downturns – Broad economic declines or financial crises may significantly lower stock prices, rendering existing options less valuable or worthless.
- Company-Specific Challenges – A company's stock price may drop due to internal issues such as missed growth targets, operational setbacks, or strategic missteps.
- Retention & Motivation Concerns – When employee stock options lose their value, companies may use repricing as a strategy to prevent key employees from leaving and to restore motivation.
Often, all of these events can happen simultaneously. Market downturns can impact company performance, decreasing the value of employee equity therefore creating retention and motivation issues. Generally speaking, there can be multiple reasons why repricing has become a necessary tactic to incentivise employees during uncertain times.
The current market outlook
The current tech market (outside of AI) is still underperforming based on the valuations and investment levels of 2022. This means that investors value businesses at a smaller revenue multiple than in previous years across most sectors. This in theory results in a significant decrease in the value that investors are willing to pay to acquire a share in a particular company. Based on the aforementioned scenario, the market/investors would have officially re-valued a company through ‘official’ channels, such as an investment round at a lower value than previous valuations (down round).
Examples of reported down rounds
Stripe, the digital payments company had been valued at $95B previously but subsequently had multiple down rounds with the lowest valuation being $50B (according to TechCrunch in March 2023). These down rounds were during uncertain times, when tech layoffs were becoming regular occurrences, companies were going bust quickly and valuations were falling rapidly from the highs of the previous years.
More recently (TechCrunch, February 2025) Rapyd also encountered a decrease in valuation. It is reported that new funding would value Rapyd at $3.5B, when compared to approximately $9B in 2021, which is a significant decrease in company valuation.
These two examples are just a few of many down rounds in the tech industry that could/would have required repricing in some instances. If you were an employee joining the business during the golden age of company valuations, your strike price for equity options would have been higher than those who joined the business at the previous lower valuations. However, as the actual value of each share falls during down rounds, your strike price wouldn’t be changing - in some cases, this could result in the actual price per share being lower than your strike price at that time. This eliminates the potential gain for individuals with options, reducing the incentive and motivation that options should provide to employees.
Typical process for stock repricing
Step 1 - Valuation vs strike price
Often triggered by market downturns or changes in company performance, but in some cases by new investment, a valuation event would be the starting point for repricing. This valuation would enable the business to identify accurately, what the actual price per share is at that point in time. When compared to the strike price of existing options, this would highlight the need for repricing. Do the existing growth plans and projections match your ambition for an employee equity plan? Are the potential gains to employees or future employees motivating and incentivising them in line with your goals? It is important that when considering repricing, companies are aware of the complete drop in share price at that time. This is because swallowing the full drop in price in one go enables employees to start gaininig as the share price begins to recover.
Step 2 - Internal alignment
Once the need for repricing is identified, all relevant stakeholders must be involved in the process. Usually, this would consist of investors, board members and senior leadership teams. The amendment of strike prices for employees should be matched to three key factors: an up-to-date valuation, the expected growth and the level of incentive/motivation required. In many cases, strike prices are set at nominal value, meaning the price cannot be lowered. This provides employees with the opportunity to truly benefit from growth in earlier-stage businesses. However, in later-stage businesses where there is more data to clearly identify growth, industry/market trends and past/future valuations, there is usually more headroom for changes in strike price.
Step 3 - Implement changes to the plan (not just strike price)
At the point where all relevant parties have agreed on the changes to the equity plan, it is time to set the new strike price. However, strike price changes may not be the only change implemented when repricing options, you may also look to adapt terms in the plan. This is an opportunity for businesses to evaluate and agree on changes to the terms of equity plans. For example, this could include vesting schedule amendments or leaver provision changes. In many cases, making terms more favourable when repricing options is a ‘sweetener’, used to soften the blow to employees when operating during uncertain times. However, where any changes to the terms are made, it is critical to take specific legal advice on this in each jurisdiction in which employees are located.
Step 4 - Inform and engage employees
When repricing options or adapting terms in agreements, communication efforts must be aligned and clear. Employees ultimately need to agree to changes in the equity plan and will need to understand why the changes are being made. Avoiding rumours and mixed messaging will assist in aligning teams and speeding up the process. Companies should focus on the positive narrative behind repricing, clearly demonstrating the upside to the changes that have been made to the equity plan for each employee. Holding company-wide meetings, team-level discussions and other forms of regular communication are some tactics that can be used to align employees.Another useful tool is scenario modelling, which can be used to identify future scenarios and the potential value of options. Ledgy offers a comprehensive employee dashboard whereby companies can map valuations and fundraising/exit scenarios. This can be viewed and adapted then shared with employees, helping them understand the potential gains and goals.
The impact and management of stock repricing on employees
What impact does this have on employees?
Employees will naturally feel disheartened when buying into the long-term vision and potential of a company, then being faced with decreasing valuations and in some cases layoffs. However, in reality, the only gain that stock options unlock is the difference between the strike price and the actual share price (the price someone is willing to pay per share). So if valuations fall but strike prices do not change, that gain disappears (while valuations remain low), rendering the options worthless to employees. This is a key point to communicate when repricing or in a situation where repricing may be recommended.The changes to the terms of employee equity plans will also impact perceptions of the overall process. Therefore, it is important to clearly explain the decisions made and their impact on employees so that they can evaluate the value of the plan. Ultimately, companies that choose to undergo a repricing project (and potential term changes) to benefit an employee or group of employees, are clearly demonstrating their commitment to their team's success and happiness.
Utilising communications to improve understanding
As mentioned in the typical steps for stock repricing, communication and engagement is key to the success of any repricing process. Company-wide communication, team-level discussions, resource centres and key documents should be planned and executed as part of the overall strategy. However, ongoing communication (if not already being done) will be a powerful tool for engaging employees in the wider vision and success of the company. Performance should be summarised and communicated regularly, clearly identifying the areas in which it may impact the value of employee equity. For example, if there are clearly stated revenue targets and success metrics shared regularly, employees will be able to see the progress towards targets and therefore higher valuations.
Business considerations when repricing stock
Approval processes (internal and external)
Multiple stages of approval are needed when repricing stock options.
Internal approvers:
- Investors
- The board of directors
- Senior Leadership
- Employees (when agreeing to a new plan)
Internal approvals are effectively the internal alignment during the steps of repricing, ensuring that all stakeholders are aligned on the strategy behind why repricing is necessary. Employee approval is the final step whereby the old plan is ended, the new agreement is signed and implemented.
External approvers:
- HMRC in the UK (or other relevant tax authority / third party valuation firm)
- Potential new investors or buyers
External approvers could consist of HMRC (UK example), third party valuers and / or the new investors or buyers where valuations would need to be agreed upon.
From an investor or buyer side, they would require a negotiation at which they believe the price is fair to purchase some or all of the shares within the business. Secondary share sales, primary investment or M&A would require agreement and approval from the buyer side, this usually consists of a more robust investigation and analysis before being agreed upon. Again, specific tax, accounting and legal advice should always be taken.
Equity plan health check
At the point when repricing is a strategy that is being considered, now might also be the right time to review the equity plan you are utilising. An example for a UK-based company would be if you are currently employing a CSOP (Company Share Option Plan), which has a per-employee grant limit of £60,000 at market value at the time of the grant. You may wish to consider EMI if the recent changes to the company (such as layoffs or poor performance) have meant you fall back into the criteria for that plan. Leadership teams may require more complex equity structures such as growth shares that are linked to company success, or longer vesting periods to incentivise a longer-term strategic hire. Seeking advice on remuneration structure will help provide stability and structure.
Other versions of adjusting to decreasing valuations
Hard repricing may not always be the best option for a company, equity plans (in some cases) are reasonably flexible and can be adapted in other ways to offset falling valuations. A company could consider issuing more options to offset the potential decrease in employee equity value. This would require higher utilisation of the option pool or even an increase in the size of the pool to enable the company to grant more options. It is vital to robustly model each scenario out to ensure the correct course of action is taken; don’t do what you can’t afford.Companies may also choose to not reprice the options but to generally make terms more favourable in an attempt to maintain attractiveness in the eyes of their employees. This could be adapting vesting schedules or adding accelerated vesting clauses into agreements. Before making any concrete changes it is important to get legal and tax advice to ensure regulations are followed and that any changes wouldn’t exclude you from tax-advantaged approved equity plans.
Companies may also choose to not reprice the options but to generally make terms more favourable in an attempt to maintain attractiveness in the eyes of their employees. This could be adapting vesting schedules or adding accelerated vesting clauses into agreements. Before making any concrete changes it is important to get legal and tax advice to ensure regulations are followed and that any changes wouldn’t exclude you from tax-advantaged approved equity plans.
Closing comments from the experts
“It is critical to assess the legal, tax and accounting implications of undertaking a repricing and to ensure compliant implementation. Taking the opportunity to review the effectiveness of equity plans at the point of repricing is also a key step to longer-term success, unlocking greater alignment between business objectives and employee motivation and retention.” – Anna Humphrey, Partner at Goodwin.
“During uncertain times or challenging moments, communication and transparency can help eliminate any unwanted information vacuums. Clear internal alignment from the top down, will reduce the risk of rumours overshadowing what could be perceived as a positive change by the company, for their employees.” – Tamas Varkonyi, Co-founder at EquityPeople.
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