What are Boxcar Equity Grants?

Most companies follow a predictable equity playbook: give new hires a large initial equity award, then offer smaller ongoing (or refresh) equity grants every year or two. However, a growing number of forward-thinking companies are adopting "boxcar grants"—a fundamentally different approach that treats equity compensation more like ongoing or regular pay than a front-loaded hiring incentive. Is this model right for your organization?

How do Boxcar Equity Grants Work? 

Boxcar grants flip the traditional equity model on its head. Instead of giving employees one large grant when they are hired followed by smaller periodic refreshers, companies provide equally-sized grants on a regular schedule—typically annually. Each grant follows its own vesting schedule, creating multiple overlapping vesting timelines.

For example, rather than granting 10,000 options to a new hire and 2,000 options every other year thereafter, a company might grant 4,000 options every single year for the duration of employment. Each annual grant vests over four years, so by year four, an employee has equity vesting from four different grants simultaneously.

The name "boxcar" comes from the visual representation of these grants. When awards are plotted on a timeline, the overlapping vesting schedules resemble a train's boxcars linked together.

What are the Benefits of Boxcar Equity Grants? 

Consistent Long-Term Incentives

Traditional equity models create uneven retention patterns. Retention incentives are strongest right before major vesting dates, then drop off significantly afterward. Boxcar grants smooth out this pattern, providing consistent ongoing incentives because employees always have multiple grants in various stages of vesting.

Reduced Hiring Inequity

One of the strongest arguments for boxcar grants is fairness. In traditional models, employees hired during hot markets or company growth phases often receive significantly larger grants than equally valuable employees hired during downturns. Boxcar grants create more equitable treatment by ensuring all employees receive similar ongoing equity packages regardless of their hire date.

Simplified Planning and Budgeting

From an administrative standpoint, boxcar grants create more predictable equity budgeting. Instead of trying to forecast varying new hire and ongoing grant sizes based on performance, tenure, and market conditions, companies can plan around consistent annual equity pools. This makes cap table modeling and expense planning much more straightforward.

Better Retention During Market Volatility

When stock prices fluctuate dramatically, traditional ongoing (or refresh) grants can create retention challenges. If the stock price has risen significantly, ongoing grants may seem inadequate. Conversely, if the stock price drops, underwater grants lose their retention power. Boxcar grants provide more consistent retention value since employees always have grants at different strike prices and stages of vesting.

Alignment with Modern Career Patterns

Today's employees change jobs more frequently than previous generations. Boxcar grants acknowledge this reality by providing more consistent value throughout an employee's tenure, rather than heavily weighting compensation toward those who stay for the full initial vesting period.

What are Potential Drawbacks of Boxcar Equity Grants?

Higher Early-Stage Costs

Boxcar grants can be more expensive in the years immediately following implementation. While total equity costs may even out over time, companies need to budget for larger ongoing grant pools rather than front-loading equity costs at hire and then managing smaller ongoing (or refresh) pools.

Reduced "Golden Handcuffs" Effect

Traditional new hire grants create strong retention incentives, particularly around cliff dates and major vesting milestones. Boxcar grants intentionally smooth out these retention spikes, which might lead to higher turnover if other retention mechanisms aren't in place.

Communication Complexity

Explaining boxcar grants to employees can be more complex than traditional models. Employees need to understand multiple overlapping vesting schedules, and equity statements become more complicated to read and understand. This complexity can reduce the motivational impact of equity if employees don't fully grasp their equity position.

Administrative Overhead

Managing multiple grants per employee creates additional administrative burden. Each grant requires separate tracking, separate vesting schedules, and separate tax events. For smaller companies without sophisticated HR systems, this overhead can be significant.

Potential for Reduced Initial Excitement

Large initial equity grants create psychological excitement and buy-in from new hires. Smaller, ongoing grants may not generate the same emotional response, even if the total economic value is equivalent or superior over time. Recruiters will end up spending more time explaining boxcar grants to candidates.

When do Boxcar Equity Grants Make Sense?

Boxcar grants work best for companies that can answer "yes" to most of these questions:

• Do you value long-term retention over short-term "golden handcuffs" effects?

• Is your hiring fairly consistent, or do you want to reduce inequity between hire cohorts?

• Can you afford potentially higher equity costs in the next two to three years?

• Do you have the administrative systems to manage and communicate multiple grants per employee?

• Is your employee base sophisticated enough to understand and appreciate the model?

• Are you building for long-term sustainable growth rather than a quick exit?

Considerations for Implementing Boxcar Grants

Grant Sizing Strategy

Most companies implementing boxcar grants aim for annual grants that are roughly 20-30% of what they would have provided as an initial grant. This ensures that by year four, employees have received similar total equity value, but with more consistent ongoing incentives.

Transition Planning

Moving from traditional to boxcar grants requires careful transition planning. Companies might phase in the new model for new hires while maintaining traditional ongoing (or refresh) grants for existing employees, or they might convert existing employees gradually over time.

Performance Integration

Boxcar grants don't preclude performance-based differentiation. Companies can still vary annual grant sizes based on performance, promotion, or market changes—they just do so within a more consistent framework.

Communication and Education

Success with boxcar grants requires significant investments in employee education. Companies need clear communication materials, regular equity education sessions, and user-friendly tools for employees to track and view their multiple vesting schedules.

The Bottom Line on Boxcar Grants

Boxcar grants represent a sophisticated approach to equity compensation that prioritizes long-term retention, fairness, and predictability over the psychological impact of large initial new hire grants. They work particularly well for companies with consistent hiring patterns, longer time horizons, and employees who value ongoing equity participation over front-loaded incentives.

Like any compensation strategy, boxcar grants aren't universally applicable. Early-stage companies with limited administrative resources or those competing primarily on large initial equity packages might find traditional models more practical. However, for mature companies looking to create more sustainable and equitable equity programs, boxcar grants offer a compelling alternative to the standard playbook.

The key is ensuring that your equity strategy aligns with your company's growth stage, retention goals, and operational capabilities. Boxcar grants can create more consistent and fair equity programs, but only if your organization is prepared to manage their complexity and communicate their value effectively.

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