If you reprice equity comp each year then you lose most of the upside.
Compare the two following equity plans:
Example Year 1:
---
PLAN 1
FMV: $1
Strike: $1
Total #: 40k ISOs
Vesting: 4yrs
---
PLAN 2
FMV: $1
Strike: $1
Total #: 10k ISOs
Vesting: 1yr
---
In the second plan you get granted new equity per year targeting some total comp.
This means if the equity goes up in value a lot in the first year, when your new amount is recalculated it'll be way less than 10k.
Example Year 2:
---
PLAN 1
FMV: $2
Strike: $1
Total #: 40k ISOs (10k vesting in year 2)
Vesting: 1yr into 4yr period
---
PLAN 2
FMV: $2
Strike: $2 (new grant)
Total #: 5k ISOs (The 10k from the first year, and now half that # determined by new FMV for a cumulative total of 15k instead of 20k ISOs).
Vesting: 1yr on new grant
---
This lets the company keep the majority of the upside, taking it away from employees. It also hurts employees that stay longer or have a longer term interest in the company from capturing the value they helped create.
And the more the company goes up in value, the worse the trade off becomes.
