Equity compensation is perhaps the most critical element of any startup company’s compensation package, helping to bridge the gap between the cash compensation a startup can offer against the more significant cash compensation their larger competitors can afford to pay and giving entrepreneurial employees skin in the business game.  However, when stock options have exercise prices that are higher than the fair market value of the underlying stock (i.e., when the options are “out-of-the-money” or “underwater”) they lose most, if not all, of their incentive and retentive value.  In a competitive market for talent, the lack of effective equity incentives may make the departure of key employees more likely, and a company may determine that a repricing of underwater options is necessary to retain executives and other employees who are instrumental in the company’s future success. While the term "repricing" can refer to a number of different structures, most private companies opt for a simple options-for-options approach.  Even so, there are a number of issues that should be considered by the company’s management and board before launching an effective repricing, including (perhaps, counterintuitively) the need to get optionholder consent in some circumstances.  Check out this client alert for a deep dive into options-for-options repricings for private companies.