The total stock is worth about 1 per cent of the company, or $197m (£128m), reports The BBC.
The plan is to “reinvest directly in our people,” said Mr Dorsey, who was appointed as the company’s permanent leader earlier this month. Twitter did not comment further on the decision.
Last week the company said it would lay off 336 workers, or 8 per cent of staff.
Mr Dorsey, who took over as temporary chief in July after Dick Costolo resigned, also tweeted “I’d rather have a smaller part of something big than a bigger part of something small.”
Last week, former Microsoft chief executive Steve Ballmer said he bought a 4 per cent stake in Twitter, making him the third-biggest individual shareholder. Mr Ballmer now owns more of Twitter than Mr Dorsey, who owns about 3 per cent.
One Twitter employee told the BBC’s New York business correspondent Michelle Fleury via Twitter that “folks are ready to run through walls for him and the company. Before…and even more now.”