Vesting
The process by which an employee earns rights to employer-provided stock options or equity over time.
Definition
Vesting is a legal mechanism that gives an employee the right to stock options or equity compensation over a period of time. It's designed to incentivize employees to stay with the company and align their interests with long-term company success.
Common Vesting Schedules
4-Year Linear
25% each year for 4 years
4-Year with 1-Year Cliff
25% after 1 year, then monthly thereafter
Monthly Vesting
Small percentage vests each month
Types of Vesting
- Time-based: Vests based on length of service
- Performance-based: Vests based on achieving milestones
- Event-based: Vests upon specific events (IPO, acquisition)
- Hybrid: Combination of time and performance triggers
Real-World Example
Startup Employee Package: 10,000 options with 4-year vesting
Employee receives 10,000 stock options vesting over 4 years with 1-year cliff. After 1 year: 2,500 options vest. Then 208 options vest monthly for remaining 3 years.