Vesting

Before you rely on it

What to check

Read the schedule for whether it is graded or cliff, and find the exact next vesting date.

The common error

Where people go wrong with vesting

Counting unvested employer money as part of a balance. It is on the statement and it is not yours.

Worked through

Vesting in plain numbers

An employee is granted 4,000 stock options with a four-year vesting schedule and a one-year cliff. Nothing vests during the first year. On the first anniversary, 25% vests, 1,000 options. After that, the rest vests monthly, so 83.3 options each month until the end of year four. Leave after 18 months and you keep 1,000 plus six months of monthly vesting, about 1,500. Leave at month eleven and you keep nothing. Employer retirement matches use the same idea: the money the employer puts in may become yours gradually over several years. Vesting gives the employer a reason to keep you and gives you a reason to stay.

Easily confused

Vesting and its neighbours

Vesting is not exercising, receiving or being taxed, although the terms are linked. Vesting is the point at which you earn the right to keep something. Exercising is buying shares with options. Receiving may happen at vesting or later. Tax timing depends on the type of award and the place. Accelerated vesting speeds up the schedule, for example after an acquisition. A cliff delays the first vesting. Graded vesting releases in steps. Immediate vesting gives the right at once, common for your own contributions to a retirement plan.

In real decisions

Where vesting turns up

Employees meet vesting in stock options, restricted stock units, employer retirement contributions and pensions. Startups use it for founders' shares to keep a team together; investors check vesting terms in a company's cap table. Someone considering a job change looks at what will vest before leaving and what will be lost; a calculator shows the vested amount on any date given the schedule.

Know the edges

Where vesting stops being reliable

Terms vary by plan and agreement. Leaving, being terminated or a change of control can change what happens. Tax treatment is complex. Unvested awards have no guaranteed value. This is general information and not legal or tax advice, and read your award agreement and plan documents, and consult a professional for big decisions.

Quick answers

What people ask about vesting

What is a cliff? A waiting period before any vesting occurs. If you leave before the cliff, you receive nothing. After it, a chunk vests at once, and the rest follows a schedule.

What happens to unvested awards if I leave? Usually they are forfeited. Some agreements allow limited exceptions, and vested options often have a short window to exercise.