What is a Vesting Schedule?
A vesting schedule determines when equity actually becomes owned by the recipient. Stock options or restricted stock vest over time, meaning you earn ownership gradually rather than all at once.
The standard schedule is 4-year vesting with a 1-year cliff. Nothing vests for the first year (the cliff), then 25% vests at the 1-year mark, and the remainder vests monthly over the next 3 years.
Why Vesting Matters
Vesting protects companies from giving equity to people who leave early. If someone quits after 3 months with no vesting, they keep nothing. This aligns incentives for long-term commitment.
For founders, vesting protects against co-founder departures. If a co-founder leaves after 6 months, they shouldn't keep 50% of the company. Founder vesting ensures departing founders don't retain disproportionate equity.
Vesting Variations
Cliff: Initial period before any vesting (typically 1 year). Acceleration: Faster vesting triggered by events (acquisition, termination). Refresh grants: Additional grants to retain employees.
Formula
Cliff Vesting = Total Grant × (Cliff Period ÷ Total Vesting Period)
Monthly Vesting (post-cliff) = (Total Grant - Cliff Amount) ÷ (Total Months - Cliff Months)
Example
Standard 4-year vesting with 1-year cliff:
- Total grant: 10,000 shares
- Year 1 (cliff): 0 shares vested until 12 months, then 2,500 vest
- Years 2-4: ~208 shares vest each month
If employee leaves at month 6: 0 shares
If employee leaves at month 18: 2,500 + (6 × 208) = 3,750 shares