Vesting

How vesting schedules work

The schedule turns a grant into an earnings stream: a four-year monthly vest with a one-year cliff means an employee who leaves at month eleven owns nothing, one who leaves at month thirteen owns just over a quarter, and one who stays the course owns it all. Cliffs exist to protect the company from short stays; progressive vesting after the cliff keeps the incentive alive every month.

The design choices that matter

Time-based vesting rewards tenure; performance vesting adds conditions (revenue, milestones) that must be met as well; hybrid schedules do both. The other levers are acceleration (what vests early on a sale of the company, single or double trigger) and leaver terms (what happens to vested and unvested equity on resignation, dismissal and redundancy, and how long options survive after exit). Most equity heartbreak lives in leaver clauses nobody read at signing.

Vesting beyond equity

The same mechanics appear elsewhere: retention bonuses that vest at a date, long-term incentive plans that vest on performance, and (in some countries) employer retirement contributions that vest with service. Anywhere value is promised now and owned later, the vesting terms are the substance of the promise.