Vesting Schedule
The timeline over which an employee gains ownership of equity grants, typically structured to incentivise long-term tenure.
A vesting schedule defines when — and to what extent — an employee gains the right to exercise or own their equity grant. The most common structure in the technology industry is a four-year vest with a one-year cliff: after 12 months of employment, 25% of the grant vests at once (the cliff), and the remaining 75% vests monthly or quarterly over the following three years.
The cliff prevents short-tenure employees from capturing significant equity value by ensuring they must stay for at least a year before any equity vests. The monthly or quarterly vesting thereafter incentivises longer retention by delivering ongoing incremental value.
Employees leaving before the end of their vesting period typically forfeit the unvested portion of their grant. Some companies offer accelerated vesting in the event of an acquisition (single trigger or double trigger acceleration), providing protection for employees if the company is sold. Understanding vesting schedules is essential for evaluating the real value of an equity offer.