What Does “Stock Vesting” Mean in a Contract?
The process by which equity compensation becomes fully owned by the employee over time, typically subject to continued employment.
Detailed Explanation
Vesting protects companies from employees leaving early with full equity. Standard vesting is 4 years with a 1-year cliff: you get nothing in year one, then 25% at the one-year mark, and the rest vests monthly or quarterly over years 2-4.
Unvested shares are forfeited upon departure. Some agreements allow accelerated vesting on acquisition (single trigger) or acquisition plus termination (double trigger).
Example in a Contract
“Options shall vest over four years, with 25% vesting on the first anniversary of the grant date and the remainder vesting monthly over the following 36 months, subject to continued employment.”
Why It Matters
Understand your vesting schedule before accepting equity compensation. A 4-year vest means leaving after 2 years forfeits half your equity. Also check what happens to vested options after you leave—there's often a limited exercise window.
Related Terms
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