Vesting
The process of earning your equity over time, typically over a four-year period.
Definition
Vesting is the mechanism by which you earn your equity grant over time. The most common schedule is four years with a one-year cliff: you earn nothing for the first year, then 25% vests at the one-year mark, and the remainder vests monthly or quarterly over the next three years. Vesting ensures that employees who leave early do not walk away with their full equity grant.
Why it matters
Vesting determines how much equity you actually own at any point. If you are considering leaving, calculate your vested shares carefully. Also consider upcoming vesting milestones; sometimes waiting a few extra months can be worth tens of thousands of dollars.
Example
You receive 48,000 options with 4-year vesting and a 1-year cliff. At month 12, 12,000 options vest (the cliff). Then 1,000 options vest per month. After 2.5 years, you have 30,000 vested options.