Last Updated: January 3, 2022

Vesting Explained

Vesting Explained:

Does your company give you stock options? That is an example of vesting. Vesting is when a company allows employees to gain assets like stock options or contributions to 401(k). Oftentimes, companies will increase vesting over the employment time to encourage hard work 3and a longer stay at the company. There are many types of stock vesting options, the following will explain a few:

Milestone-based Vesting:

Milestone-based vesting is not as common as other types of vesting. Milestone vesting allows the employee to get options or shares after completing a business goal (or project) with the company.

Time-based Vesting:

Time-based vesting allows an employee to gain stock options over time. Time vesting is usually scheduled around a cliff. A cliff is a pre-determined time when an employee will earn their first portion of the options. After the cliff, an employee will vest the remaining amount throughout a given time.

Hybrid Vesting:

The combination of milestone-based and time-based vesting is known as hybrid vesting. With hybrid vesting, and employees must work at the company a given amount of time and complete a company goal to get their stock or share options.

Milestone, time, and hybrid vesting pertain to stock vesting. There are also types of retirement vesting and others a company may participate in. Knowing how the vesting options impact you as an employee is important when making decisions about pay and hire.