A vesting schedule is a plan that outlines the conditions under which an employee becomes entitled to receive certain benefits, such as stock options or company-matched contributions to a retirement plan.
In the context of equity-based compensation, vesting schedules typically specify the length of time an employee must work for the company before they are allowed to exercise their stock options or sell their company stock.
Vesting Schedule Example
- If an employee is granted 100 stock options with a four-year vesting period, they may be entitled to receive 25 options per year, assuming they remain with the company.
- If the employee leaves the company after two years, they may only be entitled to receive 50 options.