Vesting Schedule
A vesting schedule is the timeline over which equity compensation (RSUs, ISOs, NSOs, restricted stock awards) transfers from being a contingent grant to actual employee property. Standard structures include graded vesting with a cliff (most common in tech), monthly graded vesting (no cliff), milestone-based vesting (private startups), and performance-based vesting (executive compensation).
The dominant pattern in US tech is 4-year graded vesting with a 1-year cliff: 25% of the grant vests at month 12, with the remaining 75% vesting monthly (1/48 per month) over months 13–48. The cliff exists to prevent very-short-tenure employees from walking with material equity; the monthly grading after the cliff provides smooth incentive alignment. Variations include 5-year vesting at investment banks, 4-year with monthly vesting from day 1 (no cliff, becoming more common at non-tech companies), and back-loaded 'pyramid' schedules where a larger fraction vests in years 3–4 to retain mid-career employees.
Performance-vesting (PSUs in public companies, milestone vesting in private startups) ties unlock to a non-time condition: total-shareholder-return percentile, revenue targets, product launches, or financing-round milestones. Most modern executive comp blends time and performance — e.g., 50% time-vested over 3 years + 50% performance-vested at the end of year 3 conditional on metric achievement.
Vesting acceleration provisions matter at exit. Single-trigger acceleration (vesting accelerates on a change of control alone) is rare and disfavored by acquirers. Double-trigger (acceleration on change of control + termination within N months of close) is the modern norm — protects the employee from being terminated post-acquisition while preserving acquirer flexibility. The trigger language is often the most-negotiated piece of an executive offer letter.
- Months 0–11Pre-cliff: 0% vestedEmployee has the grant but owns no shares yet. Departure during this window forfeits the entire grant.
- Month 12Cliff: 25% vestsDiscontinuous step — 1,200 of 4,800 shares vest in a single event. RSUs trigger ordinary-income tax + supplemental withholding.
- Months 13–48Monthly graded: 1/48 per monthSmooth ramp. ~100 shares vest each month for the standard 4,800-share grant. Each tranche is its own taxable event for RSUs.
- Month 48Fully vestedEntire grant transferred. Subsequent retention often requires 'refresh' grants on a similar schedule.
Synthetic equity grants need full vesting-schedule structure: cliff months, total months, vesting cadence (monthly/quarterly/annual), per-tranche allocation, performance conditions if any, and current vested-to-date. Households at different tenure points should show realistic mid-vesting states — partial vesting through cliffs, post-cliff monthly tranches, multi-grant overlapping schedules. Edge cases: cliff-failure scenarios (employee leaves before month 12), post-acquisition double-trigger acceleration.
Common pitfalls
- Treating vested-to-date as a single number — it's a derived field from grant date + schedule + months elapsed; storing only the number loses traceability.
- Applying cliff vesting linearly — the cliff is a discontinuous step at month 12, not a smooth ramp.
- Forgetting that non-vested grants are typically forfeited on departure — employees commonly underestimate this.
- Modeling acceleration as automatic on any acquisition — modern grants almost always require double-trigger.
Examples
Grant of 4,800 RSUs on 2024-01-15. Schedule: 25% cliff at month 12, then 1/48 monthly. As of 2026-01-15: month 24 elapsed. Vested = 25% (cliff at month 12) + 12 × (1/48) = 25% + 25% = 50% = 2,400 shares. Remaining unvested: 2,400 over months 25–48.