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What Is Stock Option Vesting and Common Types of Vesting Schedule?
by Jonathan Arms Business Stock options are granted in venture-backed companies as an incentive or compensation to retain the key employees for a longer period. This gives a good opportunity for employees to exercise the stock and sell their options at a higher value. There are various factors linked with stock options such as exercise price and vesting. This article elaborates about stock options vesting and some of its suitable schedules.Stock option grants have become a key remuneration option or as compensations when candidates working with private and venture-backed companies are rewarded by employers or if they want to retain them for a longer period. This gives an employee his own stake in the company and ultimately motivates them to improve their productivity. Depending on the plan, it may include a potential advantage for tax savings when shares are sold before an expiration date.
Stock option plan gives the right to the employee to purchase a specific number of shares at a pre-determined price within a specified period, which is called a grant or exercise price. However, some stock options have a certain vesting time and schedule. An employee is not allowed to exercise the stock options before the vesting period and after the expiration date.
If you want to earn the benefit of stock option vesting, it is better to exercise your options with the proper approach and within the time. It is advisable to look for equity management firm that offers consultation and financial aid when you have a shortage of finances to exercise the stock options.
What is Stock Option Vesting?
Vesting is the time period when an employee has some restrictions attached to exercising the granted stock options. Vesting date is the first date when an employee can attain his stocks whereas the vesting period is the time period before an employee can completely exercise his stock options. The employee will attain the stocks in portions of every month or quarter during the vesting period before it is entirely vested after the vesting date.
Stock Option Vesting Schedule
There is no one-schedule that suits well enough for all when it comes to deciding the appropriate vesting schedule. Generally, the vesting period falls somewhere between 3 and 5 years. Below are some common vesting schedules:-
1. One-Year Cliffs
Most of the companies provide stock warrants with one-year cliffs or time-based vesting. This means an employee will receive his portion of equity at the end of the first year. An employee needs to work for the company for at least a year before they can exercise their options.
During a four-year vesting period, an employee will receive one-fourth of shares vested after one year. Later, the remaining granted shares will be vested each month until the four-year vesting duration is completed.
There are certain milestones fixed by a company for vesting shares. Once a specific project or goal is reached, an employee can get a chance to get their portion of shares. Hybrid vesting is the incorporation of both time-based and milestone vesting.
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About Jonathan Arms 
Business
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Created on Dec 4th 2019 06:51. Viewed 403 times.
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