If you are a CEO of a startup planning to grant stock options or an employee who received option contract to sign, you must have heard of the term ‘vesting’. It seems complicated, but by the end of this post, you’ll get the point of it and be able to make use of it in your situation. (In case you want to be clear about what ESO (employee stock option) is before reading further, check out our last post here)
Vesting is a process through which employees earn their shares of an asset. Since one of the objectives of employee stock options is to retain human resources, options can’t be exercised right away upon the conclusion of contract. The number of options available for exercise increases over time and on a schedule, a so-called Vesting Schedule. Another related term to this topic is the Vesting Commencement Date, which is a starting point where options begin to vest from. Vesting Commencement Date is usually the same as the Grant Date (a date the board approved the stock option grant), but another specific date could be selected by the Committee.
There are 3 types of vesting schedules, time-based, milestone, and hybrid.
Now you know what vesting is and how it works, but you might be still wondering how to keep track of it in your real life. Often understanding is one thing, and implementing it is another. Employers find it inconvenient to manage different vesting schedules with spreadsheet. This badly affects the objectives of ESO, keeping employees motivated and retaining top talents. And since all the vesting process is abstract compared to cash compensation in hand, employees are inevitably less motivated than expected. This is where QuotaBook comes in. At QuotaBook, employers can easily manage vesting schedule and employees can check their vesting status whenever they want with digital documents. Let’s schedule a demo to discuss your needs and show you how we solve them.
References
https://www.lawinsider.com/dictionary/vesting-commencement-date
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Disclaimer: This piece is written for information purposes only and is not intended as financial or legal advice. QuotaBook does not assume any reliability for dependence on the information provided above.