For employees of startups, a standard vesting schedule for equity awards (such as stock or stock options) is four years with a one-year so-called cliff. The cliff refers to the minimum period of time the employee needs to work to earn any of the shares.
The one-year cliff
With a one-year cliff, no stock vests until the employee’s one-year anniversary with the company, at which point a pre-determined percentage (usually 25%) of the stock vests all at once. Following the one-year cliff, the remaining stock will then vest in equal monthly increments for the next 36 months. If the employee leaves the company after having worked for only 11 months, the employee will not have the right to retain any stock, as the employee has not yet hit the one-year cliff. If the employee leaves after having worked at the company for two years (24 months), the employee would keep 50% of the stock (two years worked out of the four-year vesting period).
Advisor vesting schedules
For advisers, a typical vesting schedule is one or two years with no cliff. This means that the stock vests in equal monthly increments over 12 or 24 months. With a 24-month vesting schedule, if the adviser ceases to provide services to the company after 11 months, the adviser would keep 11/24ths of the stock.
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Disclaimer: LTSE is neither a law firm nor provides legal advice. Before making decisions on matters covered by this post, readers should consult their legal adviser.