Vesting Schedule

A vesting schedule is a predetermined timeline that dictates when an individual earns the right to fully own or access assets or compensation that has been granted to them. It is commonly used in the context of employee stock options, restricted stock units (RSUs), and cryptocurrency token distributions, particularly in initial coin offerings (ICOs) or for team/advisor allocations. The purpose of a vesting schedule is to incentivize long-term commitment and performance, align the interests of recipients with the company or project, and mitigate the risk of immediate asset dilution or premature departure. Common vesting schedules include cliff vesting, where no assets are earned for an initial period (the cliff), after which a portion or all of the assets vest; graded vesting, where assets vest incrementally over time (e.g., monthly or quarterly); and performance-based vesting, where vesting is contingent upon achieving specific milestones or performance metrics. For example, a 4-year vesting schedule with a 1-year cliff means an individual receives nothing for the first year, and then 25% of their grant vests at the one-year anniversary, with the remaining 75% vesting incrementally over the subsequent three years. Understanding vesting schedules is crucial for recipients to manage expectations and for organizations to structure compensation effectively.