Vesting

Vesting is the mechanism that determines when you gain full ownership of employer-provided benefits, most commonly 401(k) matches, stock options, and RSUs (restricted stock units). Your own contributions are always 100% vested immediately — vesting schedules only apply to what your employer contributes or grants.

There are two common vesting schedules: cliff vesting (you become 100% vested after a single period, typically 3-4 years of service, with 0% vesting before the cliff) and graded vesting (ownership increases gradually, like 20% per year over 5 years or 25% per year over 4 years).

Vesting is a retention tool — it incentivizes employees to stay. If your employer match vests over 4 years and you leave after 2 years, you forfeit the unvested portion. A company offering $10,000/year in matching contributions with a 4-year cliff vesting would mean forfeiting $40,000 if you leave at year 3.

Understanding your vesting schedule is critical for career decisions. If you're considering a job change and you're close to a vesting cliff, it may be worth waiting a few months to capture tens of thousands of dollars in vested benefits. Conversely, don't stay in a bad job solely because of unvested benefits — calculate the actual dollar amount and factor it into your decision.

Startup equity compensation (stock options, RSUs) typically has a 4-year vesting schedule with a 1-year cliff. After the first year, 25% vests, then the remainder vests monthly or quarterly over the next three years. If the company goes public or is acquired, unvested shares may be subject to acceleration clauses.