How is Vesting Calculated?

Vesting is typically calculated based on the number of years an employee or founder has been with the company, with a certain percentage of their equity or stock options vesting each year. For example, a typical vesting schedule might have a four-year vesting period, with 25% of the equity or stock options vesting each year. After the first year, 25% of the equity or stock options would be fully vested, and the remaining 75% would vest over the next three years at a rate of 6.25% per quarter.

What is a Good Vesting Schedule?

A good vesting schedule depends on the specific circumstances of the company and the employee or founder. In general, a vesting schedule that aligns the interests of employees and founders with the long-term success of the company is considered good. This might involve a four-year vesting period, with 25% of the equity or stock options vesting each year. However, there is no one-size-fits-all answer, and it's important to consider factors such as the stage of the company, the role of the employee or founder, and the competitive landscape.

Typical Vesting Schedule for Employees

A typical vesting schedule for employees might involve a four-year vesting period, with a one-year cliff and monthly or quarterly vesting thereafter. This means that employees do not receive any equity or stock options until they have been with the company for one year, at which point 25% of their equity or stock options vest. After the one-year cliff, the remaining 75% of the equity or stock options vest over the next three years at a rate of 6.25% per quarter or 1.5625% per month.

Lets Understand with an example :

Imagine a startup called "FitTech" that has developed a new fitness app targeting young professionals who are looking for convenient workout solutions. The app offers personalized workout plans, nutrition tracking, and progress monitoring.

FitTech has been in operation for two years and is seeking to hire a new Chief Technology Officer (CTO) to lead its technology team. As part of the compensation package, FitTech offers the new CTO 2% equity in the company, with a four-year vesting period.

The vesting schedule for the new CTO's equity is as follows:

• 

  1-year cliff

  No equity vests during the first year.

• 

  Months 13-24

  0.5% of the equity vests each month.

• 

  Months 25-48

  0.1667% of the equity vests each month.

After the four-year vesting period, the new CTO will be fully vested in 2% of FitTech's equity. This means that if FitTech is sold or goes public during the vesting period, the new CTO would be entitled to 2% of the proceeds.

Overall, the vesting schedule for the new CTO's equity aligns their interests with the long-term success of FitTech and ensures that they are rewarded for their contributions to the company's growth and success.

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