Vesting

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Financial Terms and Glossary

Vesting

Vesting refers to the process by which an employee earns the right to receive full ownership of employer-provided benefits, such as stock options or retirement plan contributions, over time. Vesting typically follows a predetermined schedule, meaning the employee must work for the company for a certain number of years to fully vest in the benefits. Once the vesting period is completed, the employee owns the benefits outright and can retain them even if they leave the company.

Example

An employee is granted stock options that vest over a four-year period, with 25% vesting each year. After four years of employment, the employee owns all the stock options and can exercise them as desired.

Key points

• The process by which employees earn full ownership of benefits like stock options or retirement contributions over time.

• Follows a predetermined schedule, often based on years of service.

• Once fully vested, employees own the benefits outright, even if they leave the company.

Quick Answers to Curious Questions

How does the vesting process work for employee benefits?

Employees gradually earn full ownership of benefits over a set period, often linked to years of service, until they are fully vested.

What happens if an employee leaves the company before fully vesting?

If an employee leaves before being fully vested, they may forfeit the unvested portion of their benefits, such as stock options or retirement contributions.