Stock options vesting is the process by which employees earn the right to exercise their stock options and purchase shares of the company's stock. Vesting typically occurs over a set period of time, known as the vesting period, and is based on the length of time the employee has been with the company.
When an employee is granted stock options, they are usually subject to a vesting schedule that outlines how the options will vest over time. For example, an employee may be granted 100 stock options with a four-year vesting period, which means that they will vest 25 options per year for four years, provided they remain with the company. There are several types of vesting schedules that can be used, including cliff vesting and graded vesting. Cliff vesting is a common method in which the options vest all at once after a certain number of years, while graded vesting allows the options to vest gradually over time.
Vesting is an important concept for employees to understand, as it determines when they are eligible to exercise their stock options and purchase shares of the company's stock. In order to exercise their options, employees must typically pay the exercise price, which is the predetermined price at which the shares can be purchased. Stock options vesting can be a complex topic, and it's important for employees to understand the specifics of their own vesting schedules and the terms of their options. Consulting with a financial advisor or attorney can be helpful in understanding the details of stock options vesting and how it may impact your financial planning and decision-making.