Cliff vesting is when the employees get the rights to the award after a specified amount of time.
Unlike the normal vesting, which gives the employees the rights to earn the awards evenly over a period of time, cliff vesting is when the employees get the rights to the award after a specified amount of time.
This kind of vesting process can be applied to any plan that the company has and is mostly used in employee retirement benefit plans and equity compensation plans. It often requires the employee to stay in the company, normally for one year, before receiving any benefit from equity compensation. The companies use the vesting period for rewarding the employees who have stayed with the company and helped them reach its financial goals.
Jake works in a company and takes part in a qualified employee share option plan. With the cost of the share in the company as $5 per share, Jake was offered the choice to purchase 10,000 shares from the company vesting over four years, with a cliff period of one year.
This would mean that Jake would be able to purchase 25% of the shares after working in the company for one year. This type of arrangement protects the company, and encourages the staff to work longer for the company.
To know more about a cliff period, check out our Free cap table software. On Eqvista, you can apply cliff period to all issued shares, and track them on our platform. Check out the application & contact us today!