How vesting actually works: cliffs, schedules and a month-by-month example

Vesting is how equity is earned over time rather than handed over on day one. The mechanics are simple arithmetic; almost all the confusion is about edge cases.

We will use one grant throughout: 48,000 options, four-year vesting, one-year cliff, monthly thereafter, starting 1 January.

The schedule

Four years is 48 months. 48,000 ÷ 48 = 1,000 options per month.

The cliff means nothing is released until month 12, and then twelve months arrive at once:

Month	Event	Vested	% of grant
1–11	cliff not reached	0	0%
12	cliff releases 12 months	12,000	25%
13	+1,000	13,000	27.1%
18	+1,000/month	18,000	37.5%
24	two years	24,000	50%
36	three years	36,000	75%
47	+1,000	47,000	97.9%
48	fully vested	48,000	100%

Nothing more vests after month 48. A grant is finished; continuing to work does not keep it going. That is what refresher grants are for, and it is worth asking about in year three rather than year five.

What the cliff is actually for

It protects the company from giving away permanent equity to someone who leaves in month two, and it protects existing employees from watching that happen.

The edge case everyone eventually meets:

• Leave on day 364 — you vest nothing. Not 11/48ths. Zero.
• Leave on day 366 — you keep 12,000 options, 25% of the grant.

Two days, 12,000 options. If you are leaving near a cliff, know the exact date. If you are managing someone near a cliff, know that they know.

Leaving mid-schedule

Say you leave after 18 months:

  18,000   vested      → yours, subject to exercising them
  30,000   unvested    → cancelled, returned to the option pool

The unvested portion does not “pay out.” It goes back to the pool for future hires.

The part that catches people: vested is not owned

With options, vesting gives you the right to buy shares at your strike price. You own nothing until you exercise and pay.

So on leaving with 18,000 vested options at a $0.25 strike, exercising costs you 18,000 × $0.25 = $4,500 in cash, plus a possible tax bill in the same year. And you usually have a 90-day post-termination exercise window to decide. Miss it and the vested options expire — the thing you spent eighteen months earning simply stops existing.

Some companies offer extended windows (often 5–10 years). It is one of the highest-value questions to ask before you join, and almost nobody asks it. Part 5 covers the exercise maths and the tax shape in detail.

Variations you will meet

Vesting commencement date ≠ grant date. Vesting usually starts on your first day; the board may approve the grant weeks later. The commencement date is the one that matters, and it is the field most often wrong after a system migration.

Back-loaded schedules. Some companies vest 10/20/30/40 across four years instead of evenly. Legal, increasingly common at larger companies, and materially worse for you — check the shape, not just the total.

No cliff on refreshers. A refresher granted to someone already past their first cliff typically vests monthly from day one. Re-imposing a cliff on an existing employee is unusual.

Acceleration. Single trigger means some or all vesting accelerates on an acquisition. Double trigger means it accelerates only if the company is acquired and you are terminated. Founders commonly have double trigger; employees often have none. Read your grant rather than assuming.

Milestone vesting. Vesting on outcomes instead of time. Hard to administer, easy to dispute, and the source of a disproportionate share of equity litigation.

For founders: vest yourselves too

Founder shares are usually issued up front and then made subject to repurchase on the same four-year schedule. Two reasons this is in your interest:

1. The co-founder who leaves in month five. Without vesting, they keep their entire stake and your next investor asks why a third of the company belongs to someone who is not there.
2. Tax. In the US, filing an 83(b) election within 30 days of receiving restricted stock lets you be taxed on today’s near-zero value instead of on the value as it vests. Miss the 30-day window and there is no fix. Talk to your accountant before you incorporate, not after. (Not tax advice.)

Next

Part 5: strike price, 409A valuations and what exercising actually costs — including why the “spread” can create a tax bill on money you have not received.