Vesting

The process by which an employee or director gradually earns full ownership rights to equity compensation (such as stock options or restricted stock) over a specified period of time or upon meeting certain milestones. The most common vesting schedule is four years with a one-year cliff, meaning the recipient earns 25% of their shares after one year and the remainder monthly or quarterly thereafter. Vesting aligns long-term incentives and protects the company if a recipient departs early, as unvested shares are forfeited.