The investor’s field guide · V
Vesting
The process by which a person earns an entitlement to shares or options over time or after meeting conditions.
Explained by the editorial team
Vesting links equity entitlement to continued service, time or agreed milestones. For options, it usually determines when an award becomes exercisable, subject to other conditions. For shares already issued, arrangements may instead allow unearned shares to be repurchased if the holder leaves.
An illustrative situation
An employee’s option award may vest in stages over several years, with an initial period before any entitlement vests. Leaving before or after that point can produce different outcomes. Vesting does not necessarily mean the shares can immediately be sold.
What to examine
Check exercise prices, expiry dates, leaver provisions and whether vesting accelerates on a sale or dismissal. The tax treatment of grants, exercises and disposals depends on the plan and jurisdiction. UK and US incentive arrangements should not be assumed equivalent. For investors, a sensible arrangement can support continuity, but it cannot guarantee commitment or performance. Reconcile all awards and potential shares to the fully diluted cap table.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.