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What is a Vesting Schedule? 

A vesting schedule is a timeline that outlines when employees gain full ownership of employer-provided equity, such as stock options or retirement benefits. Vesting schedules are common in employee compensation plans to incentivize long-term commitment.

Types:

1. Cliff Vesting:some text
   • Explanation: Employees receive 100% of their benefits all at once after a specified period.
   • Example: An employee becomes fully vested in their stock options after three years of service.
2. Graded Vesting:some text
   • Explanation: Employees become incrementally vested over a period, usually on an annual basis.
   • Example: An employee is granted 1,000 stock options with a four-year graded vesting schedule, vesting 25% each year. After one year, they own 250 options; after four years, they own all 1,000 options.

Advantages: 

Vesting schedules help companies retain talent by incentivizing employees to stay longer. They align employee interests with company performance and provide a structured approach to equity distribution.

Disadvantages: 

Employees may leave before fully vesting, forfeiting unvested equity. Complex vesting schedules can also create administrative burdens for the company.

Example: 

Tech companies like Google and Facebook often use vesting schedules to retain top talent. For instance, Google typically uses a four-year graded vesting schedule for stock options, ensuring employees receive a portion of their equity each year they stay with the company.

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