Vesting: A guide to equity schedules

Author:

The Carta Team

|

Read time:

10 minutes

Published date:

15 December 2025

Learn everything you need to know about vesting, including how vesting schedules work and how to structure them for your team.

What is vesting?

Vesting is the process of earning full ownership of equity over a set period of time. Companies often use vesting to encourage team members to stay longer at the company. This process is a fundamental part of most forms of equity compensation, which has long been the standard for startups to grant ownership to founders, employees, and advisors. As companies grow, so does their commitment to employee ownership; the median seed-stage startup has an employee stock option pool of around 13.5% of fully diluted shares, with that proportion rising to around 17.2% for the median Series D company.

The most common types of equity awards that use vesting are stock options and restricted stock awards (RSA). While both grant ownership vesting over time, they have different rules and tax implications. Vesting makes sure that the people helping to build your company are rewarded for their long-term commitment. Unless your company allows early exercising, you can only exercise stock options that have vested.

Vesting for stock options

When you grant stock options, like incentive stock options (ISO) or non-qualified stock options (NSO), employees aren’t getting actual shares of stock—yet. Instead, they’re getting the right to exercise the stock options, meaning the right to buy a set number of shares at a fixed price later on.

Vesting for RSUs

If you grant restricted stock units (RSU), you are giving actual shares of stock, which they’ll be able to sell in the future. Grantees may have to stay at the company for a certain amount of time, and sometimes the holder or the company must also hit a stated milestone (like an initial public offering (IPO), for example) for RSUs to vest. But unlike stock options, they don’t need to purchase them to own them—they just need to wait for them to vest.

Vesting for retirement plan contributions

For retirement plans like 401(k)s and pension plans, employee contributions are always 100% vested, while employer contributions follow the vesting schedule set by the employee benefits plan. Sometimes, employees own these employer-matched contributions right away (immediate vesting), but often they have to work at the company for a certain number of years to fully vest.

How does vesting work?

The specific rules for earning equity are laid out in a formal document, usually called a Stock Option Grant Notice or Restricted Stock Award Agreement. This agreement details the total number of shares or options granted, which must comply with regulations like Rule 701, and the timeline over which the recipient will earn them. This timeline is known as the vesting schedule.

What is a vesting schedule?

A vesting schedule is a timeline that determines when an employee gains full ownership of their equity. It is typically detailed in the option grant (for example, 1,000 options over four years). There are three common types of vesting schedules: time-based, milestone-based, and a hybrid of time-based and milestone-based.

For startups, vesting is almost always based on how long someone works at the company, which is called time-based vesting. While milestone-based vesting that ties to specific performance goals is common in certain corners of the private markets, it's far less prevalent for early-stage companies.

Time-based vesting

Time-based stock vesting is when you earn options or shares over a specified period of time. The two most common types of time-based vesting schedules are:

• Graded vesting: This is the most common schedule, where you earn your equity in small increments over time, like monthly or quarterly.
• Cliff vesting: This involves a waiting period before you earn your first portion of equity. After this initial "cliff," the rest of your equity may begin to vest on a graded schedule.

Most time-based vesting schedules have a vesting cliff to motivate employees to stay for at least a year. If you leave before the one-year mark, any unvested options are put back into the employee option pool.

Cliff vesting

A vesting cliff is an initial waiting period before any equity vests, which is typically one year in the startup world. If a person leaves before this date, they get no equity. This protects the company from granting ownership to someone who doesn't stay long enough to make a meaningful contribution.

Milestone-based vesting

Milestone vesting is when you earn your options or shares after a specific milestone. Other than IPO, milestones could be completing a project, reaching a business goal, or hitting a certain valuation. Milestone-based vesting isn’t as common as time-based vesting.

Hybrid vesting

Hybrid vesting is a combination of time-based and milestone vesting. This model requires you to simultaneously work at the company for a certain amount of time and hit one or more milestones to receive your options or shares.

Acceleration

Acceleration is a clause in the grant agreement that can speed up the vesting schedule if a specific event occurs. The most common event that triggers acceleration is an acquisition of the company. It’s a key term that can be a major benefit for employees during an exit.

Vesting schedule example

Meetly, Inc. (a hypothetical company) hired Blake on January 1, 2026. As part of the compensation package, Meetly gave Blake an option grant with the following details:

• Grant date: 1/1/2026

• Options granted: 192

• Vesting schedule: Time-based; monthly for four years with a one-year cliff

One year after Blake’s hire date, on January 1, 2027, she reached the vesting cliff and 1/4 of the shares (48 shares) vested.

Over the next three years, an additional four shares vest every month. By January 1, 2030, Blake’s options will be completely vested, and she can exercise all 192 of the shares in the option grant if she chooses.

If Blake leaves the company before January 1, 2030, she will surrender all unvested shares.

Why is vesting a founder’s best friend?

As a founder, vesting isn’t just a formality. It’s a strategic tool that protects your company’s ownership structure. It helps you build a committed team and maintain a clean, investor-ready cap table.

There are two main benefits of vesting for a founder:

• Aligning incentives: Vesting ensures that co-founders, employees, and advisors are all motivated to stay with the company and contribute to its long-term success.
• Protecting your cap table: A vesting schedule prevents early leavers from retaining significant pieces of equity.

How should you structure vesting for your startup?

When you’re setting up equity for your team, following market standards can give you confidence. For VC-backed and bootstrapped corporations, the most common recipe for equity grants is a four-year vesting schedule with a one-year cliff. This structure applies to both founders and early employees.

For co-founders

It can feel awkward to put vesting schedules on your co-founders. However, it’s a professional standard. The industry standard for founders is a four-year vesting period with a one-year cliff.

For employees and advisors

The market standard for early employees is also a four-year vesting schedule with a one-year cliff. Some companies are exploring more creative vesting schedules to attract and retain talent. However, for early-stage companies, sticking to the standard is often the simplest and most effective approach.

What happens to equity when someone leaves?

Vesting also defines what happens to your vested stock and unvested equity when an employee leaves the company. Any unvested equity is returned to the company’s option pool. For the equity that has already vested, the former employee has a limited window of time for exercising stock options. While a 90-day post-termination exercise period (PTEP) has historically been common, many companies now offer longer periods as an employee-friendly benefit.

Frequently asked questions about vesting

What does a four-year vesting schedule mean?

A four-year vesting schedule means an employee earns their full equity grant over a four-year period. It often includes a one-year cliff, meaning no shares vest until the first anniversary.

Can a vesting schedule be changed?

Once an equity grant is approved, the vesting schedule is legally binding, and any amendments must comply with IRC regulations.

What is the difference between vesting and exercising?

Vesting is the process of earning the right to buy shares over time. Exercising is the action of purchasing those shares at the predetermined strike price.