Sample vesting schedule:A Guide to Vesting Schedules in Employment Law
tisdaleauthorVesting schedules are a crucial aspect of employment law, particularly in the context of equity incentive plans. They outline the timeline and percentage of equity awards that will become fully vested and available for employees to exercise over time. This article provides a sample vesting schedule and guides readers through the essential elements of vesting schedules in employment law.
What are Vesting Schedules?
Vesting schedules determine the timing and percentage of equity awards that become fully vested and available for employees to exercise over time. These schedules are commonly used in employee compensation plans, such as stock options, restricted stock units (RSUs), and performance stock units (PSUs). Vesting schedules help companies ensure that key employees remain committed to the company's long-term success by tying the exercise of equity awards to the length of service and performance metrics.
Elements of a Vesting Schedule
A sample vesting schedule may include the following elements:
1. Grant Date: The date on which the equity award is granted to the employee.
2. Vesting Start Date: The date from which the vesting period begins. This is usually the date of hire or another key date, such as the completion of a key project or performance evaluation.
3. Vesting Period: The number of months or years during which the employee must remain employed by the company to vest in part or all of the equity award.
4. Vesting Rate: The percentage of the equity award that vests each month or year. This may be based on time served, performance metrics, or a combination of both.
5. Performance Metrics: Specific goals or achievements that employees must meet in order to vest in part or all of their equity award. These metrics may be related to financial performance, market share, customer satisfaction, or other indicators of success.
6. Termination Provisions: The circumstances under which the equity award becomes null and void, such as a termination for cause or voluntary resignation.
Sample Vesting Schedule
As an example, a sample vesting schedule may look like this:
Grant Date: 1st January 2022
Vesting Start Date: 1st January 2022
Vesting Period: 36 months
Vesting Rate: 25% per quarter, subject to continuous service and performance metrics
Performance Metrics:
- 12 months of service with no terminations for cause
- 50% vesting
- Profitability target of at least 10% annual growth for the following three consecutive fiscal years
- 25% vesting
- Market share growth of at least 5% per year for the following three consecutive fiscal years
- 25% vesting
Termination Provisions: Termination for any reason other than for cause
Vesting schedules are a crucial aspect of employment law, particularly in the context of equity incentive plans. By understanding the elements of a vesting schedule and creating a sample vesting schedule, companies can create effective employee compensation plans that align employee interests with those of the company and drive long-term success.