Vesting Schedules: How to Design One for Your Team's Equity Plan

In the previous article, we broke down how stock option vesting works.

This guide dives deeper into choosing the right vesting schedule, covering schedule types, real-world trends based on employee roles, company stages, and strategic use cases.

Whether you're designing your first equity plan or restructuring your current one, this article helps founders, finance teams, and HR leaders get vesting schedules right with data-backed context.

What is a vesting schedule?

A vesting schedule is a timeline that defines when and how employees earn ownership of their allocated stock or equity. 

In an equity plan, this determines when they can claim the financial benefits tied to their shares, based on time, milestones, or performance.

Types of vesting schedules (with examples)

Different types of vesting schedules and how they work.

1. Time-based vesting

In time-based vesting, employees earn their shares gradually over a set period, encouraging them to stay with the company longer. The exact schedule depends on how much equity is given and over what time frame.

Time-based vesting typically includes a "cliff" period, meaning no shares vest until a specific initial duration is completed, usually one year. If an employee leaves before the cliff is reached, they forfeit all their equity.

Once the cliff period is reached, a portion of the shares will be vested, and the rest will continue to vest on a fixed schedule.

Example: In a 4-year vesting plan with a 1-year cliff and 25% vesting each year, the employee receives no shares if they leave before completing the first year. Once they complete one year, 25% of their shares vest. The remaining 75% then vests gradually, either monthly, quarterly, or annually, over the next three years.

Instacart, for example, follows a similar cliff-based schedule, where 25% vests in the first year, followed by 6.25% each quarter throughout the next three years.

a. Graded vesting

In graded vesting, the shares will be vested gradually and incrementally over the specified vesting period. It gives employees incremental ownership as they grow with the company. 

Example: An employee is granted 10,000 shares over a 4-year period with a 1-year cliff and monthly vesting thereafter. After the 1-year cliff, 2,500 shares will vest. For the next 3 years, 208.33 shares (2,500 shares / 12 months) will vest each month until all 10,000 shares are fully vested.

Based on the portion of shares given after the cliff period, we have front-load and back-load vesting. 

b. Front-loaded and back-loaded vesting 

In front-loaded vesting, a larger percentage of equity vests in the earlier part of the vesting period, with smaller percentages vesting later. On the contrary, the larger portion of shares will be vested in the later years in the back-loaded vesting schedule.

Example: An employee has a 4-year vesting schedule. In front-loaded vesting, 40% of their shares vest in the first year after the cliff, 30% in the second year, 20% in the third year, and the remaining 10% in the fourth year. 

In back-loaded vesting, 10% of their shares vest in the first year, 20% in the second year, 30% in the third year, and the remaining 40% in the fourth year. 

Companies can customize vesting percentages based on what best suits their retention strategy. For instance, Amazon uses a back-loaded vesting schedule, where 80% of the equity vests only after an employee completes two years at the company.

2. Immediate vesting

Immediate vesting gives employees full ownership of their shares on the day it’s granted, with no waiting period. Though this is rare, it may occur in mature companies or specific incentive programs.

Example: An employee is granted 10,000 shares, and they fully own them from day one.

3. Milestone-based (performance-based) vesting

Milestone-based vesting ties the release of shares to achieving predefined goals or company milestones rather than time. In this type of vesting schedule, employee rewards are directly aligned with business success and other KPIs like revenue targets or product launches.

Example: An employee is granted 5,000 shares that will vest only if the company reaches $10 million in annual recurring revenue (ARR) within two years or any specific goals. 

One of the most widely discussed examples of performance-based vesting is Tesla’s 2018 compensation plan for CEO Elon Musk. Instead of receiving a traditional salary or bonus, Musk was granted 12 tranches of stock options, each linked to ambitious operational and market cap milestones.

4. Hybrid vesting

Hybrid vesting, as the name suggests, is a combination of time-based and milestone-based vesting schedules. Here, some of the allotted shares vest over time, while the rest are unlocked by meeting specific performance goals.

Example: An employee is granted 10,00 shares. 5,000 will vest over 4 years (time-based), while the remaining 5,000 will only vest if the company reaches a certain revenue target. 

5. Accelerated vesting

Accelerated vesting allows employees to receive unvested shares faster for certain trigger events.

Example: If a company is acquired, all the employees’ unvested shares will be vested immediately as part of the acquisition agreement.

Accelerated vesting might have one or more triggers. A single-trigger accelerated vesting occurs based on one event. A double or multi-trigger event will have more events, like a change of control and the termination of employees.

5. Reverse vesting

Reverse vesting is most common among founders. co-founders, and early-stage employees. In this structure, individuals initially own their shares, but the equity is still subject to a vesting schedule. If they leave before completing the required vesting period, the company has the right to repurchase the unvested shares.

Example: A co-founder receives 1,000,000 shares at the company's inception. These shares are subject to a 4-year reverse vesting schedule with a 1-year cliff. If the co-founder leaves after 6 months, the company can repurchase all 1,000,000 shares. If they leave after 2 years (after 50% has vested from the company's repurchase right), the company can repurchase 500,000 shares, and the co-founder retains 500,000 shares.

6. Flexible vesting

Flexible vesting is a growing trend where companies design customized vesting schedules based on individual roles, seniority, or negotiation during hiring. This approach moves away from one-size-fits-all models and allows equity to align more closely with both employee needs and company goals.

Example: A startup hires a senior engineer with 10+ years of experience who is relocating from another country. To make the offer more compelling, the company agrees to a 3-year vesting schedule, instead of the standard 4-year plan.

Designing a vesting schedule based on the company's stage

Below is a quick reference table that outlines recommended vesting types, common schedules, and real-world trends at each stage of a company’s journey.

Disclaimer: The recommendations below are based on observed trends and common practices across different startup stages. They are not legal or financial advice, nor a one-size-fits-all template. Your vesting schedule should align with your company’s goals, growth trajectory, and talent strategy. Always consult with legal and financial advisors before finalizing your equity plans.

Early stage: Founder & early team retention

‍Recommended vesting type:

• Time-based (most common)
• Reverse vesting for founders
  

Typical vesting schedule: 4 years

Cliff period: 1 year

Use case: Aligns long-term commitment with future value creation

Seed stage: Initial grants for key hires

Recommended vesting type:

• Time-based (quarterly/yearly)
• Hybrid (for key hires)
• Select performance-based triggers
  

Typical vesting schedule: 4 years

Cliff period: 1 year

Use case:

• Standardized equity for most hires
• Hybrid vesting for strategic roles like CTO or head of sales
  

Series A–C stage: Scaling talent & strategic roles

Recommended vesting type:

• Front-loaded time-based
• Hybrid vesting
• Milestone-based for senior roles
  

Typical vesting schedule:

• Front-loaded (e.g., 10% in year 1, 20% in year 2, 35% in years 3 and 4)
• 50% time-based + 50% performance-based
  

Cliff period: 1 year

Use case:

• Provides early rewards while tying equity to long-term value
• Helps attract senior, high-impact roles‍

For example, Google uses a 33/33/22/12 schedule.

Pre-exit stage: Liquidity alignment

Recommended vesting type:

• Monthly time-based
• Double-trigger acceleration for leadership (Double-trigger acceleration is now the most common)
• Performance-based metrics
  

Typical vesting schedule: Monthly with double-trigger acceleration

Cliff period: 1 year

Use case:

• Retains leadership during IPO or M&A
• Double-trigger ensures full vesting on exit and termination
  

For example, Amazon moved from annual to monthly vesting for Level 7+ employees.

Enterprise stage: Scaling retention

Recommended vesting type:

• Annual performance-based refresh grants
• Promotion-based options for non-executives
• RSUs for new hires and executives
  

Typical vesting schedule:

• Monthly over 3–4 years
• Front-loaded RSUs with smaller, frequent refreshes
  

Cliff period: 1 year

Use case:

• Retains key talent
• Incentivizes performance through ongoing equity refreshes
  

According to Sequoia, 81% companies offer refresh grants to executives, 79% to non-executives. Companies offering performance-based stock went from 9% to 20% between 2023 and 2024. They have also noticed that RSUs are preferred for stability in the equity plan.

Special cases: Strategic, advisory, and special cases

Recommended vesting type:

• Immediate vesting
• Flexible hybrid structures
  

Typical vesting schedule:

• 100% on day one
• Or partial upfront with milestone-based vesting
  

Cliff period: Optional

Use case:

• Used for strategic hires, acqui-hires, or industry veterans
• Should be applied carefully to avoid equity imbalance

CNBC has noted the growing use of flexible vesting structures as a retention strategy.

Crafting the right vesting schedule: what to consider before you set the terms

From business goals to team structure, here’s how to shape a vesting schedule that works for your company and your people.

1. Define your "why"

What do you aim to achieve with your equity compensation program? Are you primarily focused on:

• Retention: Ensuring key employees stay with the company for several years, especially through critical growth phases. Vesting encourages long-term commitment by rewarding continued contributions over time.
• Attraction: Offering competitive equity packages to stand out in a fierce talent market, particularly for highly sought-after technical or leadership roles. Aggressive or flexible vesting can be a differentiator.
• Motivation: Driving specific performance outcomes or aligning individual contributions directly with company milestones. Milestone-based schedules become highly relevant here.
• Alignment: Ensuring that employees think like owners and are personally invested in the long-term success and valuation growth of the company. This is a core benefit of any well-designed equity plan.

Your "why" will be the guiding principle for every subsequent decision, from cliff periods to acceleration triggers.

2. Assess the company stage

The optimal vesting schedule evolves with your company's lifecycle.

• Early-stage startups: For budding companies, securing a long-term commitment from a small and high-impact team is paramount. Here, a 1-year cliff with a 4-year vesting period is preferred. It provides a crucial probationary period to ensure new hires are a good fit before significant equity vests.
• Growth-stage companies: As companies scale and mature, you can introduce more sophisticated vesting approaches. While time-based vesting remains foundational, performance triggers aligned with specific business goals become increasingly relevant for senior leadership. It ensures that equity rewards are directly tied to tangible achievements, such as hitting revenue targets, profitability, or successfully expanding into new markets. 

At this stage, the company might also consider variations like back-loaded vesting to retain employees through critical IPO or acquisition milestones.

3. Talent priorities

The vesting schedule must differ based on the talents in your company.

• Senior leadership: Performance-based triggers and double-trigger acceleration are common to align their significant equity stakes with critical strategic outcomes and protect them during potential acquisitions.‍
• General hires: For the broader employee base, a standardized time-based vesting schedule (e.g., 4-year, 1-year cliff, monthly thereafter) is most appropriate. This provides fairness and administrative simplicity while still achieving the core goals of retention and alignment.

4. Balance incentives and business risks

You must balance between rapid and protracted vesting.

• Too fast (rapid vesting): While potentially attractive for recruitment, excessively fast vesting can lead to dilution risks. It can also undermine long-term retention goals if employees fully vest quickly and then seek new opportunities without a continuing equity incentive.
• Too slow (protracted vesting): Vesting too slowly can demotivate employees and make your equity less attractive to new recruits.

The goal is to find the sweet spot that continuously motivates employees while protecting the company's equity and long-term vision.

Assign a customizable vesting schedule with EquityList

Ultimately, a well-designed vesting schedule is more than just an administrative detail; it is a strategic asset for your company. 

There’s no one-size-fits-all solution. Customizing your vesting structure based on your company’s growth stage, role criticality, and team dynamics is key to long-term success. 

To design a vesting schedule for your business goals, sign up for EquityList’s stock option management tool. You can assign customizable vesting schedules, time-based or performance-based, and accurately track pool utilization to make smarter equity decisions at every stage.

Free equity management for the first 25 stakeholders. Your startup's cap table is on us for the first year. 

FAQs 

1. What is a 4-year vesting schedule?

A 4-year vesting schedule means an employee earns ownership of their stock options or shares gradually over four years. It includes a cliff period of usually 1 year, where no shares vest until that initial period is complete. After the cliff, the remaining shares vest gradually over the subsequent three years, usually monthly or quarterly.

2. Can a company claw back vested stock?

Yes, but only under specific conditions. Some companies include clawback provisions that allow them to reclaim vested shares in cases of fraud, misconduct, or breach of contract. Without such provisions in the grant agreement, companies generally cannot claw back vested stock.

3. Do you lose vested stock if you quit?

No, vested stock is typically yours to keep even if you leave the company. However, you may lose the right to exercise vested options (Incentive Stock Option), if you don't act within the post-termination exercise window, usually 90 days. Unvested stock is generally forfeited when you quit.