What is Vesting?
How employees earn their equity over time - the mechanism that aligns people with the long game.
Vesting: definition
Equity is granted up front but earned over time through vesting, which aligns incentives and encourages retention. The classic schedule is four years with a one-year cliff: nothing vests until the first anniversary, then a quarter vests at once, and the rest vests monthly over the remaining three years. Unvested equity is forfeited if the person leaves.
- Time-based vesting: earned over a schedule (commonly 4 years)
- Cliff: a minimum period before any equity vests (commonly 1 year)
- Milestone-based vesting: earned on hitting defined goals
- Unvested equity is forfeited on departure and returns to the pool
How Fintra handles it
Fintra tracks each grant’s vesting schedule on the cap table, so vested and unvested amounts are always current. Vesting drives the ASC 718 expense recognition automatically, and forfeitures on departure return shares to the option pool and adjust the stock-comp expense - keeping the equity records and the books in lockstep.
Worked example
| Time | Event | Vested to date |
|---|---|---|
| Months 1–11 | Before cliff | 0 |
| Month 12 | Cliff - 25% vests | 12,000 |
| Month 24 | Monthly vesting | 24,000 |
| Month 48 | Fully vested | 48,000 |
Frequently asked questions
What is a typical vesting schedule?
Four years with a one-year cliff is the startup standard: nothing vests for the first year, then 25% vests at the one-year mark, and the remaining 75% vests monthly over the next three years. Some companies use different lengths or milestone-based vesting.
What happens to unvested equity if I leave?
Unvested equity is forfeited and typically returns to the option pool. You keep only what has vested (and, for options, must usually exercise within a set window after leaving). Fintra tracks vested amounts so departures are handled cleanly.
How does vesting affect stock-comp expense?
Under ASC 718, the grant’s fair value is expensed over the vesting period, so vesting is the schedule for expense recognition. Forfeitures of unvested equity reduce the expense. Fintra links vesting to the GL so this happens automatically.
Does Fintra track vesting schedules?
Yes. Fintra maintains each grant’s vesting schedule on the cap table, keeps vested and unvested amounts current, drives ASC 718 expense from vesting, and handles forfeitures back to the pool.
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