What Is a Vesting Schedule, and What Is a Cliff?
A vesting schedule is the timetable over which you earn the right to your equity grant. A cliff is the point before which nothing vests at all, after which a chunk vests at once and the rest follows.
Vesting is how startups make sure equity is earned over time rather than handed over all at once on day one. The most common structure by far is four-year vesting with a one-year cliff: nothing vests for your first 12 months, then 25% vests all at once, and the remaining 75% vests in equal monthly or quarterly installments over the following three years. This post covers how that structure works, what happens if you leave before the cliff, and how vesting relates to actually owning your shares.
What is a vesting schedule?
A vesting schedule is the timetable that determines how much of your equity grant you’ve earned the right to at any given point, based on your continued employment. It applies to both stock options and RSUs, though what “vesting” gets you differs. For options, vesting means you’ve earned the right to buy shares at your strike price; for RSUs, vesting (combined with any other conditions in the grant) means you’re on track to actually receive shares outright.
What is a cliff?
A cliff is a specific point in your vesting schedule, almost always your first anniversary of employment, before which none of your equity has vested, followed by a chunk vesting all at once on that date. In the standard four-year/one-year-cliff structure, that first-anniversary chunk is 25% of your total grant, reflecting the first year of a four-year schedule vesting all at once rather than spreading it out monthly from day one. After the cliff, the remaining 75% typically vests in equal installments, monthly or quarterly, over the remaining three years.
Why do cliffs exist?
Cliffs exist to protect the company from granting meaningful equity to someone who leaves within the first few months. Without one, an employee who quit or was let go after eight weeks would technically have earned a small sliver of vested equity; with a one-year cliff, that same departure results in zero vested shares, since nothing vests until the full first year is complete.
Do all startups use the same four-year, one-year-cliff structure?
No, though it’s by far the most common default. Some companies use shorter or longer overall vesting periods, cliffs of six months instead of a year, or no cliff at all with vesting starting immediately in small monthly increments. Later grants, often called refresh grants, given to employees after their initial grant, sometimes come with their own new cliff and sometimes don’t, depending on company policy. Your specific schedule is set out in your grant agreement, not assumed from the industry default.
Does vesting mean I automatically own the shares?
Not for options; vesting only means you’ve earned the right to buy the shares at your strike price, and you still have to exercise (pay that price) to actually own anything. For RSUs, vesting is closer to actual ownership, though many private companies add a second condition, a liquidity event like an IPO or acquisition, before shares are actually delivered, meaning “vested” doesn’t always mean “in your hands yet” for RSUs either.
Worked example
Say you’re granted 48,000 stock options on a standard four-year schedule with a one-year cliff. At your one-year anniversary, 12,000 options vest at once (25% of the grant). From there, the remaining 36,000 vest in equal monthly installments of 1,000 options a month over the next 36 months. If you leave the company at month 30 (18 months after your cliff), you’d have 12,000 (from the cliff) plus 18,000 (18 months × 1,000/month), 30,000 vested options total, with the remaining 18,000 forfeited.
FAQ
What happens if I leave before my one-year cliff? You forfeit the entire grant since nothing vests until the cliff date, leaving even one day before it means zero vested shares.
Do all startups use the same four-year/one-year-cliff vesting schedule? No. It’s the most common default, but companies can and do use different lengths, different cliff periods, or no cliff at all. Check your own grant agreement.
Does vesting automatically give me shares? For options, no, vesting only earns you the right to buy shares at your strike price; you still have to exercise. For RSUs, vesting is closer to ownership, though private-company RSUs often require an additional liquidity-event condition before shares are actually delivered.
What happens to my vesting schedule if I get a new grant later? A later “refresh” grant typically runs on its own independent schedule, often with its own new cliff, layered on top of whatever’s left of your original grant’s vesting.
Can a company change my vesting schedule after I’ve started? Generally not unilaterally for equity you’ve already been granted; your vesting terms are part of your grant agreement. Changes to future grants or company-wide policy going forward are a separate matter.
What to do next
Your actual vesting schedule and cliff, including any nonstandard terms, are set out in your grant agreement, not assumed from the four-year default described here. You can model your own vesting timeline at movewealth.io.
MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.