Knowledge Post: Cliff Vesting

Oleh: Can
September 12, 2012

Knowledge post:  What is Cliff-Vesting and why is it so important?

Cliff vesting is a very important term to help founders provide additional incentives for key members of their team on one hand and balance their risk on the other hand. It’s not easy to structure but it is essential to provide the right level of incentives in a sustainable way.

Cliff vesting- it takes time and effort to succeed. Image courtesy of In the Know Traveller

Fred Wilson on his blog AVC (from Union Square Ventures (USV)) provides a very informative lecture on cliff-vesting as part of his talk on employee equity.  He also provides very concise lessons on key related topics through three blog posts on vesting, options, restricted stocks.

Here is also a very succinct definition from Investopedia:

The process by which employees earn the right to receive full benefits from the employee’s qualified retirement plan account at a specified date, rather than becoming vested gradually over a given period of time. Cliff vesting happens when employees are considered vested in an employer benefits plan once they have earned the right to receive plan benefits. Vesting can occur gradually, where the employee becomes partially vested after each X years of service. For example, the employee could be 20% vested after two years of employment, 30% vested after three years of employment and so on until becoming fully vesting.
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