Vesting
Also called vesting schedule, cliff vesting, graded vesting.
The schedule on which an executive earns the right to keep equity. SCT totals use grant-date value, so a large reported year does not mean the shares have vested.
What it is
Vesting is the process by which an executive earns a non-forfeitable right to an award. Time-based vesting follows a calendar (cliff after one year, then monthly, or equal annual tranches). Performance vesting depends on goals. Until an award vests, leaving the company usually means forfeiture, with exceptions for death, disability, retirement, or change in control as the plan provides.
The SCT does not record vesting. It records grants at grant-date fair value. Vesting shows up in plan footnotes, the outstanding-awards table, and often on Form 4 when shares are delivered.
Why companies use it
Vesting is the main retention hook in equity pay. A four-year schedule makes leaving expensive in unvested value.
Performance vesting is how PSUs claim to pay for results rather than for showing up.
Pros
- Unvested equity is a golden handcuff without raising salary.
- Retirement-eligible vesting provisions can be written explicitly.
- Shareholders can read the schedule in the plan or CD&A.
Cons
- Single-trigger vesting on a deal can create a windfall.
- A large reported year is not a vesting year.
- CompensationBase columns do not include vesting schedules; those stay in the filing narrative.
Examples
Cliff plus ratable
RSUs vest 25% at the first anniversary and quarterly thereafter. After ten months the entire grant is still unvested. The SCT already included 100% of grant-date value in the grant year.
Retirement vesting
A CEO who is retirement-eligible may keep vesting after departure. The original grant-year SCT does not change when that happens.
On CompensationBase
Vesting schedules live in the filing narrative, not in the catalog columns. A large reported year means grants were valued that year, not that shares necessarily vested.
Related terms
- Grant-date fair value
The accounting value of equity awards on the day they are granted, which is what the Summary Compensation Table reports for stock and option awards—not the value later realized when shares vest or are sold.
- Restricted stock unit
A promise to deliver shares (or cash equivalent) after vesting. RSU grant-date value is reported in SCT Stock Awards, not when the shares later vest.
- Reported pay vs realized pay
Reported pay is the SCT grant-date total for a fiscal year. Realized pay is cash received plus equity that actually vested or was exercised that year, which can be much higher or lower than the reported figure.