Why graded vesting matters to a first-time founder
Gradual vesting links ownership or benefits to continued service and limits the amount retained after an early departure. It affects hiring offers, dilution and leaver outcomes. Poorly explained schedules can surprise employees and create disputes when someone leaves.
Examples of graded vesting
An employee receives 12,000 options vesting monthly over four years after a one-year cliff. After the first anniversary, 3,000 vest at once; then 250 vest each month. If the employee leaves after 18 months, 4,500 are vested.
Common misunderstanding
Graded vesting is not the same as a cliff schedule where the entire award vests on one date. A graded schedule releases portions over time, although it may begin with a cliff. Vesting also does not automatically mean shares are issued or freely saleable.
When to use it
Use it when designing employee equity or benefits intended to reward continued service over several years. State the start date, frequency, cliff, treatment on departure and any acceleration. Obtain legal and tax advice because awards and employee rights vary by jurisdiction.