Vesting cliff
Also called cliff vesting
A waiting period before any equity or employer contributions vest, after which a large portion vests at once.
What it means
A vesting cliff is a stretch of time, often one year, during which none of an award vests. When the cliff date arrives, a block vests all at once, and the rest usually vests gradually afterward, such as monthly or quarterly. The idea is to reward employees who stay past an initial period.
Cliffs are common for RSUs and stock options and also appear in retirement plan matching, where a cliff schedule means employer contributions become fully owned only after a certain number of years. Leaving even one day before the cliff typically means forfeiting everything that would have vested. Schedules vary by employer and plan, so the grant agreement or plan documents control.
Example
Suppose an employee receives 4,000 RSUs vesting over four years with a one-year cliff. Nothing vests during the first 12 months; on the one-year anniversary 1,000 units vest, and the remaining 3,000 vest in equal monthly amounts over the next three years. Leaving at month 11 would forfeit all 4,000.
How it’s used
- Comparing job offers with equity pay
- Timing a job change
- Understanding employer retirement contributions
Good to know
- Before resigning, check the exact vesting dates in the grant agreement; a few weeks can make a large difference.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.