What Is Vesting?

Full Definition

Vesting refers to the schedule by which an employee earns ownership of equity grants (typically RSUs in public tech companies, or stock options at startups). The dominant FAANG vesting schedule is 4-year with 1-year cliff: nothing vests in the first year, then 25% vests on the 1-year anniversary (the 'cliff'), and the remaining 75% vests quarterly over the next 3 years. Amazon is the major exception: Amazon uses 5/15/40/40 vesting (5% at year 1, 15% at year 2, 40% at year 3, 40% at year 4), which back-loads compensation and creates the 'Amazon golden handcuffs' effect. Vesting matters for: (1) job-change decisions — leaving before a vesting cliff means leaving unvested RSUs behind, (2) negotiation — candidates should ask about refresh grant cadence to avoid the 4-year cliff drop, (3) financial planning — vested RSUs are taxed as ordinary income at vest date, creating quarterly tax events. Some companies (Stripe, Coinbase pre-IPO) use double-trigger RSUs that require both time-vesting and a liquidity event (IPO or acquisition), creating more complex tax treatment.