Not to be confused with Cliff period which is the time period between the ESOP grant date and the ESOP vesting start date, cliff vesting is a type of vesting schedule where in employee doesn’t acquire any stock options before a specific date. After that date, the stocks are 100% fully vested.
Before we go into the complete details of cliff vesting, how it differs from usual vesting schedules, and its benefits let’s take a small glance at the types of vesting schedules.
Types of Vesting Schedules
Though most companies usually follow gradual vesting, there are a few other types of vesting schedules HRs and employees must be aware of. Some of them include:
- Graduated/Gradual Vesting: A phased approach to vesting where employees gain/accrue ownership rights gradually over time. For example, they might vest 25% after the first year, with an additional 25% each subsequent year until they are fully vested. This is the most common type of vesting schedule.
- Cliff Vesting: With cliff vesting, employees become fully vested after a certain period of time, often one to three years. Before this period, they have no ownership rights. Once the cliff period passes, they are fully vested – All or nothing.
- Performance-Based Vesting: In this, the vesting is tied to specific performance metrics or milestones. For example, it can be tied to sales or EBITDA targets till they reach a certain target – how Apple’s CEO received RSUs on the 10th anniversary of his promotion.
- Accelerated vesting: This happens when someone's stock or options are vested ahead of the original schedule. This can be done to attract and retain valuable employees, to provide transitional support for strategic shifts such as mergers or IPO preparations, etc.
- Back-weighted vesting: Larger portions of options vest towards the end of the schedule, incentivizing long-term commitment. One example of this is Amazon’s previous scheme, 5% after the first year, 15% after the second, and then 20% every six months for the remaining two years.
- Front-loaded vesting: This is the reverse of back-weighted vesting. One example is Google’s new policy as per Business insider. Its RSUs used to vest evenly over four years (25% yearly). Now they vest 33% per year for the first two years, 22% in the 3rd year, and 12% in the 4th.
- Combination vesting: Combines elements of other schedules, typically time-based and milestone-based. An employee might need to reach both a specific date and achieve certain goals to vest their equity.
Now that you have some basic understanding of each of the vesting schedules, let’s dive into Cliff vesting specifically.
What is Cliff Vesting?
As mentioned above, it is a time-based vesting approach where an employee becomes fully vested in the options. Let’s compare it to usual graded vesting where granted stock options vest over 25% over a period of 4 years – with cliff vesting you get everything at the 4th year, none before.
For example, after a cliff period of a year, the cliff vesting for a 4-year period would look like this as compared to gradual vesting.

The key difference with Graded Vesting
Though it sounds obvious, in addition to the actual schedule the key difference that a cliff vesting has with graded vesting is that employees wouldn’t receive any stock portion till the cliff vesting date. This means they would receive no benefit at the time of resignation.
Pros and Cons of Cliff Vesting
Let’s now talk about the why and the when. This can be easily done by understanding the pros and cons.
Pros of Cliff Vesting
- Incentivizes employees to stay with the company for at least the cliff period
- Simpler to understand and administer
- Can be shown as the company’s confidence in the employee if done in a shorter period
- Form of cost control for employers due to less administrative burdens
Cons of Cliff Vesting
- This can be seen as a lack of engagement if the vesting period is too long
- Risk of losing top talent due to delayed gratification
- Risk of clustering leading to increased expenses or disruptions
When should you employ cliff vesting for your organization?
Though it should be analyzed on a case-by-case basis, cliff vesting is usually a common practice by early-stage companies that want to incentivize employees to stay with the company through critical initial phases. It can be useful when:
- Companies want to control their costs more effectively as they can plan their financial obligations.
- They lack administrative capabilities or want an easier understanding of ESOPs.
- They face higher turnovers and want to show immediate commitment to employees.
Though this is not exhaustive, it depends on the stage of funding, age of startup, maturity of ESOPs, and many other factors to determine whether to go for cliff vesting or not.
How can Vega Equity help you in this journey?
We’ve helped companies of all sizes and facilities establish their ESOP platform while designing their customized vesting schedule to their requirements. This can greatly help realize the attractiveness of equity compensation and the effectiveness of their retention programs. Speak to us if you have any questions about the vesting process.