Question

Almost always early stage equity investors require the Company to create a Stock Option Pool, which typically ranges from 10% to 20% of the then outstanding ownership, and is reflected in the Capitalization Table.  Normally when individual Stock Options are granted the Stock Option “vest” over time and/or performance metrics. What is a “vesting” schedule and explain why granted Stock Options normally contain some form of “vesting” schedule?

Answer?

Answer 1

Vesting Schedule:

It is defined as the time period during which an employee accumulate the right to keep the stock options that have been awarded to the employee during stock option pool.

Why stock options contain vesting schedule:

• It mitigates the risks of undeserving employee leaving early with the stocks of shares
• It keeps the employees in high morale that he has something reserved in the company for his future
• It continuously encourages the employee through incentives over the vesting schedule.