Understanding Vesting

Stock options can be a major component of employee compensation, especially at startups and high-growth companies. When you receive an option grant, you usually must stay with the company for a certain period before you earn the right to exercise those options. This process is called vesting. Until an option vests, you generally cannot cash it out or hold the underlying stock. Companies use vesting schedules both to reward long-term commitment and to align incentives between employees and shareholders.

A typical vesting arrangement starts with a cliff—an initial period during which no options vest. After the cliff, a portion of the grant vests each month or quarter until all options are fully vested. For example, you might have a four-year schedule with a one-year cliff. That means that after one year, 25 percent of your options vest. The remaining 75 percent then vests monthly over the next three years.

How Vesting Works Mathematically

Suppose you are granted N options. Let the cliff be C months and the total vesting period after the cliff be P months. If vesting occurs monthly, the number vested at month m (where m > C) can be represented as

The cumulative vested amount is then

for m > C, and 0 before the cliff. The options finish vesting at month C + P. This linear approach is common because it is easy to understand and encourages employees to remain with the company throughout the vesting period.

The Role of a Cliff

Cliffs help employers ensure that new hires stay for at least a certain amount of time before gaining any ownership. From the employee perspective, a cliff can be frustrating if you leave right before it ends because you may walk away with nothing. Understanding your cliff date is therefore critical when making career decisions or negotiating a job offer.

Once the cliff passes, vesting usually accelerates to a steady cadence. Some agreements may switch from monthly to quarterly or yearly installments, but the overall principle is the same: the longer you remain employed, the greater portion of your grant becomes yours. This calculator assumes monthly vesting, but the same formula applies if you adjust the period to match your agreement.

Benefits of Visualizing a Schedule

Seeing exactly how many options vest each month helps with financial planning. If your company is private, you may need to decide when to exercise options and how much that will cost. If your company is public, you might plan potential selling dates to diversify your portfolio. A schedule also clarifies how much equity you would forfeit if you left the company early. When negotiating a new offer, you can compare different grant sizes and vesting terms side by side.

Using the Calculator

Start by entering the total number of options granted to you. Then choose the grant start date, typically the date on your option agreement. Specify how long the cliff lasts in months and how many months it takes for the remainder to vest after the cliff. For a standard four-year vesting schedule with a one-year cliff, you would enter 12 for the cliff and 36 for the vesting period. When you click Create Schedule, the tool calculates the number of options vesting each month and displays the cumulative total.

The table lists the vesting month, the exact date when that portion becomes exercisable, the number of shares for that period, and the cumulative vested shares. Because all calculations happen directly in your browser, you can adjust the numbers as often as you like without worry. If you want to account for quarterly vesting, simply multiply the number vested each quarter by the appropriate months.

Example Schedule

Consider an employee with 4,800 options, a start date of January 1, and a 12-month cliff followed by 36 months of vesting. The calculator would generate a table similar to this excerpt:

Month	Date	Shares Vested	Cumulative
13	Feb 1	133.33	133.33
14	Mar 1	133.33	266.66
15	Apr 1	133.33	399.99
…	…	…	…
48	Dec 1	133.33	4,800

This table shows that equal portions vest after the cliff every month until the full grant has vested. While your actual numbers may differ slightly due to rounding, the concept remains the same.

Why Vesting Matters

Equity compensation can become a significant source of wealth if your company grows. Conversely, if you leave early or the company underperforms, your unvested options might be worthless. A schedule clarifies exactly what you stand to gain over time. It also highlights how decisions like early exercise, secondary sales, or leaving for a new job can impact your overall holdings.

Many employees track their vesting manually in spreadsheets, but this approach can be error-prone. Our calculator automates the process and gives you instant feedback. Because it runs entirely on your device, your data never leaves your browser. You can experiment with hypothetical grants, compare offers from multiple companies, or plan future liquidity events without revealing sensitive details.

Other Factors to Consider

Some option agreements include accelerated vesting under certain circumstances, such as an acquisition or a change in control. Others may have performance-based milestones that alter the schedule. This tool assumes a straightforward time-based vesting plan. If your agreement is more complex, you can still use the calculator as a starting point and adjust the results manually.

Taxes are another important consideration. Exercising options can trigger income tax or alternative minimum tax liabilities, depending on whether you hold incentive stock options (ISOs) or non-qualified stock options (NSOs). Planning ahead for these obligations is crucial. You can pair this vesting tool with a tax calculator to estimate potential costs as your shares vest and when you sell them.

Planning Your Future

Ultimately, understanding vesting empowers you to make informed career and financial decisions. By visualizing how your equity builds over time, you gain clarity on when leaving a job might mean forfeiting significant value. You can also see the effect of negotiating a larger grant or a shorter vesting period. Many people underestimate the value of their options until they map out the schedule month by month. Use this tool to stay informed and strategize for the best outcomes.

Whether you work at a startup dreaming of an IPO or an established company with regular liquidity events, tracking your vesting ensures you know exactly what you have earned. Combined with a solid understanding of your company’s future prospects and your personal financial goals, a clear vesting schedule becomes a powerful planning aid. Adjust the inputs, explore different scenarios, and stay on top of your hard-earned equity.