A vesting schedule is used as a retention mechanism whereby when an employee or other service provider is granted equity, they must stay at the company for a certain amount of time to receive a portion of that award and an additional amount of time to receive the remainder.
The standard vesting schedule is 25% vesting after the first year, with the remainder vesting monthly in equal amounts for the following three years, although the remainder can alternatively vest on a quarterly or annual basis. This vesting schedule is commonly referred to as four-year vesting with a one-year cliff. However, options can be granted fully vested without triggering taxation as well.
Language – Vesting Schedule: Prior to your Termination of Service, 1/4 of the Shares subject to the Option will vest on the first anniversary of the Vesting Commencement Date and 1/48 of the Shares will vest each month thereafter on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, the last day of the month). On your Termination of Service, you will have the option to exercise the Option as set forth in the Plan.