What is the difference between equity vesting and stock options?

What is the difference between equity vesting and stock options?

Equity vesting refers to the process by which an employee earns the right to own shares over time, while stock options give employees the right to purchase shares at a set price.

How does the vesting schedule work?

A vesting schedule outlines when an employee earns their shares, often over a period of years, such as 4 years with a 1-year cliff.

What are the tax implications of each?

With stock options, taxes are typically due when you exercise them, while vested shares may be taxed as income when they vest.

Can you give an example of a vesting schedule?

Sure! A common vesting schedule is 25% of shares vesting after the first year, then 1/48th of the remaining shares vesting monthly for the next three years.

Which is better for employees, equity vesting or stock options?

It depends on the company's growth and the employee's financial goals. Equity vesting can provide immediate ownership, while stock options may offer greater upside if the company's stock price increases.