3.2 Equity grants
Equity grants can be understood as promises -- a company promises you a certain amount of equity if you stay with that company for a certain period of time. When that time is up and you receive your equity, that equity is said to have been vested.
Equity grants are vested on schedule which is the same for everyone in the company. The two most common schedules are:
- equally over four years. e.g. if you’re granted 100 shares, 25 shares are vested at the end of each year.
- a quarter of your equity grants is vested after the first year and the rest is vested equally at the end of each month for the next 3 years.
The more you stay at a company, the more equity you’ll get. Your new equity grants will also follow a vesting schedule. For example, you’re granted 100 shares when you join. After the first year, you have access to 25 shares. Because you’re performing well, you’re also awarded 80 extra shares over the next 4 years. So, at the end of your second year, you have: 25 old shares + 20 new shares = 45 shares. The longer you stay at a company, the more grants you have left to vest. The schedule is to incentivize employees to stay longer at a company.