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Vesting is a term that refers to the process of earning ownership or rights to an asset or benefit over time. In the context of employee remuneration, such as stock options, retirement plans, or bonuses, vesting is frequently utilized. Employees can be motivated by vesting to work harder and stay with a company longer.
To specify when and how much of an asset or benefit becomes vested, vesting schedules occur in several forms. For instance, cliff vesting means that after a specific amount of time, such a year, of service, an employee becomes completely vested. Gradually vested employees gain some rights after each year of employment, and after a certain number of years, they fully vest. Accelerated vesting occurs when an employee reaches complete vesting earlier than expected, frequently as a result of a triggering event like a merger, acquisition, or termination.
Vesting can have a big effect on employees and employers alike. Vesting may have an impact on an employee's capacity to prepare financially and pay taxes. Vesting may have an impact on an employer's accounting and cash flow. Additionally, vesting can make shareholder and employee interests more or less aligned.
