What is 'Accelerated Vesting'

Accelerated vesting allows an employee to quicken the schedule by which he or she gains access to restricted company stock or stock options issued as an incentive. The rate typically is faster than the initial or standard vesting schedule. Therefore, the employee receives the monetary benefit from the stock or options much sooner.

If a company decides to undertake accelerated vesting, then it may expense the costs associated with the stock options sooner.

BREAKING DOWN 'Accelerated Vesting'

Employees stock or stock option plans provide incentives for employees to perform at a higher level and remain with the company longer. These rewards vest over time, meaning the amount actually available for the employee to withdraw increases on a set schedule. 

For highly valued employees, companies may choose to accelerate the normal vesting schedule, which creates a higher present value for the employees. The benefit to the employees creates potential issues for the company, including the risk that the employee will take the money and leave the company shortly thereafter. 

Changes in vesting have tax consequences for both the company and the employee.

Reasons to Implement Accelerated Vesting

Aside from simply offering better compensation to highly valued employees, a company, especially a young company or startup, might use accelerated vesting to make itself more attractive to an acquiring company. For example, a young company goes public but the majority of shares awarded to employees are not yet vested. Perhaps it is year two in a five-year vesting schedule.

The employee stock or option plan might have a provision that upon takeover by another entity, employees become fully vested. It is an incentive for these employees to remain with the company until and through the acquisition.

A similar reason would be to keep employees until and through an initial public offering (IPO).

Acceleration Triggers

There are several forms of acceleration provisions, but the two most common are single-trigger and double-trigger. Typically, the common triggering event for both is the sale of the company or a change in its control.

Single-trigger, as discussed above, provides that at sale or change of control, some or all of the restricted stock will immediately become vested.

A double-trigger typically starts with the sale or change of control but does not actually cause acceleration until a second event occurs. This second event could include the termination of the founder without cause or if he or she leaves the company within a set time period (typically six months to one year following the sale or change of control).

The company can include any triggering events as long as they spell them out clearly in the employee compensation plan.

  1. Vesting

    Vesting is a legal term that means to give or earn a right to ...
  2. Fully Vested

    Being fully vested means a person has rights to the full amount ...
  3. Vested Benefit

    A financial incentive granted to employees who have met the required ...
  4. Stock Compensation

    Stock compensation refers to the practice of giving employees ...
  5. Unconditional Vesting

    Unconditional vesting is the state in which benefits are owned ...
  6. Employee Stock Option - ESO

    An employee stock option offers specified employees the right ...
Related Articles
  1. Personal Finance

    How Vesting Works and Why It's Important

    Vesting is an important part of your company's retirement or pension plan. Understand how and when you are fully vested at work.
  2. Investing

    How Restricted Stock Units Work

    Restricted stock units (RSUs) are beneficial to both the employer and the employee and are easier to navigate than stock options.
  3. Taxes

    How restricted stock and restricted stock units (RSUs) are taxed

    Find out how restricted stock and restricted stock units (RSUs), which are forms of executive compensation, work and how to deal with the tax consequences of them.
  4. Trading

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  5. Retirement

    Is a SIMPLE IRA Right for Your Small Business?

    Here's how small businesses can benefit from offering a SIMPLE IRA to their employees.
  6. Retirement

    5 Key Features of 401(k) Plans

    Understanding your 401(k) options and making the right decisions can have a big impact on your retirement savings.
  7. Managing Wealth

    Three Perks Business Should Give Their Employees

    Firms that treat their employees well have a competitive advantage over their rivals. Here are three important perks to give your employees.
  8. Financial Advisor

    Beware Of Company Stock In Qualified Plans

    While owning company stock in a qualified plan does have a few advantages, it can also pose some substantial risks to employees.
  9. Investing

    Employee Stock Options (ESO)

    Employee stock options are a form of equity compensation granted by companies to their employees and executives.
Trading Center