What are Vesting Provisions?
Vesting provisions are generally part of incentive programmes often seen LTIP arrangements whereby assets such as share options, carried interest or shares vest over time. The purpose of a vesting schedule is to reward those who remain employed/members of an LLP over a period of time. By way of example, many start-ups have vesting schedules whereby no shares vest during the first year, and thereafter linear vesting occurs over a three-year period. At the end of any vesting period, the employee/partner is generally given full ownership rights of the options, shares, carried interest or any other asset subject to the vesting schedule. Any vesting schedule may be subject to the option/power on the part of the company to buy the shares from the employee at a certain price. Being aware of any vesting schedules is critical.
Many employers also impose good leaver/bad leaver provisions, which may affect the operation of the vesting schedule.
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