Cliff Vesting
A vesting provision where no equity vests until a minimum service period (the cliff) is completed, protecting against early departures.
FAQs
What happens if an employee is terminated just before their cliff?
If terminated before the cliff with no acceleration provisions, the employee receives zero equity — all unvested shares are forfeited. This is why cliff timing is a significant factor in termination decisions. Some companies may provide severance that includes accelerating past the cliff as part of separation agreements, but this is negotiated individually.
Does the cliff apply to performance-based vesting too?
Performance-based vesting can also include a cliff structure, where a minimum performance threshold must be achieved before any vesting occurs. For example, options may not vest until the company achieves $5M ARR, then vest monthly thereafter. The cliff concept applies to any vesting mechanism, not just time-based schedules.
Is a 1-year cliff standard across all types of companies?
In US technology startups, yes — the 1-year cliff with 4-year total vest is essentially universal. In corporate environments and larger companies, different vesting designs are common, including 3-year cliff vesting for 401k matching, immediate vesting for RSU grants, or performance-based vesting without any time cliff.
Related Terms
Vesting Schedule
The timeline over which an employee earns the right to exercise stock options or receive equity grants, typically over four years.
Equity Compensation
Non-cash compensation in the form of company ownership interests, including stock options, RSUs, and restricted stock, used to attract and retain talent.
401(k) Matching
An employer contribution to employees' 401(k) retirement accounts, typically matching a percentage of employee contributions up to a salary limit.
Cap Table
A spreadsheet or software record showing all equity ownership in a company, including shares, options, warrants, and convertible instruments.