Why Is 4-Year Stock Option Vesting Getting An Overhaul?

One-year vesting gives employers the flexibility to reduce their equity dilution. Your company might still be able to meet the market price for talent, while saving 75 percent of equity compared to a four-year grant.

And one-year equity grants also give companies the flexibility to differentiate talent. The one-year grant lets employers evaluate talent year to year, and offer more shares based on performance without being locked into a four-year grant amount.

One possible downside for employers is that a one-year grant can sometimes cause confusion or unintended consequences during negotiations

Equity is a mysterious vehicle for lots of people. Some candidates might balk at being offered a $50,000 (one-year) grant instead of a $200,000 (four-year) grant.

Your company’s offer might look less competitive compared to a higher-value grant from another company.

Companies need to be ready to communicate the total picture of their compensation packages and show how their offer adds value for the candidate.

Another challenge for employers is that a one-year grant creates less incentive for talent to stay with the company. Some candidates who are great negotiators might insist on a bigger first-year grant than the company offered, and then leave the company after one year.