A vesting schedule is the timetable on which an employee earns the right to equity they were granted, such as stock options or RSUs. Until a tranche vests it can be taken away, typically if the person leaves; once vested, it belongs to the employee subject to the plan’s exercise and lock-in terms.

Common patterns

• Cliff: nothing vests until a first date, often 12 months, and then a block vests at once.
• Graded: equal slices vest each year, quarter or month.
• Cliff plus graded: the pattern many Indian startups use, for example four years with a one-year cliff and monthly vesting after.
• Performance-linked: tranches vest only if revenue, profit or individual targets are met, often alongside time conditions. Tie the targets to the same KRAs and KPIs used in appraisals so there is one source of truth.

Indian law sets a floor, not a design. Under the ESOP rule for unlisted companies (Rule 12 of the 2014 share capital rules) and SEBI’s 2021 regulations for listed ones, at least one year must pass between grant and vesting. Death or permanent incapacity in service vests all granted options at once.

Worked example

Arjun is granted 4,800 options on a four-year schedule with a one-year cliff. At month 12, a quarter (1,200) vests. The remaining 3,600 vest at 100 a month for 36 months. He resigns at month 20, so he holds 1,200 + (8 x 100) = 2,000 vested options; the other 2,800 lapse back to the pool. His vested options must then be exercised within the window the scheme gives leavers, which is a frequent source of disputes at offboarding when nobody told the employee the deadline.

Frequently asked questions

Does vesting trigger tax?

For options, no: tax comes at exercise. For RSUs the shares are delivered on vesting, so that date is when the perquisite is taxed.

What is acceleration?

A clause that vests some or all unvested equity early on an event such as an acquisition (single trigger) or an acquisition followed by job loss (double trigger). It must be written into the scheme; it is not implied.

Does notice period count towards vesting?

Usually it does if the person is still on the rolls, since most plans tie vesting to employment, not to the last day worked. Garden leave can be treated differently, so read the plan alongside the notice period clause.

Can a company change a vesting schedule after grant?

Only within limits. Rule 12(5) lets an unlisted company vary the terms of options not yet exercised by special resolution, provided the change is not prejudicial to the option holders, and the notice must explain the change and who benefits. Speeding vesting up is easy; slowing it down for existing grantees is not.

Vesting dates are just service anniversaries, and the years of service calculator helps confirm where an employee stands on the date they resign.