Accelerated Vesting - Explained
What is Accelerated Vesting?
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Table of ContentsWhat is Accelerated Vesting?How does Accelerated Vesting Work? Reasons to Use Accelerated VestingAcceleration TriggersAcademics Research on Accelerated Vesting
What is Accelerated Vesting?
Vesting refers to a legal right over an assets, or future payment earned by an employee and vested by the employer. There is often a set time that an individual begins to enjoy a vested right over an asset, accelerated vesting allows the individual has access to a vested property or asset before the scheduled time.
Accelerated vesting grant an employee quickened access to a company's share, stock or property vested to them by the employer. It avails an employee with a vested right to access to a future payment, asset (share, stock), or benefit sooner than expected.
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How does Accelerated Vesting Work?
Vested right is usually conferred on an employee with exceptional performance, the employer grants a vested right to such a person which means he holds a legal right to an asset, a future payment or benefit from the company. However, accelerated vesting enables an employee access rewards before the scheduled time.
A company that consents to accelerated vesting agrees that the employee with the vested right would enjoy an asset, a payment or benefit sooner. The company then releases all benefits before the earlier scheduled time. This is often done for highly valued employees. An accelerated vesting increases the present value of an employee that enjoys it. However, companies face the risks of accelerated vesting since it is possible to accelerate the normal vesting of an employee and he deserts the company after collecting the benefits.
Reasons to Use Accelerated Vesting
A company can decide to accelerate the normal vesting of an employee for a number of reasons. For some companies, it is a technique for presenting themselves as valuable and attractive. For instance, a startup company might use accelerated vesting to make itself appealing to an acquiring or public company.
Also, such a company might have an employee incentive plan that states that employees who stay with the company until an IPO will be fully vested. Highly valued employees are also drawn to companies that accelerate normal vesting than those that do not.
Many factors that trigger a company to accelerate normal vesting. They are called acceleration triggers. There are two common acceleration triggers; the single-trigger and double-trigger. Under a single-trigger, some restricted stock or shares owned by a company become vested to employees when the company is sold, acquired or there is change in control and management of the company.
On the other hand, double-trigger holds that acceleration vesting is not granted just when there is a sale but at the occurrence of a second event, which is the termination of appointment by the founder of the company.
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