Vesting, cliffs and exercise windows, in plain language

A stock option is the right to buy a share later at a price fixed today, called the exercise price. But you don’t get the whole right on day one. You earn it over time. That process is vesting.

The common shape of a schedule

Many companies use four years of vesting with a one-year cliff. Take a grant of 4,800 options:

• Months 1–11: nothing vests. You’re inside the cliff.
• Month 12 (the cliff): the first year’s share vests at once, so 1,200 options.
• Months 13–48: 100 options vest every month.
• Month 48: all 4,800 options have vested.

Not every company works this way. Some vest quarterly or yearly, some have no cliff, and some tie vesting to performance. Your grant letter is the only reliable source for your schedule.

Vested is not the same as owned

Vested options are a right to buy. You become a shareholder only when you exercise: you pay the exercise price for each share. Until then you hold options, not shares.

Exercising can also have tax consequences. In India, for example, the difference between the fair market value and the exercise price on the day you exercise is generally taxed as part of your salary income, and selling the shares later can create a separate capital gains tax. Rules change, so check the current position with a tax professional before you act.

The two deadlines that matter

Expiry date. The last date you can exercise. Options not exercised by then are lost.

Post-termination exercise window. If you leave, this is how long you have to exercise your vested options. It varies widely, from a few weeks to many years. Some plans also treat “good leavers” and “bad leavers” differently.

What usually happens when you leave

• Unvested options are generally forfeited.
• Vested options usually stay exercisable until the window closes, or the expiry date if that comes first.
• Exercising costs money: the exercise price times the number of options, plus any tax due.

Because these rules live in your plan documents, ESOP Record never applies a generic window. The “If I leave” page uses only the terms recorded for each of your grants, and tells you plainly when a term is missing.