A common benefit companies offer to their employees is the ability to purchase shares of the company using stock options. However, most companies require employees to work for a minimum amount of time before giving them irrevocable rights to these options. If the employee leaves the job before this amount of time has passed, the stock options are not vested.
Vesting occurs when a benefit an employer provides to you, such as stock options, stock or pension payments, becomes yours to keep regardless of whether you leave the company. Each company determines its own vesting schedule. In most cases, a certain percentage of the stock options will vest after one year, and another percentage will vest periodically as you continue to work for the company. For example, a company may allow you to keep 25 percent of your options after you work for one year and another 2 percent for every month you work in excess of one year.
About Stock Options
A stock option is the right to purchase a share of stock in a company at a predetermined price. Although stock options guarantee the holder a certain purchase price, they don't require the purchase the stock. If the price of the stock falls below the price included with the option, the holder can choose not to exercise it. Likewise, even if the price of the stock remains above the option price, the holder can choose to not act on the options.
Non-Vested Stock Options
Holders of non-vested stock options can't typically exercise them. If an employee with non-vested stock options leaves the company, he will forfeit all rights to the options that haven't vested. However, if only a portion of his options were non-vested, he will retain rights to the portion of the options that had vested before his employment ended, whether or not he had exercised them.
Although you can typically retain rights to vested options when you leave a company, most vested options expire 10 years after the date they vested. Some stock option vesting schedules feature a trigger clause that accelerates the vesting schedule in the event of a merger or acquisition. Companies typically include such clauses to prevent an acquisition or merger from forcing employees out of the company with large amounts of non-vested benefits.