Vesting acceleration is a term used in the context of stock options, restricted stock, and other equity-based compensation plans. It refers to a provision that allows an individual to accelerate or speed up the rate at which their equity awards vest under certain circumstances. Vesting acceleration is typically included in employment agreements, particularly for key employees, executives, or founders. There are two common types of vesting acceleration:
1. Single-Trigger Vesting Acceleration: Single-trigger acceleration allows an individual to fully vest in their equity awards upon the occurrence of a specific triggering event. The most common triggering event is a change of control, such as the company being acquired by another entity or going public. When a single-trigger event occurs, all or a portion of the unvested equity awards become immediately vested, allowing the individual to realize the full value of their shares or options.
2. Double-Trigger Vesting Acceleration: Double-trigger acceleration requires the occurrence of two triggering events for vesting acceleration to take place. The first trigger is typically a change of control, as in single-trigger acceleration. However, in the case of double-trigger acceleration, the second trigger is often related to the individual’s employment status. For example, vesting acceleration might occur if the individual is terminated without cause or leaves the company within a specified period (e.g., 12 months) following the change of control.
Vesting acceleration is a valuable feature for employees and executives, as it provides protection for their equity interests in the event of significant corporate changes or layoffs following a merger or acquisition. It ensures that they are not left with unvested equity awards that might otherwise be lost.
For companies, vesting acceleration can be a negotiation point in employment contracts, and it is typically offered to attract and retain top talent. It’s important to carefully consider the terms and triggers for vesting acceleration, as they can have significant financial implications for both employees and the company. Legal and financial advice is often sought to ensure that the terms are clear and fair to all parties involved.