To complement the detailed early results, here are some high-level summary data on the years of vesting.
Across the full dataset (1163 executives from 225 companies), the range of years is 1 year to 5 years. The widespread rule of thumb is that vesting occurs over 4 years, and as expected, the most common period is 4 years. However, more than a quarter of executives (28%) have vesting periods different from that rule of thumb, which is what originally triggered the question for me of what was driving vesting terms.
More specifically, the average years of vesting is 3.46 years (standard deviation of 1.15 years). The distribution across the full range of years is as follows:
- 1 year: 16% of executives
- 2 years: 1%
- 3 years: 7%
- 4 years: 72%
- 5 years: 4%
Technical note: Given the non-normal distribution of the vesting dependent variable (and of all of its standard transformations), I used ordered-probit analyses instead of standard OLS.
Focusing specifically on the founder vs. non-founder differences, the distribution is as follows, with %-of-founders in black bars and %-of-non-founders in white bars.
In short, the 4-year “widespread rule of thumb” mentioned above applies far less to founders (it doesn’t apply to 40% of them) than to non-founders (it doesn’t apply to 24% of them). Interestingly, this works in both directions: there are more founders in both the 1-year and 5-year buckets.
Hi Noam,Great stuff! At our company, the only person with vesting terms other than 4 years / 12-month cliff / 50% acceleration upon sale (4/12/50) is the founder. That was negotiated very early on with the first round VCs and it seemed to make sense at the time. It was the quid pro quo to the VCs saying, “we may have to replace you” to the founder. Most, if not all, of the employees we’ve hired since then, we have not had that explicit conversation about “succession” upon hiring and as a result the vesting hasn’t varied between folks…instead it’s been, “here’s the equity package and don’t try to negotiate because everyone has the same deal.”I’m not surprised by your data. It basically says:- Most folks have 4 year vesting (it’s the “standard” on the street)- Some founders have 1 year vesting (because, hey, they’re founders); and- Some non-founder execs have 1 year vesting (probably because they are turn-around CEOs, bridge CEOs, or exaggerating ;-)