Vesting is a process that some retirement plans use to calculate how much of the company's stock employees are entitled to. Here's how it works-when an employee begins working for a company, they are given a certain amount of shares in the company. The number of shares depends on the person's position within the company. And while this might sound great at first, it can be troublesome if the person leaves before they have vested their benefits. Vest means to give clear title of ownership, and that is what the company does when they start an employee's vesting period.
Vesting periods are divided into four different categories-Immediate Vesting, Cliff Vesting, Gradual Vesting, and Back-loaded Vesting. And while each category has its own set of rules concerning how the stock is given to the employee, they all have one thing in common-the longer it takes for an employee to vest their benefits, the less stocks they are entitled to when they actually do.
And while some companies allow employees to choose which type of vesting schedule they prefer, most companies have a policy that tells how long the company's employees have to work before they are fully vested. So if you're an employee who is just beginning their employment, make sure to ask your supervisor about the company's vesting schedule policy.