ESOPs for Private Limited Companies


#1

What is the typical vesting period for ESOPs?


#2

According to my limited knowledge, 4 years.
Hopefully someone with deeper experience and knowledge will answer this better :slight_smile:


#3

Typically it’s three or four. But the selection criteria would completely depend upon the objective of the implementation of the ESOP Plan. Say, if the objective is to use ESOP as a talent retention tool, then you can plan the vesting period to be longer than usual. If your objective is to use it as an incentive tool, you may keep the exercise price low. This would enable the employee to enjoy an upside when he sells off his holding. Again, if your objective is to use it as a part of remuneration mechanism, the eligibility criteria could be accordingly widened. Vesting – usual vesting period is four years. Some plans have a cliff of 12 months for the first vesting but have monthly or quarterly vesting thereon. Some other plans are simple and have an annual vesting.