Cliff vesting
Also: cliff vesting, one-year cliff, vesting cliff
A vesting structure where no shares vest until a set service milestone, usually one year, after which a lump tranche vests and further vesting proceeds on a monthly or quarterly schedule.
Cliff vesting concentrates the first vesting event at a single date. The standard tech grant is four-year vesting with a one-year cliff: no shares vest during the first 12 months, 25% vest on the one-year anniversary, and the remaining 75% vest monthly over 36 months. An employee who leaves before the cliff forfeits the entire grant.
Example: a software engineer starts with 48,000 RSUs vesting over four years with a one-year cliff. At her one-year anniversary on a day the stock closes at $250, 12,000 RSUs vest as a $3 million compensation event. From month 13 onward, 1,000 RSUs vest each month.
Common mistake: underestimating withholding at the cliff. A $3 million vesting event triggers the 37% federal supplemental rate above $1 million of supplemental wages, while many employers still default to 22% on the first dollar. The gap creates a six-figure shortfall at filing if no estimated payment is made.
Cliff vesting matters in negotiation (shorter cliffs are rare but possible for senior hires), in departure timing (leaving one day before a cliff forfeits the tranche), and in tax planning for the lump vesting event.