Cliff vesting is an equity structure in which no equity vests until a defined minimum period (the 'cliff') is completed, at which point a lump sum of equity vests all at once. In the standard tech company structure, the cliff is 12 months: an executive who leaves before month 12 receives nothing, and an executive who stays through month 12 receives 25% of their total grant immediately. The cliff protects the company from granting equity to leaders who exit quickly.
How Cliff Vesting Works
In a standard 4-year equity grant with a 1-year cliff, an executive who leaves at month 11 walks away with zero equity. An executive who reaches month 12 — the cliff — receives 25% of their grant at once. From that point, the remaining 75% vests ratably over the next 36 months (monthly or quarterly, depending on the plan documents).
The cliff is the most consequential single term in an equity grant. It creates a strong retention incentive in the first year of employment, when the risk of early departure is highest, and aligns both parties' interests around a meaningful tenure threshold.
Cliff Vesting — What Vests When (Standard 4yr / 1yr Cliff, $1M Grant)
Why Companies Use Cliff Vesting
The cliff protects companies from a specific failure mode: hiring an executive, granting equity, and having that executive leave in the first few months with a meaningful ownership stake before they have demonstrably contributed. Without a cliff, an executive who leaves at month 3 could retain 1/16th of their grant — not significant individually, but problematic at scale across many grants.
From the candidate's perspective, the cliff also serves as a signal of intent. Accepting a role with a meaningful equity grant and a standard cliff signals a commitment to the opportunity, which is part of the reason candidates and companies both accept it as market standard.
“Two months before the cliff is the most dangerous time to lose a candidate. They're close enough to wait — and they know it. Close the hire well before that threshold, or plan for an extended offer process.”
Cliff Vesting in Offer Negotiations
The cliff creates friction in offer negotiations when a candidate is close to a vesting event at their current employer. If a candidate has a quarterly vest due in two months, asking them to leave immediately means forfeiting that tranche. The hiring company typically needs to accommodate this either through a start date adjustment, a sign-on bonus to bridge the gap, or accelerated vesting on their first grant.
Understanding where a candidate sits in their vesting schedule is essential context before making an offer. Majhi Group captures this information early in the candidate management process to avoid surprises at the offer stage.