A financial incentive of employment that an employee is fully entitled to. Employers sometimes offer their employees benefits that they acquire full ownership of gradually or suddenly, as they accumulate more time with the company. This process is called graduated vesting or cliff vesting, and its purpose is to give employees a reason to stay with the company long term. When the employee has earned full rights to the incentive after a predetermined number of years of service, those benefits are called fully vested.
An example of a type of benefit that might vest gradually is shares of the company's stock. An employee might be awarded 100 shares of stock as a performance bonus after year one of employment. Under a graduated vesting plan, the employee might acquire full ownership of 20% of the shares after year two, 40% after year three, 60% after year four, 80% after year five and 100% after year six. The stock bonus would be a partially vested benefit in years two to five, and a fully vested benefit after year six.
Investment dictionary. Academic. 2012.
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