What Is Accelerated Vesting and How Does It Work In the MARE?

Vesting is a mechanism that allows an employee to earn equity over a specified period of time, or to collect equity over the course of meeting certain milestones. As the name suggests, accelerated vesting is a provision that allows an employee to gain access to their granted equity at a faster rate than the original vesting schedule. The result is that the employee can own their shares sooner than originally planned, as long as a previously outlined trigger occurs. In the context of this blog post, vesting and accelerated vesting pertain to phantom stock.

Accelerated Vesting Triggers

These triggers can vary by company and can even be specifically tailored to an individual employee. While accelerated vesting is usually linked to a single trigger, it can also be contingent on a double trigger.

The single trigger that is most commonly used within the MARE Stock Plan is the sale of a given company. Here’s an example of how that might work: an employee is on a four-year vesting schedule, with an accelerated vesting clause that is contingent upon the sale of the company. Two years into that four-year vest, the company sells to an outside buyer. In this scenario, the employee would accumulate 100% of their shares upon the sale of the company, despite not vesting for the full four years.

How might a double trigger accelerated vesting clause work? Using the same example: let’s say the employee has one accelerated vesting clause that is contingent upon the sale of the company, and a second that is contingent upon the employee being terminated within six months post-sale. In this scenario, both accelerated vesting conditions would have to occur in order for the employee to fully vest their shares. This specific instance is a good example of striking a balance between encouraging a key employee to stay with a company after a sale (beneficial to the buyer and seller), and protecting them post-acquisition (beneficial to the employee).

Accelerated Vesting In The MARE

The MARE Stock Plan provides five standard accelerated vesting conditions:

1. Employee is employed on the date of a sale
2. Employee is employed on a date that is a specified number of months following the date of a sale
3. Employment ends before a sale due to death or disability
4. Employment ends before a sale due to termination of employment for a reason other than cause
5. Employment ends before a sale due to retirement after a specific age, as long as they have been employed for a specific number of years

These accelerated vest parameters are flexible; for example, small business owners can choose how many months following an acquisition an employee needs to remain with the company, or what retirement age is appropriate and applicable to their company and employees. Custom accelerated vesting options are also available within the MARE.