Vesting acceleration expedites the timeline over which an equity grant would otherwise vest, based on certain conditions being met. While accelerated vesting is beneficial to the equity holder, companies should be careful when including acceleration in equity grants, because the type and quantity of vesting acceleration provisions may alarm investors or potential buyers.
The first step in creating a philosophy around vesting acceleration for your company is understanding the varieties, and what the market trends are surrounding each.
Single-trigger acceleration is very uncommon, except for advisors.
Single-trigger acceleration typically provides for partial to full acceleration of vesting upon a change of control event (e.g., an acquisition). The change of control is the “trigger” in this case. Most companies generally do not award equity with single-trigger acceleration, but when they do, it is typically to advisors who negotiate for it.
Companies are more comfortable with single trigger acceleration for advisors because a typical advisor grant is relatively small, and advisors often provide services early in the company’s lifecycle when an acquisition is unlikely during the vesting period, making this an often inconsequential term.
Double-trigger acceleration is fairly common among founders and executive hires.
Double-trigger acceleration usually provides for partial to full acceleration of vesting upon termination within twelve months after a change of control event. Both the change of control trigger and the second, termination trigger must occur for the vesting to accelerate.
Double-trigger provisions protect key personnel from the company being acquired, because it ensures that their stock will immediately vest if they are not kept on by the buyer, so long as they aren’t terminated for cause.
Double-trigger acceleration is uncommon, but not unheard of, for other employees.
While double-trigger acceleration is commonly employed to protect founders, it is much less common to offer it to rank-and-file employees. This is because if every employee was given double trigger acceleration, a potential buyer would be in a tough spot post-acquisition to make personnel changes without a prohibitive number of shares being granted to departing employees via acceleration provisions.
So, though a company’s compensation philosophy should be its own, it is crucial to be intentional about compensation culture as it can become strategically important down the line. Because the existence of universal double-trigger acceleration may spook investors and potential buyers, a company should be mindful before offering it to rank-and-file employees except on a limited basis.