when vesting companies let employees purchase a predetermined number of shares at a set price companies may vest on a specific date or on a monthly quarterly or annual schedule the timing may be set according to company wide or individual performance targets being met or both time and performance criteria vesting periods are often three to four years typically beginning after the first anniversary of the date an employee became eligible for stock compensation after being vested the employee may exercise their stock purchasing option any time before the expiration date 
example of stock compensationfor example assume that an employee is given the right to purchase 2 000 shares of stock at 20 per share the options vest 30 per year over three years and have a term of five years the employee pays 20 per share when buying the stock regardless of the stock price over the five year period types of stock compensationthere are different types of stock compensation such as non qualified stock options nsos and incentive stock options isos isos are only available to employees and not non employee directors or consultants these options provide special tax advantages with non qualified stock options employees are required to pay income tax based on the grant price minus the price of the exercised option 2stock appreciation rights sars let the value of a predetermined number of shares be paid in cash or shares phantom stock pays a cash bonus at a later date equaling the value of a set number of shares employee stock purchase plans espps let employees buy company shares at a discount restricted stock and restricted stock units rsus let employees receive shares through purchase or gift after working a set number of years and meeting performance goals restricted stock requires the completion of a vesting period this may be done all at once after a certain period of time alternatively vesting may be done equally over a set period of years or any other combination management finds suitable rsus are similar but they represent the company s promise to pay shares based on a vesting schedule this offers some advantages to the company but employees do not gain any rights of stock ownership such as voting rights until the shares are earned and issued companies award performance shares to executives and managers only if certain specified measures are met these could include metrics such as an earnings per share eps target return on equity roe or the total return of the company s stock in relation to an index typically performance periods are over a multi year time horizon exercising stock optionsstock options may be exercised by paying cash exchanging shares already owned working with a stockbroker on a same day sale or executing a sell to cover transaction however a company typically allows only one or two of those methods for example private companies typically restrict the sale of acquired shares until the company goes public or is sold in addition private companies do not offer sell to cover or same day sales 