Vesting is a legal process that grants the holders of securities a right to either a future or present benefit, payment or other asset.
Most often, this term is used in association with benefits granted to employees by their corporate overlords… oops – employers. For example, this term is applied to retirement benefits packages. These benefits only fully vest upon an employee’s retirement. By contrast, other stock option benefits may vest according to a schedule that allows an employee access to certain payments, assets or benefits either over time or when the terms of specific conditions have been fulfilled.
Specific vesting conditions may be used to encourage employee loyalty, to encourage the accomplishment of certain goals or to allow the issuer more flexibility with its assets.
Teen: “Dad, can I have a car?”
Dad: “Can you drive the car?”
Teen: “No. Have a car. Like, have one of my own.”
Dad: “Sure. Just as soon as your retirement benefits are fully vested.”
Teen: “When do I get vested retirement benefits?”
Dad: “Roughly 40 years after you get a job.”