Vesting

Vesting is the process by which an equity award’s conditions, which may be continued service, performance goals, or both, are satisfied, converting a conditional promise of shares into shares the recipient actually owns outright. Before vesting, an award can typically be forfeited if the executive departs; after vesting, it cannot. Vesting is therefore the line that separates an award the holder might receive from an award the holder has.

A typical multi-year grant vests on a schedule rather than all at once, often in equal annual installments over three or four years. At any given time an executive is likely to be holding a mix of already-vested shares and still-unvested awards from grants made in different years, which is why a single proxy can show several awards at different stages of the same schedule. The schedule itself is a design choice made at grant, not a property of the stock or the company.

An unvested award’s value is generally reported at the current stock price, which is why the same number of unvested units is worth a different dollar figure from one proxy to the next even when nothing about the grant itself has changed. Only the stock price behind it has moved. That reported figure is a snapshot of what the units would be worth if they vested at that moment, not a value the holder has secured.

Vesting means slightly different things for different instruments. For a restricted stock unit, vesting is the point at which the units settle into shares. For a stock option, vesting is the point at which the option becomes exercisable, which is separate from exercising it later; an option can be fully vested for years and still be unexercised. For a performance stock unit, vesting depends on the company certifying results against the performance goals, so the schedule is measured in outcomes as well as in time.

Some events can move vesting earlier than the original schedule. A change in control, retirement, death, disability, or certain terminations without cause commonly accelerate vesting under the plan or an individual agreement. Acceleration may be full or pro-rata for time already served, and for performance awards it may be measured at target, at maximum, or at the level actually achieved to date. Whether acceleration is single-trigger or double-trigger is a separate design question, and it changes what a departing executive receives considerably.

Vesting is also the event that fixes tax for most equity awards. A restricted stock unit is generally taxed as ordinary income when it vests and settles, based on the value of the shares at that point, which is why many plans withhold a portion of the shares at settlement. A stock option is generally taxed when it is exercised rather than when it vests. The difference means the date an award vests can matter to the holder as much as the value of the award.

The proxy shows vesting in more than one place. The Outstanding Equity Awards at Fiscal Year-End table reports which awards remain unvested and, separately, which options are already exercisable, so the two stages of an option’s life appear side by side. The Compensation Discussion and Analysis describes the vesting terms and any acceleration provisions the company applies, and the potential-payments section sets out what vests if an executive leaves under each kind of termination.

Mark Casper still holds 1,467 unvested Marvell restricted stock units, worth $99,067 at the price the proxy uses — value neither realized nor forfeited until the vesting date arrives.