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Online you can find a lot of resources explaining vesting and cliffs. They all assume that we're talking about a fixed one-time amount of stock.

How does vesting work exactly if stock is part of a regular compensation? Can someone explain with a concrete example?

E.g. let's assume: Annual compensation comprises:

  • Base Salary: $200,000
  • Bonus: $50,000
  • Stock Grant: $200,000 (RSU / Restricted stock units)

where the stock grant is subject to a 4-year vesting schedule (25% each year) and a 1-year cliff.

What would be the exact amount of stock that you actually receive in/after year 1, 2, 3, 4, and say 5? By receive I mean stock that you can sell and turn into money. Does vesting just "defer" access to those annual $200,000 in stock or do you actually receive less in the first years?

And does the vesting schedule "restart" for each year for the respective stock grant of that year, or is the schedule tied to years working at that company?

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    The stock grant can't be both annual compensation and subject to a 4-year vesting schedule. I strongly suspect the stock grant is a one time thing. (Of course, you can always negotiate additional grants later.)
    – David Schwartz
    Commented Jan 14, 2021 at 10:59
  • "The stock grant can't be both annual compensation and subject to a 4-year vesting schedule." David, do you mean there's a rule/law about that ?? Or do you just mean "it is extremely unlikely that is the case and you are probably just confused on the situation" ... ??
    – Fattie
    Commented Jan 14, 2021 at 12:40
  • @DavidSchwartz I've been at companies that offer both stock and cash as part of an annual bonus - each grant will just have its own vesting schedule.
    – D Stanley
    Commented Jan 14, 2021 at 13:33
  • @DavidSchwartz: Yes, I simply misunderstood this. In the meantime I figured out, that it's a one time thing which is then spread across 4 years using the vesting schedule. To not run dry, there would be refreshers.
    – Philipp F
    Commented Jan 17, 2021 at 16:03
  • @Fattie Something can't both have a vesting schedule and be annual compensation. If it's annual compensation, it's given every year. If it has a vesting schedule, it's given over time according to the schedule.
    – David Schwartz
    Commented Jan 18, 2021 at 1:35

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What would be the exact amount of stock that you actually receive in/after year 1, 2, 3, 4, and say 5?

It depends on the value of the stock at the time of the grant. Typically stock grants vest evenly over that time period. With a "cliff", the first vest occurs after a longer period, so you may get 1/4 after 1 year then 1/36 a month for the remaining 3 years.

So if the initial grant was $200,000, and the market value of the stock is $100 per share at that time, then you'd receive a grant of 2,000 shares. After one year you'd have access to 500 shares (25%). Taxes will also be withheld in the form of shares, so in the end you may actually receive, say, 375 shares. You could then keep them or sell them at the current market price (which may be more or less than the $100 price at the time of the grant). Every month thereafter, you'd have access to about 55 shares (1/36 of 2,000) less taxes. So the actual monetary value you get each period depends on the current market value.

does the vesting schedule "restart" for each year for the respective stock grant of that year, or is the schedule tied to years working at that company?

It also depends on the policies of the company, but typically eash grant has its own vesting schedule.

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