Puzzle time - stock vesting periods

[Horace]

Let's say there's a company that had a stock grant program where a number of shares were granted to employees, which vested over a five year period. one year after the grant, the employee would receive 1/5th of the grant. The next year, they'd receive another fifth. And so on for five years, when they'd received all the shares. Now let's say the company reduces the grant period to four years, where each year, the employee would receive 25% of the granted shares. Let's say the company tells employees that "over time, this will provide significantly more value to the employee". Would that be a fair characterization? If not, how would one characterize the difference between the five and four year vesting plans?

[Copper]

The difference is one year.

If the stock has a holding period, that would begin earlier, making the date you can sell earlier.

Any value is dependent on the price of the stock. Without knowing the sales price any value to the employee is speculation.

[Axtremus]

All else being equal, the time value of money makes the characterization fair as long as we ignore the word "significantly".

"Five years" vesting period is sub par. "Four years" better. Most high tech startups in the US offer "four years" vesting period.

"Yearly" vesting of additional shares is also sub par. Most high tech startups in the US offer "monthly" or "quarterly" vesting past the first year.

[Horace]

The phrase that is most at odds with reality IMO is "over time". In fact, as a percent advantage of the four year vesting period vs the five year period, and assuming such grants are given yearly (so that in one case you'd have four vesting periods going simultaneously, in the other case five), the advantage is at its maximum immediately, where it would be 20% of all the stock you've ever been granted. Over time, that percent advantage would diminish towards zero, though it would never reach zero, assuming regular yearly grants.

[Loki]

It’s simple. Most people want the money to vest sooner. They don’t know if they will be around. The program is essentially a retention program for valuable employees and they needed to make it one year less to have more impact.

[Horace]

As it happens, this was a minor change for the better in the plan in question, while there was a major change for the worse, meant to accommodate a significantly higher stock price and not pass that along to the grant recipients. The plan used to be nice round numbers of shares based on the assumption that the stock price was in a certain range. Then the price doubled and now they're concerned that each grant is too valuable, and will modify the number of shares to coincide with a certain value, assuming whatever the current stock price is.