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Glossary of Terms for Employee Share Ownership Plans
Alison Perkins avatar
Written by Alison Perkins
Updated over 2 months ago

The introduction of an Employee Share Ownership Plan (ESOP) can expose you to a new set of terminology. Here are some of the commonly used terms on Orchestra:

Automatic Vesting - Options are vested at specified times or according to a frequency (commonly monthly, quarterly or annually). There are no assessment criteria for vesting, it simply happens automatically at the specified time.

Date Used To Set Schedule - The date that sets the cycle for automatic vesting. Options will be automatically vested on this day of the month according to the vesting frequency specified.

ESOP - Employee Share Ownership Plan. There are different types of ESOPs. It may be used for employees, directors and contractors.

Exercise - The process of converting a vested option into a share. An option can be exercised when the option has vested, and the exercise price is paid.

Exercise Price - Also referred to as the strike price. The price per option that an employee will pay if they choose to exercise their options.

Expiry Date - The date at which an option is no longer valid to be exercised.

Grant - The allocation of options to an employee. On Orchestra it lays out the terms of the allocation, such as the number of options granted, the exercise price and the expiry date.

Grant Duration - The period of time over which options are vested. Also known as the vesting period.

Grant Start Date - The date the options are granted to the employee under the offer.

Lapse - Options are removed from an employee under specific circumstances such as employee departure from the company or a failure to meet vesting requirements.

Manual Vesting - Options are vested manually by an administrator. There may be assessment criteria for vesting, such as the achievement of performance-related goals by an employee.

Offer - The contract for options made to an employee, through an ESOP offer letter.

Options - The number of shares the company will issue to an employee based on the terms of the offer.

Participant - A person that has been allocated options as part of an Employee Share Ownership Plan. Also called an Option Holder or Grant Holder.

Plan Rules - The rules that accompany an offer. The rules set out all the terms in relation to the ESOP, including the process for employees who may leave a business and what happens in the event of a business sale.

Pool - A group of options that can be allocated out as part of an Employee Share Ownership Plan.

Vesting - The process of converting options from unvested to vested, where they can now be exercised.

Vesting Cliff - A vesting criterion that requires a set period to pass before any of the options are vested and become available to the employee to exercise. For example, options may vest quarterly over four years, with a one year cliff - which would mean that the first twelve months of options do not vest until one year into the vesting period. See graph below.

Vesting Frequency - How often shares are vested by automatic vesting. Commonly used vesting frequencies are monthly, quarterly or annually.

Vesting Schedule - The criteria that specifies how vesting will occur. A vesting schedule may be manual, automatic (one-off) or automatic (repeat). A grant of options may have more than one vesting schedule.

Contact us if you would like to learn more about Employee Share Ownership Plans.

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