All About Vesting, Lock-Ups, etc. Year 3 4 Vesting 25% 45% 17 This schedule pushes the bulk of the stock options into years three and four (70 percent). These incentives for management are to get the company through an initial public offering (IPO) and keep the stock price up. The higher the stock's price, the more valuable the options are. At the same time, the vesting schedule encourages the president to stick with the company because the bulk of the option's benefit is in years three and four. Should the president leave at the end of two years, for example, she would probably lose the re- maining 70 percent of the vesting schedule. Some of the Internet startups have generated such high stock prices that leaving 70 percent of the vesting schedule behind would cost the executive millions of dollars. ISOs require a holding period to receive the favorable tax treatment, which encourages further employment continuation. Caution Employees who leave before their vesting is complete will lose those stock options that are not vested. The same Internet startup company may also offer NSOs (nonqualified stock options) to the rest of the employees. Although NSOs have no particularly favorable tax treatment, they can still be used to encourage employees to stick with the company through the vesting schedule. One of the most common schedules is a four-year one that vests 25 percent each year. For example, if a worker is granted stock options for 100 shares with a four-year vesting schedule, at the end of