Vesting is the mechanism that makes employee share plans work as retention tools. When an employee is allotted shares under a company share scheme, those shares don't become theirs immediately — they vest over time, typically three to five years.
Definition
Vesting is the process by which an employee's right to allotted shares becomes unconditional over time. Until shares vest, the employee cannot sell them and may forfeit them if they leave the company.
On the allotment date, shares are awarded to the employee and registered in a trust on their behalf. During the vesting period, the employee cannot sell the shares and may forfeit them if they leave (depending on the leaver provisions). On the vesting date, the shares are transferred out of the trust into the employee's direct CSCS account — they become the employee's unconditional property.
Cliff vesting: all shares vest on a single date. For example, 100% vest after three years. If the employee leaves before year three, they forfeit all shares (bad leaver) or a pro-rata portion (good leaver). Graded vesting: shares vest in tranches. For example, one-third per year over three years. The employee always retains shares for time already served.
Some Nigerian ESIS add a performance condition on top of the time-based vesting requirement. For example, a senior executive might receive shares that only vest if the company achieves a target earnings growth over the vesting period. This aligns management incentives with shareholder interests.
Leaver provisions determine what happens to unvested shares when an employee departs. 'Good leavers' (retirement, redundancy, ill-health, death, or mutual departure) typically retain a pro-rata portion. 'Bad leavers' (voluntary resignation, dismissal for cause) typically forfeit all unvested shares. Vested shares always belong unconditionally to the employee regardless of the leaver category.
Vested shares are yours — you keep them regardless of how you leave. Unvested shares are subject to the leaver provisions in the scheme rules. In most Nigerian ESIS, voluntary resignation is a bad leaver event, which means you forfeit unvested shares. Always check your scheme rules.
Some scheme rules include accelerated vesting provisions — for example, if the company is acquired (a 'change of control'), unvested shares may vest immediately. Death is also commonly treated as a full-vest or pro-rata vest event.
This depends on the scheme rules. Options include: accumulating dividends and paying on vesting; paying dividends currently to the employee (even though shares are unvested); or reinvesting dividends as additional shares. Shares Saver's administration platform supports all three approaches.
Shares Saver lets you buy and own NGX-listed shares directly in your own name through regulated broker execution.
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