Grant Date

Your grant date is a crucial piece of information when it comes to stock options and equity compensation. It’s the day your company officially promises you the option to purchase company shares at a set price (the exercise or strike price) sometime in the future. Think of it as the starting line of your equity journey.

Why is the grant date so important?

• Vesting: Your vesting schedule, which determines when you actually earn the right to exercise your options, starts on your grant date. For example, a four-year vesting schedule with a one-year cliff means you earn no options until one year after your grant date (the cliff). After that, you typically earn a portion of your options each month or quarter for the remaining three years. Learn More: Vesting Schedule
• Taxes: Your grant date is also important for tax purposes, especially for Incentive Stock Options (ISOs). The difference between your grant date’s fair market value and your exercise price can impact your Alternative Minimum Tax (AMT) liability. Learn More: ISO / Learn More: AMT
• Determining Value: The grant date helps establish the potential value of your options. A lower exercise price granted on an earlier date, when the company was presumably valued lower, generally translates to a larger potential profit if the company performs well.

How do I find my grant date?

Your grant date should be clearly stated in your stock option grant agreement. If you can’t find it, contact your company’s HR or legal team for assistance.

Grant Date vs. Exercise Date: Don’t Confuse Them!

It’s important to differentiate between your grant date and the date you actually exercise your options (purchase the shares). Think of it like this:

• Grant date: The day you’re offered the opportunity to buy a house at a set price.
• Exercise date: The day you actually buy the house at that agreed-upon price. Learn More: Exercising Options

Example:

Let’s say you’re granted options on June 1, 2023. This is your grant date. Your vesting schedule begins on this day. You may not be able to exercise your options until your vesting cliff is met, say, one year later. Even then, you might choose to wait longer to exercise, perhaps when the company is doing even better and the share price is higher. The day you finally buy the shares is your exercise date.

So here’s what we covered:

• Defining the grant date and its importance
• The role of the grant date in vesting and taxes
• How to locate your grant date
• Clarifying the difference between the grant date and the exercise date
• A simple example to illustrate the concept