## **Overview**

The Vesting Drop Flag automatically identifies employees approaching significant equity cliffs, enabling you to guide managers toward proactive retention decisions during the merit cycle. 

This flag helps you:

* **Get ahead of retention risks**: Flag employees with upcoming equity drops before managers lose them to competitors
* **Drive strategic conversations**: Give managers data-driven reasons to prioritize retention for at-risk talent
* **Optimize budget allocation**: Ensure retention budget goes to employees facing real compensation cliffs, not just those who ask loudest

## **How It Works**

The vesting drop flag monitors changes in unvested equity and alerts managers when an employee's unvested equity decreases by your specified threshold within your chosen timeframe.

**Example**:

* You configure monthly intervals with a 6-month window (3 months before to 3 months after cycle start)
* You set a 15% threshold
* An employee has $100,000 unvested today; in 4 months it drops to $80,000 (20% decrease)
* **Result**: Manager sees the flag and knows this employee needs retention attention now

The flag surfaces both recent drops (employees already feeling the impact) and upcoming drops (time to intervene before they start interviewing). This gives managers actionable intelligence exactly when they need it—during merit planning.

## **Configuration Guide**

 ![](https://support.pave.com/servlet/rtaImage?eid=ka0TV0000001g8T&feoid=00NUn00000C06g9&refid=0EMTV00000Engu5)

### **1. Name Your Flag**

Keep it clear and action-oriented: "Vesting drop" or "Equity cliff - retention required"

### **2. Add a Description**

Write manager-facing copy that drives action:

* "Employee approaching equity cliff in next 6 months"
* "Unvested equity dropping >15% - consider refresh grant or merit adjustment"

### **3. Choose a Color**

Pick colors that signal urgency appropriately.

### **4. Set Visibility**

Most comp teams keep vesting flags visible in the Smart Flags column so managers can't miss them. Only hide them if your organization prefers to use this flag as a filter instead.

## **Setting Up Conditions**

### **Step 1: Select Vesting Interval**

Match your company's vesting schedule:

* **Monthly**: If equity vests monthly (most common for startups/tech)
* **Quarterly**: If you have quarterly vesting cliffs
* **Annually**: If you have annual vesting schedules

### **Step 2: Set Dropoff Timing**

**Recommended approach for most comp teams**: Set your window to capture **3 months before cycle start through 6 months after cycle start**

**Why this works**:

* Catches employees who recently had drops and might already be looking
* Flags employees with drops coming in the next 6 months while you still have time to intervene
* Aligns with merit cycle timing so managers can address retention through their budget

**Alternative approaches**:

**Ultra-proactive (6-12 months forward-looking)**:

* Use if you have long approval timelines for retention grants
* Gives maximum lead time but may flag too many employees too early

**Reactive monitoring (looking backward only)**:

* Use if you want to identify employees who recently had drops
* Helps you assess retention risk but limits proactive intervention

### **Step 3: Set Cliff Threshold**

Choose a threshold that balances signal vs. noise for your managers.

**Recommended thresholds by company stage**:

**15-20% for most organizations**:

* Flags meaningful drops without overwhelming managers
* Focuses attention on true retention risks
* Appropriate for companies with standard 4-year vesting schedules

**10-15% for high-risk environments**:

* Use if you're in a competitive talent market
* Appropriate for senior roles where compensation is heavily equity-weighted
* Catches smaller cliffs that still represent flight risks

**20-30% for mature refresh programs**:

* Use if you already have proactive annual refresh grants
* Focuses flag on only the most severe cliffs
* Reduces noise if managers regularly address vesting through standard processes


:::tip
**Pro tip**: Create two flags—one at 15% (orange/"review") and one at 30% (red/"critical")—to help managers prioritize within their flagged population.

:::

## **Guiding Managers Through the Cycle**

Once configured, the flag gives managers clear signals during planning. Here's how to position it:

### **In Your Cycle Kickoff**

**What to tell managers**: "The Vesting Drop flag shows you employees with upcoming equity cliffs. These employees are retention risks—their unvested equity is dropping significantly, which means their financial tie to the company is weakening. Use this flag to prioritize who gets retention grants, equity refreshers, or above-average merit increases."

### **During Planning Reviews**

**Questions to ask managers about flagged employees**:

* "Is this a critical retention case given their performance and role?"
* "What's your plan to address this cliff—refresh grant, accelerated merit, or documented decision to accept the risk?"
* "If this person leaves in 6 months, what's the impact to your team?"

### **Common Manager Responses (And How to Handle Them)**

**"This employee just got a refresh grant"** → Great! Document that the retention is already handled and move on. The flag is working as intended by prompting the check.

**"I don't have budget for retention grants"** → This is a budget prioritization conversation. Help them understand which flagged employees are highest retention risk and reallocate merit budget accordingly, or escalate for additional retention budget if needed.

**"Small drops aren't a big deal"** → Explain that even a 15-20% drop can trigger job searching behavior. The flag threshold is set based on what historically predicts turnover, not what feels large.

## **Compensation Controls (Optional)**

You can enforce manager accountability for flagged employees using compensation controls:

**Soft stops**: Require managers to provide a written justification comment explaining their retention plan (or decision not to intervene) for flagged employees. They can still submit their worksheet after adding the comment.

**Hard stops**: Completely prevent worksheet submission for flagged employees unless the manager has role-based override permissions. Use this only for critical retention situations where you need absolute assurance that every flagged case is addressed.

**When to use soft stops** (most common):

* Standard retention monitoring where you want documented decisions
* Ensuring managers thoughtfully review every flagged employee
* Creating an audit trail of retention planning
* Organizations that trust manager judgment but want accountability

**When to use hard stops** (rare):

* Critical roles where any turnover is catastrophic (e.g., key executives, irreplaceable technical experts)
* Senior employees whose vesting drops exceed 40-50% and represent massive retention risks
* Organizations with compliance requirements for documented retention review
* Situations where you need to force escalation to comp team or senior leadership


:::tip
**Implementation tip**: Start with soft stops in your first cycle to avoid frustrating managers. Add hard stops only for your most critical cases (e.g., create a separate flag for >40% drops with hard stops, while keeping your 15% flag with soft stops).

:::

## **Optimizing Your Configuration**

### **After Your First Cycle**

Review these metrics to refine your setup:

**Too many flags** (>30% of population):

* Increase your threshold (e.g., from 15% to 20%)
* Narrow your time window (e.g., from 6 months to 4 months forward)
* Consider whether your refresh grant program needs strengthening

**Too few flags** (<5% of population):

* Decrease your threshold (e.g., from 25% to 15%)
* Expand your time window to catch more upcoming drops
* Verify your vesting data is accurate and up-to-date

**Flags not driving action**:

* Revisit your manager communications—are they understanding the retention risk?
* Consider adding soft stops to require documented responses
* Layer with performance data so managers see which flags are highest priority

### **Tracking Success**

Monitor these outcomes to demonstrate impact:

* Retention rate of flagged employees vs. non-flagged employees
* Percentage of flagged employees who received retention interventions
* Manager feedback on flag usefulness during planning reviews
* Time saved on manual retention risk analysis

  

## **Frequently Asked Questions**

**Q: How do I explain this flag to managers who don't understand equity vesting?**

A: Keep it simple: "This employee's future unvested equity is dropping significantly, which weakens their financial tie to the company. They're a retention risk and should be prioritized for either a refresh grant or an above-average merit increase." Avoid overexplaining the technical mechanics.

**Q: Should I set different thresholds for different employee levels?**

A: Most comp teams start with one flag at 15-20% for the entire population, then create a second flag at 30%+ for senior employees if needed. This avoids complex configurations while ensuring the flag scales appropriately.

**Q: What if our refresh grant program already addresses most vesting cliffs?**

A: Perfect—use the flag as a quality check to ensure your program isn't missing anyone. Set a higher threshold (20-30%) to focus only on drops your regular program doesn't catch.

**Q: How far in advance should we flag vesting drops?**

A: 3-6 months forward gives managers time to act during the merit cycle. More than 6 months creates too much noise; less than 3 months leaves insufficient time for retention grants to be approved and communicated.

**Q: Can this flag work with our annual refresh grant program?**

A: Absolutely. If you grant refreshers in Q4 and run merit in Q1, configure the flag to look 6-12 months ahead during your refresh cycle, then reconfigure to look 3-6 months ahead during merit. This catches retention risks at both planning moments.

**Q: Managers are ignoring the flags. How do I drive accountability?**

A: Add a soft stop requiring justification comments for all flagged employees. This forces managers to document whether they're intervening or consciously accepting the retention risk. You can review these comments during approval workflows to ensure quality. If soft stops aren't sufficient, escalate to hard stops for your most critical populations—though this should be rare, as it can create friction in the planning process.

**Q: What's the difference between soft and hard stops?**

A: Soft stops require managers to add a justification comment but still allow worksheet submission. Hard stops completely prevent submission unless the manager has special override permissions. Most comp teams use soft stops to drive thoughtful review while maintaining planning velocity. Reserve hard stops for truly critical retention situations where you need absolute control.

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Vesting Drop Flag

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