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What Does "Fully Vested" Mean?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 27 October 2014
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The term fully vested refers to a type of tool utilized by employers of labor as a means of ensuring the longevity of their employees on the job. It means the specified types of rights that will accrue to the employee at the fulfillment of an understood agreement. Usually, this type of agreement involves the incremental gaining of benefits by the employee on a stated time schedule, which depends entirely on the agreement between the employee and the employer. For instance, the employee will become gradually vested on a specified percentage per annum until the employee becomes fully vested after attaining the full 100 percent of the allotted time.

A way of illustrating the concept of fully vested is by using the example of a recent business graduate who is employed by a financial company. Usually, such a company will include in its contract of employment certain terms and conditions that will attach to the attainment of specific benefits during the course of an individual's employment. It might state that the individual will start earning bonuses at the end of the first year and that the individual will get a stated percent increase in salary at the end of two years at the firm. Other conditions might include the ability to acquire stock options in the company at the end of five years.

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Eventually, the individual will get to a stage where he or she will gain all of the possible benefits that employees at various categories in the firm can expect to gain as a consequence of their employment with the company. From the foregoing, it is clear to see that the employees do not become fully vested until they have worked at the company for a specified number of years, after which they will become fully entitled to all of the accruable benefits. When companies utilize the fully vested option in their dealings with their employees, they usually do so with the intention of making sure that they retain the necessary human capital. In other words, the practice of gradually attaining certain benefits with the length of stay serves as a sort of incentive for employees who might possibly have left the firm otherwise. Although the fully vested practice can be beneficial to companies, it may also work contrary to their corporate objectives if the employees fail to deliver their best out of a sense of annoyance at the practice.

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