It really isn't "made up." Issuing equity compensation triggers all sorts of activity. The notion of vesting is that the individual will come to own shares af

It really isn't "made up." Issuing equity compensation triggers all sorts of activity. The notion of vesting is that the individual will come to own shares after the conditions are met sufficient to lift the restrictions. The restrictions often include time in service to company ("after 1 year of service, you will earn 100 shares"), performance toward some specific goal ("prototype passed QA by Q3"), and financial performance of the company ("EPS increased by 2%"). In these arrangements, the recipient is agreeing in advance to accept equity as compensation. The company must account for that essentially as if it were cash, and it becomes an income statement item just like any other compensation expense. The economic event, for both the issuer and the recipient, is the moment when there is no material risk of forfeiture. In simple terms: if the company can't take them away from you, they are yours.