The market default of 4 years with a 1-year cliff is a starting point, not a rule. Cliff length should match the role's ramp-time: 6 months for hires with immediate impact, 12 months for strategic hires, 18 months for founding-team-adjacent roles where you can't afford early exits.
Vesting on termination — good leaver vs bad leaver clauses — is where founders and CFOs disagree most. Standardise: good leaver = death, disability, redundancy, or mutual separation with notice. Bad leaver = cause termination or voluntary exit inside the cliff. Everything else is a founder discretion pool.
Perquisite tax on ESOP exercise is a real cash outflow for the employee. Under Section 17(2), exercise is taxed at slab; sale later attracts LTCG. Recognised startups (DPIIT) can defer employer-side TDS for 48 months — a huge cash relief that most cap tables ignore.
Draft the option grant, exercise, and buyback in one integrated document. Not three. The overlaps are where lawsuits happen.