How does a stock appreciation right work?

Stock appreciation rights are a type of incentive plan based on your stock’s value. Employees receive a bonus in cash or equivalent number of shares based on how much the stock value increases over a set period of time – usually from the date of granting the right up until the right is exercised.

What is the difference between a stock option and a SAR?

Stock options give employees the right to buy a number of shares at a price fixed at grant for a defined number of years into the future. Stock appreciation rights (SARs) provide the right to the increase in the value of a designated number of shares, paid in cash or shares.

How does SARs exercise?

Once a SAR vests, an employee can exercise it at any time prior to its expiration. The proceeds will be paid either in cash, shares, or a combination of cash and shares depending on the rules of an employee’s plan.

Are SARS stock options?

Stock Appreciation Rights are similar to Stock Options in that they are granted at a set price, and they generally have a vesting period and an expiration date. Once a SAR vests, an employee can exercise it at any time prior to its expiration.

Are stock appreciation rights taxable?

There are no federal income tax consequences when you are granted stock appreciation rights. However, at exercise you must recognize compensation income on the fair market value of the amount received at vesting. An employer is generally obligated to withhold taxes.

What does it mean when a stock appreciates?

Appreciation is an increase in the value of an asset over time. This is unlike depreciation, which lowers an asset’s value over its useful life. The appreciation rate is the rate at which an asset grows in value. Capital appreciation refers to an increase in the value of financial assets such as stocks.

Are stock appreciation rights good?

Like all other forms of equity compensation, SARs can also serve to motivate and retain employees. Despite their many benefits, SARs are a high-risk form of employee compensation. If the company’s stock does not appreciate, SARs often expire worthless.

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