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Stock Appreciation Rights (SARs) SARs differ from ESOPs in that they do not grant direct ownership to employees, but rather give them the right to receive a cash payout equal to the value of the stock appreciation.
A stock appreciation right is a contract between an employer and an employee that grants the employee the right to receive a payment tied to any increase in the value of the employer's stock. When granting a stock appreciation right, the employer does not grant the employee any shares of the employer's stock.
A Stock Appreciation Right (SAR) refers to the right to be paid compensation equivalent to an increase in the company's common stock price over a base or the value of appreciation of the equity shares currently being traded on the public market.
For example, let's say you were granted stock appreciation rights on 10 shares of your company ABC's stock, valued at $10 per share. Over time, the share price increases from $10 to $12. This means you'd receive $2 per share since that was the increased value.
However, when a stock appreciation right is exercised, the employee does not have to pay to acquire the underlying security. Instead, the employee receives the appreciation in value of the underlying security, which would equal the current market value less the grant price.
?SARs? means stock appreciation rights entitling the holder thereof to receive a cash payment in an amount equal to the appreciation in the Common Shares over a specified period, as set forth in this Plan and in the applicable Grant Agreement.
There are no U.S. federal income tax consequences when an employee is granted SARs. However, at exercise an employee will recognize compensation income on the fair market value of the amount received at vesting. An employer is generally obligated to withhold taxes.