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What Are Stock Appreciation Rights? Stock appreciation rights (SARs) are a type of employee compensation linked to the company's stock price during a predetermined period. ... The primary benefit of stock appreciation rights is that employees can receive proceeds from stock price increases without having to buy stock.
A SAR is very similar to a stock option, but with a key difference. When a stock option is exercised, an employee has to pay the grant price and acquire the underlying security. However, when a SAR is exercised, the employee does not have to pay to acquire the underlying security.
SARs are taxed the same way as non-qualified stock options (NSOs). There are no tax consequences of any kind on either the grant date or when they are vested. However, participants must recognize ordinary income on the spread at the time of exercise. 2 Most employers will also withhold supplemental federal income tax.
For purposes of financial disclosure, you may value a stock appreciation right based on the difference between the current market value and the grant price. This formula is: (current market value ? grant price) x number of shares = value.
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 stock appreciation right vests, an employee can exercise it at any time prior to its expiration.
SAR plans offer multiple advantages over other forms of stock compensation. One of the benefits is cash benefits without having to pay upfront to exercise options.
How do I value it? For purposes of financial disclosure, you may value a stock appreciation right based on the difference between the current market value and the grant price. This formula is: (current market value ? grant price) x number of shares = value.
Stock Appreciation Rights plans do not result in equity dilution because actual shares are not being transferred to the employee. Participants do not become owners. Instead, they are potential cash beneficiaries in the appreciation of the underlying company value.