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SARs may be settled in cash or shares. However, it is more common for SARs to be settled in cash. A SAR is similar to a stock option except that the recipient is not required to pay an exercise price to exercise the SAR.
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.
?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.
In accounting, the process that the company uses to record SAR agreements is to accrue a liability and recognize expense over the term of service. At the end of the service period, the liability is settled in cash or stock (or both).
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.
The rights are valued once, divided evenly over the vesting period and marked as rights paid in capital. For example, a company that issues $5,000 in rights with a five-year vesting period would debit compensation expense for $1,000 and credit rights paid in capital for $1,000 once a year for five years.
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.
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.