Stock appreciation Rights
A stock appreciation right (SAR) is a compensation of a company stock’s offered to employees given as an appreciation over a period of time.
A stock appreciation right (SAR) is a compensation of a company stock’s offered to employees given as an appreciation over a period of time. Similar to ESOs (employee stock options), SARs are benefit the employees when the share prices rise in the company.
SARs are different as the employees don’t have to pay the exercise price, but receive the increase in the share or cash. The main advantage of SARs is that the employee can get proceeds from the share price increases without the need to purchase the share.
SARs and Phantom Stock
SARs and phantom stock are quite similar; but are not the same. One main difference is that phantom stocks are usually reflective of share splits and dividends. When an employee gets a phantom stock, they get a promise to receive a bonus equal to either the increase in the stock prices or the value of the company’s shares over a given period of time. This bonus is taxed as ordinary income based on when it is received. And because phantom stock isn’t tax-qualified, it doesn’t have to follow the rules that 401(k) plans and employee stock ownership plans (ESOPs) must follow.
On the contrary, SARs provide the right to the cash equivalent of the rises in the specific number of shares over a predetermined time period. This bonus is usually paid in cash mostly. Nonetheless, the company can also choose to pay the employee bonus in shares. In many cases, SARs can be exercised when available to be exercised or after they vest.
SARs are usually issued along with stock options to to pay off the taxes due at the time the SARs are exercised or help in funding the purchase of options. These are referred to as “tandem SARs.”
If you want to know more about SARs and other stock options, visit our website at Eqvista. We also offer share management and cap table solutions through our Eqvista software.