Define: Stock-Appreciation Right

A Stock-Appreciation Right (SAR) is a type of employee compensation plan that grants employees the right to receive a cash payment equal to the appreciation in the value of a specified number of company shares over a predetermined period.

While both stock options and Stock-Appreciation Rights provide employees with the opportunity to benefit from the increase in a company’s stock price, stock options give employees the right to purchase shares at a predetermined price, whereas SARs provide employees with a cash payment equal to the increase in stock value.

Yes, Stock-Appreciation Rights are generally subject to taxation. The cash payment received by employees upon exercising their SARs is considered ordinary income and is subject to income tax.

In most cases, SARs cannot be transferred or sold by employees. They are typically non-transferable and can only be exercised by the employee who was granted the rights.

If an employee leaves the company before exercising their Stock-Appreciation Rights, they may forfeit their rights to receive any cash payment. However, the specific terms and conditions of the SAR plan should be reviewed to determine the exact consequences.

In some cases, SARs may have a vesting period, during which employees must wait before they can exercise their rights. However, the specific terms of the SAR plan will determine whether early exercise is allowed.

The number of SARs that can be granted to an employee is typically determined by the company’s compensation committee or board of directors. There may be certain limitations or guidelines in place to ensure fairness and alignment with the company’s overall compensation strategy.

Yes, SARs can be granted to non-employees, such as consultants or directors, as a form of compensation. However, the specific terms and conditions may vary depending on the company’s policies and agreements.

If the company’s stock price decreases, the SARs may have no value or may result in a cash payment that is lower than the original grant price. The employee would not be entitled to any additional compensation in such a scenario.

The ability to exercise SARs after termination or retirement depends on the specific terms of the SAR plan. Some plans may allow for a certain period of time after termination or retirement during which employees can exercise their rights, while others may require immediate forfeiture upon separation from the company.