Stock Appreciation Rights (SARs) are the simplest and fastest way to let an employee participate financially in the growth of a company in the Netherlands (and any other place in Europe).
SARs are – just like the economic ownership rights and depositary receipts – regulated by a private contract. This has the advantage that you do not have to go to the notary to set up or change the participation. Furthermore, the SARs form a much looser connection than the Economic Property Rights or depositary receipts for shares. SARs are actually nothing more than a claim to payment in money, the amount of which depends on the value development of the underlying share. Now that 39,600 euros from the example is of course a nice amount if:
this would be paid out in full;
the employee actually owns it;
an employee can always reap the benefits of this.
Unfortunately, it does not work like this in practice! The amount is not paid out in full due to high taxes. The employee owns nothing at all. Moreover, the employee can only reap the benefits if he or she has completed the journey. For the employer, SARs do offer a number of advantages, which is precisely why employers often choose this option.
1. It is a ‘bonus reward’, for which the employee pays all costs
The payout of 39,600 quoted in the calculation example is considered a bonus by the tax authorities. The result of this is that in general a 52% tax is levied. This tax is the responsibility of the employee. Ultimately, a maximum of 19,008 euros remains of this amount. The cash payment is, on the other hand, tax deductible from the employer’s profit, without further consequences for any fiscal unity. For this reason, SAR schemes are generally more tax-efficient for the employer than (for example) stock option schemes. In my opinion, this is not an equal distribution of burdens and benefits and the SARs as such do not qualify as a form of actual employee participation.
2. The employee is simply NOT a co-owner
The legal relationship between the employer and the employee at SARs is governed by an agreement. As a result, a lot of elements that are present in co-ownership are excluded from this arrangement. An advantage for the employer is that no rights in the company or obligations are attached to SARs. For example, the employees who have been awarded SARs have no voting rights. The agreement determines separately whether the following matters are included when determining the amount of the payment in cash:
dividend, which is paid on the underlying shares during the term; or
a capital distribution that takes place during that period.
3. Employee cannot leave in the meantime
SARs are awarded to bind and motivate employees. The SARs can therefore generally no longer be exercised if the employment relationship is terminated. Also, the SARs generally cannot be transferred.
How can our platform help you?
Share Council’s participation platform ensures that, after setting up the structure and selecting the contracts, there is no need to think about administration. Everything is arranged and maintained for you in the background. We have a range of payment plans available, so no matter what your budget is or how much time you have to spend on participation, we have a plan that will work for you.
To find out more about employee ownership, participation plans and how this can benefit your situation? Book a demo with our product & design manager.