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Options + SAR (Stock Appreciation Rights)

What are Options + SAR (Stock Appreciation Rights)?

 

Options and Stock Appreciation Rights (SARs) are employee incentives that give individuals the right to buy or benefit from the increase in stock value over a set period.


💰 Options: Give employees the right to purchase company stock at a predetermined price (strike price) within a set timeframe.

💰 SARs: Allow employees to receive the financial equivalent of the appreciation in stock price, typically in cash or company stock, without having to purchase the stock.

SARs and Options

What are the Benefits of Options + SAR?

Motivate and retain employees

Both instruments offer employees a stake in the company's success, aligning their interests with the business's growth.

Tax advantages

SARs and options can offer favorable tax treatment compared to direct equity compensation.

Non-cash rewards

Employees can benefit from appreciation without requiring the company to issue additional shares.

Why Set Up Options + SAR?

Incentivize employees

These instruments are used to attract, retain, and motivate employees by providing them with the potential for financial gain linked to company performance.

Align employee interests

Since both options and SARs are tied to the company’s stock price, employees are motivated to work towards increasing the company's value.

How to Set Up Options + SAR?

Define the eligibility criteria

Determine who will be eligible for the options or SARs (e.g., employees, executives).

Establish vesting schedules

Determine when and how the options or SARs will vest (i.e., the employee earns the right to exercise them).

Set the strike price (for options)

Establish the price at which employees can purchase stock in the future (for options).

Examples of Companies Using Options + SAR

Google

Google famously used stock options to incentivize early employees and align their interests with the long-term growth of the company.

Uber

Uber has granted stock options and SARs to employees, particularly during key growth phases, to help attract and retain talent.

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