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SARs (Stock Appreciation Rights)

What are SARs (Stock Appreciation Rights)?

 

Stock Appreciation Rights (SARs) are a type of employee incentive that allows individuals to benefit from the increase in a company's stock price over a set period—without having to purchase the stock. SARs are typically settled in cash or company stock, making them a flexible reward mechanism.


💰 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

What are the Benefits of SARs?

Employee motivation

Employees benefit from the company’s success without purchasing stock.

Tax efficiency

SARs often provide favorable tax treatment compared to direct stock grants.

Cash flow management

Employers can offer equity-like rewards without diluting existing shareholders.

Why Set Up SARs?

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.

Set a vesting schedule

Establish when SARs will vest (i.e., when employees can exercise them).

Cash or stock flexibility

Companies can choose to settle SARs in cash or stock, depending on their financial strategy.

How to Set Up SARs?

Set a vesting schedule

Establish when SARs will vest (i.e., when employees can exercise them).

Establish vesting schedules

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

Decide settlement type

Choose whether SARs will be paid out in cash, stock, or a mix of both.

Examples of Companies Using SARs

Goldman Sachs

The investment bank has used SARs to compensate executives and key employees.

Microsoft

Microsoft previously used SARs extensively to reward employees without issuing additional shares.

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