Stock appreciation rights (SARs)
Learn about stock appreciation rights (SARs), including how they work, how to participate, and how they may impact your taxes.
Stock appreciation rights (SARs) are a form of equity compensation tied to your company's stock performance over a specific period. If the stock's value climbs during that preset time, you receive a portion of the increase in either cash or stock. A primary benefit of SARs is that they allow you to profit from an increase in share price without having to buy stock.
How SARs work
Your employer will issue a grant detailing the specifics of your stock appreciation rights. The grant includes a grant date, grant price, vesting dates, and expiration date.
SARs terms defined
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Grant date is when your employer issues you the grant. It also typically determines the market price of the award and sets the start of the vesting schedule.
Grant price (also known as the exercise price) typically is the market price of the stock at the grant date and is the baseline to gauge how well the stock is performing. The value of your award is based on the excess value above the grant price.
Vesting date is the first day when you own the award outright—either as a cash payment or as a stock award, depending on the rules of your program.
Exercise period is the amount of time you have to claim the value of the SARs.
Expiration date is the last day you can exercise your SARs.
Common questions about SARs
SARs compensation is subject to market fluctuations. You aren't able to exercise while the stock price is below its grant price. In this case, the SARs are considered "underwater," which means the current market value is less than the grant price and your SARs have no value.
SARs and stock options are similar. Each gives you an opportunity to share in your company's financial success. However, there is one key difference. Unlike stock options, when you exercise your SARs, you don't have to pay for the original value of the award.
Typically, leaving your company will trigger an acceleration of the SARs expiration, giving you a tighter timeline to exercise your award. Confirm the details of your award grant with your employer.
Your employer's SARs plan dictates how you will be compensated. Check the plan rules to determine whether you will get cash, stocks, or a combination of the two.
You control the timing of exercising your SARs compensation. You can do it at any time during the exercise period. Remember, if your company's stock has dropped below the original grant price, you won't be able to claim the award because it has no value.
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