What is a 'Stock Appreciation Right - SAR'

A stock appreciation right (SAR) is a bonus given to employees that is equal to the appreciation of company stock over an established time period. Similar to employee stock options, SARs are beneficial to the employee when company stock prices rise; the difference with SARs is that employees do not have to pay the exercise price but receive the sum of the increase in stock or cash. The primary benefit that comes with SARs is the fact that the employee can receive proceeds from stock price increases without being required to buy anything.

BREAKING DOWN 'Stock Appreciation Right - SAR'

As an example, consider an employee is given 200 SARs. The stock of the company increases $35 per share over a pre-established period of two years. This results in the employee receiving $7,000 – 200 SARs x $35 = $7,000.

SARs and Phantom Stock

SARs and phantom stock are largely similar. The major difference is that phantom stocks are typically reflective of stock splits and dividends. Phantom stock is just a promise that an employee will receive a bonus equivalent to either the value of the company’s shares or the amount that the stock prices increase over a given period of time. The bonus an employee receives is taxed as ordinary income based on the time that it is received. Because phantom stock is not tax-qualified, it does not have to follow the same rules that employee stock ownership plans (ESOPs) and 401(k) plans must follow.

SARs, on the other hand, offer the right to the cash equivalent of value increases of a certain number of stocks over a predetermined time period. This bonus is almost always paid in cash; however, the company may pay the employee bonus in shares. In most cases, SARs can be exercised after they vest; when SARs vest, it simply means that they become available to exercise. SARs are generally issued in conjunction with stock options in order to assist in funding the purchase of options or to pay off taxes due at the time the SARs are exercised; these are referred to as "tandem SARs."

Benefits and Challenges

SARs have many advantages, the greatest of these being flexibility. SARs may be created in a variety of different designs that work for each individual. This, however, comes with numerous choices and decisions that must be made, including what employees receive bonuses and the value of those bonuses, liquidity issues, eligibility and vesting rules.

  1. Phantom Stock Plan

    An employee benefit plan that gives selected employees (senior ...
  2. Parabolic Indicator

    A technical analysis strategy that uses a trailing stop and reverse ...
  3. Special Administrative Region - ...

    A Special Administrative Region is a relatively autonomous region ...
  4. Bonus

    A bonus is any financial compensation, reward, or return over ...
  5. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  6. Suspicious Activity Report - SAR

    The Suspicious Activity Report is a tool provided under the Bank ...
Related Articles
  1. Trading

    Parabolic SAR Buy Signals

    The Parabolic SAR indicator is flashing "buy" in these four diverse stocks. Not simply relying on one indicator though, I take a look at the overall technical outlook and determine which ones ...
  2. Investing

    Trailing-Stop Techniques

    The important decision to exit a position must be based on more than emotion if you want to be a disciplined trader.
  3. Investing

    Employee Stock Options (ESO)

    Employee stock options are a form of equity compensation granted by companies to their employees and executives.
  4. Managing Wealth

    Get The Most Out Of Employee Stock Options

    Stock options can be lucrative for employees who know how to avoid unnecessary taxes.
  5. Managing Wealth

    Raises or Bonuses Better for Small Business Staff?

    Weigh the pros and cons of each and strike the right balance to retain a top-tier staff and a healthy bottom line for your business.
  6. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  7. Investing

    Lowe's to Pay One-Time Bonuses, Expand Benefits

    Lowe's (NYSE: LOW) has joined the parade of companies offering their employees' bonuses after Republicans in Congress passed President Donald Trump's corporate tax cuts. The home improvement ...
  8. Personal Finance

    What's Your Employee Value?

    Have you ever wondered how much you're worth to your boss? Here's a method for calculating that value.
  9. Financial Advisor

    Understanding Rules on Defined Benefit Pension Plans

    Defined benefit plans offer advantages to both employers and employees. Employers must understand the federal tax rules when establishing these plans.
  1. How autonomous are special administrative regions?

    Read about the unique independence and governing laws concerning the two Chinese special administrative regions, or SARs: ... Read Answer >>
  2. How do I use a Parabolic Indicator to create a forex trading strategy?

    Learn more about how the parabolic indicator, also known as the parabolic SAR, can be used by forex traders to create trailing ... Read Answer >>
  3. How Do Insiders Buy Stock at Below Market Value?

    Stock options allow executives and key employees to buy stock at a price below market value. Read Answer >>
  4. What are the best technical indicators to complement the Parabolic Indicator?

    Learn about two of the best technical indicators recommended for traders to use to refine a trading strategy based on the ... Read Answer >>
Hot Definitions
  1. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  2. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  3. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  6. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
Trading Center