Stock or Share Appreciation Rights (SARs)
Produced in partnership with Renu Birla

The following Share Incentives practice note produced in partnership with Renu Birla provides comprehensive and up to date legal information covering:

  • Stock or Share Appreciation Rights (SARs)
  • How a SAR works
  • Example
  • Advantages of SARs
  • Structuring a SAR—design considerations
  • Dilution limits
  • Shareholders’ and investment agreements
  • Sourcing shares
  • Tax implications of a SAR
  • Income tax and NIC treatment of SARs
  • More...

Stock or Share Appreciation Rights (SARs)

Stock appreciation rights are a common vehicle utilised in the US to offer employees an opportunity to earn an amount equivalent to the appreciation of the company stock price over a pre-specified time period. In the UK, they are typically known as share appreciation rights (SARs).

Listed and unlisted companies can grant SARs.

In practical terms, a SAR is an unapproved form share award, and its structure can be very flexible. In summary, a SAR is:

  1. granted over a specified number of shares, and

  2. has a base value or exercise price, normally set at the market value of the shares at grant

SARs can be satisfied using either cash or shares. For a discussion of the differences between a SAR and a phantom option, see Q&A: What is the difference between a phantom option and a SAR?

How a SAR works

SARs have the same economic effect for the participant as an unapproved share option when exercised, save that:

  1. the employee does not have to pay an exercise price, therefore the employee does not have to organise funding to exercise the SAR

  2. many plans offer the employer and/or employee the flexibility of delivering the net gain in cash or shares

  3. where SARs are cash settled, there is no dilutive effect for shareholders, and

  4. where SARs are delivered in shares, they provide participants with the

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