Stock appreciation rights agreements or SAR plans are documents signed between an employee and a company by which the employee can be encouraged to take active interest in the company’s performance and motivate him to work better, as a major part of the employee’s compensation is related to the accomplishments of the firm. SAR agreements are created in such a way that the increase in the employee’s personal wealth is connected to the company’s growth. The employee thus gets a chance to earn money from the higher price of the firm’s stocks.
For eg, if the employee is granted SARs for 500 shares worth $10 and the price of the shares go up to $15 in the future, the employee will earn $5 per share. Once the share price of the company rises, the employee can be compensated either through shares or cash. SARs help the company to keep records in a more convenient way and makes accounting simple.
[Also Read: Stock Grant Agreement]
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