Stock Appreciation Rights
Key Provisions
- An arrangement whereby employee receives the appreciation in the fair market value of a number of shares over a set period of time (e.g., 5 to 10 years)
- Payable in cash and/or stock
- Usually given in tandem with Stock Options to provide funds to exercise Stock Options
Tax Impact on Employee
- At grant - no tax
- At payment - appreciation is taxed as ordinary income subject to the maximum tax rate
Tax Impact on Company
- At grant - no tax deduction
- At payment - company receives tax deduction equal to employee's ordinary income
Advantages
- No employee investment required
- Company receives tax deduction
- Can be retentive if stock price increases
- Long exercise period provides flexibility to employees
Disadvantages
- Unless capped, unpredictable charge to earnings and possible exposure to substantial future cash outflows
- Does not lead to direct stock ownership
To find out more on how Compensation Resources, Inc. can help your company with Stock Appreciation Rights, please contact us or call us directly to speak with our compensation consultants at 877-934-0505.
