Stock appreciation rights, or SARs, enable employees to receive the benefit of an increase in value of the company stock between the date the SARs are granted and the date they are exercised. When the SARs are exercised, cash or stock may be delivered as payment for the post-grant appreciation.
For example, when your employer’s stock is worth $20 a share, you receive 100 SARs exercisable within five years. Two years later, when the stock price has increased to $30 a share, you exercise the SARs and receive $1,000 ($3,000 at exercise minus $2,000 value at grant).
If IRS tests are satisfied, there is no tax until you exercise the SARs and the post-grant appreciation is received.