Stock Appreciation Right (SAR)
Also: SAR, stock appreciation right, SARs
A right to receive the appreciation in value of a set number of shares between grant date and exercise date, typically paid in stock or cash. Taxed as ordinary wage income at exercise.
A SAR pays the holder the increase in share price from the grant date to the exercise date, multiplied by the number of units. Stock-settled SARs deliver shares equal in value to that appreciation. Cash-settled SARs pay cash. The employee contributes no strike payment, which differentiates a SAR from an NSO.
Example: 10,000 SARs granted at $20. At exercise the stock trades at $50. The $300,000 appreciation is delivered as 6,000 shares at $50, or as $300,000 cash, and is taxed as ordinary wage income with payroll tax.
Common mistake: treating SARs as identical to NSOs for planning. SARs avoid the need to come up with exercise cash, but they also give up the ability to early-exercise or start the long-term capital gains clock early. A stock-settled SAR delivers fewer shares than an equivalent NSO exercise at the same spread.
SARs matter at private companies that want to deliver option-like upside without dilution accounting or strike collection, and at public companies that use them for international employees where option tax treatment is unfavorable.