Stock Appreciation Rights (SAR) are a way to give an executive a stake in the company’s growth (as reflected in its stock price) without actually having to invest in the company’s stock. A SAR provides an executive with a cash bonus measured by appreciation in the value of company stock from the time the rights are granted over a set or determinable period of time. In addition to appreciation rights, which may not be realized for some time, the executive may be awarded further payments equal to the amount of dividends paid on the stock.
SARs provide flexibility in stock-based deferred compensation plans. A SAR eliminates one of the major problems associated with stock options and stock purchase plans, which is that the executive must actually spend money or otherwise commit to acquiring the company’s stock.