Articles

What is a Share Appreciation Rights Plan?

By Will Elton, Last updated: 2021-06-17 (originally published on 2021-02-22)

stocks and sharesA Share Appreciation Rights Plan (also known as a Stock Appreciation Rights Plan) is a compensation incentive which awards employees with cash or stock if the company performs well.  A Share Appreciation Rights Plan is similar to an Employee Stock Option Plan except that the employee is not required to pay the options’ exercise price.

What is in a Share Appreciation Rights Plan?

Date of Grant.  The date of the grant is the day in which the share appreciation right is given to you.

Exercise Price.  Similar to an ESOP, the exercise price determines if you will make money in the stock.  However, the cash payout is only the difference between the current price and the exercise price.  There is no need for you to purchase the stock in a Share Appreciation Plan

Vesting Schedule.  The vesting schedule specifies when the shares can be exercised or if any performance criteria need to be met.

When Should You Use a Share Appreciation Rights Plan?

Share Appreciation Rights are similar to Employee Stock Options Plans (ESOP) with the difference that the exercise results in cash.  You should be aware of the various advantages and disadvantages vs an ESOP with regard to investment allocation and tax and choose accordingly.  

Conclusion

A Share Appreciation Rights Plan is a great way to incentivize employees.  A Zegal template will guide you through the creation process with minimal effort and maximum protection.

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This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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Tags: legal documents | stocks and shares

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