Stock Appreciation Right

A stock appreciation right is a contract between an employer and an employee that grants the employee the right to receive a payment tied to any increase in the value of the employer’s stock.  When granting a stock appreciation right, the employer does not grant the employee any shares of the employer’s stock.  Instead, the employer grants the employee a right that tracks the value of a specified number of shares over a specified period of time.  The employer designates a “grant price,” and the employee will have a right in the future to receive a payout equivalent to the difference between the market price of the stock and the grant price.

If the value of the shares increases, the employee can exercise the stock appreciation right by requesting a payment equivalent to the increase in value of the shares.  For example, if the employee has a stock appreciation right tied to 100 shares and the value of the shares increases by 50 cents per share, the employee may request a payment of $50.  In some cases, the employer may let the employee elect to receive the payment in the form of $50 worth of the employer’s stock at current market value.

Like stock options, a stock appreciation right typically has a vesting requirement and an expiration date.  The employee may not exercise the stock appreciation right before it vests or after it expires.  The employee normally forfeits a stock appreciation right if the employee terminates from the company before the stock appreciation right vests.