Stock appreciation rights (SARs) are additional compensation given to employees that are based on any increases in the price of company stock over a predetermined period of time. Employees benefit when the stock price rises, and are unaffected when the stock price declines. SARs can improve upon the stock option concept, since there is no requirement for employees to pay for the exercise price of the stock. The payouts under a SARs plan are usually in cash, though the plan can be reconfigured to allow for payments in stock.
For example, a valued employee is granted 100 SARs, which cover any appreciation in the stock's market price over the next three years. At the end of that period, the stock price has risen by $19 per share. Consequently, the employee receives a payment of $1,900 (calculated as 100 SARs x $19 price increase/share).