Stock Appreciation Rights (SAR) Plan Template

Design a robust SAR plan that motivates key employees, aligns with company goals, and provides clear performance incentives. Get started with our comprehensive template.

Stock Appreciation Rights (SAR) Plan Template

A Stock Appreciation Rights (SAR) plan is a strategic compensation tool that allows companies to reward employees with the economic benefits of stock ownership without actually transferring company shares. This comprehensive template helps you create a legally sound and effective SAR program that motivates key employees while protecting company interests.

What This Template Is For

This SAR plan template is designed for companies looking to implement a performance-based compensation program that ties employee rewards to company value growth. It provides a framework for establishing clear terms, vesting schedules, and exercise conditions while addressing key regulatory requirements and tax implications.

When To Use This Template

Use this template when:

  • You want to offer equity-like incentives without diluting actual ownership
  • Your company structure prevents traditional stock option plans
  • You need to supplement existing equity compensation programs
  • You want to create performance incentives for key employees
  • You're looking for a flexible alternative to traditional stock options

How To Customize It

Follow these steps to customize your SAR plan:

  1. Define the participant eligibility criteria
  2. Establish the SAR grant formula and value calculation method
  3. Set vesting schedules and exercise periods
  4. Specify payment terms and conditions
  5. Include necessary legal provisions and compliance requirements
  6. Add company-specific performance metrics
  7. Define administrative procedures and governance structure

Common Use Cases

SAR plans are commonly used in:

  • Privately held companies seeking equity-like incentives
  • Professional service firms retaining key talent
  • Growth companies managing cash flow
  • Subsidiaries of larger corporations
  • Companies with complex ownership structures

Best Practices

Consider these expert recommendations:

  • Clearly define the stock value calculation method
  • Include specific vesting triggers and conditions
  • Address tax implications for both company and participants
  • Establish clear communication protocols
  • Include change-in-control provisions
  • Document all administrative procedures

Template Variations

Adapt the template for:

  • Tandem SARs with stock options
  • Performance-based vesting conditions
  • Different employee levels
  • Industry-specific metrics
  • International participants

Success Stories

Companies have successfully used this template to:

  • Retain executive talent during pre-IPO phases
  • Motivate sales teams with long-term incentives
  • Align management goals with company growth
  • Create succession planning tools

Frequently Asked Questions

How are SARs different from stock options?

SARs provide the economic benefit of stock price appreciation without requiring participants to purchase shares, unlike stock options which require exercise price payment.

What are the tax implications of SARs?

SAR payments are typically taxed as ordinary income to employees when exercised and are tax-deductible for employers at that time.

How is the SAR value calculated?

SAR value is calculated as the difference between the stock price at exercise and the grant price, multiplied by the number of SARs granted.

What vesting schedules are common for SARs?

Common vesting schedules include time-based (3-5 years), performance-based, or a combination of both.

Can SARs be transferred or inherited?

Most SAR plans restrict transfer rights except in cases of death or disability, where specific succession rules apply.