One of the stock-based compensation programs uses stock appreciation rights (SARs), a form of deferred incentive compensation. Much like an option, the company generally grants SARs under a plan adopted for the benefit of employees. The plan provides that the corporation will grant the employee a number of SAR units representing an equal number of shares of the company's common stock. When the employee exercises the SAR, the company pays him or her an amount equal to the appreciation in market value of the number of shares subject to the SAR for the period between the date of grant and the date of exercise. The company may pay the difference in cash or stock or a combination of both, usually at the discretion of the committee administering the plan. In order to preclude undue dilution, companies often grant SARs in tandem with a stock option. Much like stock options, SARs are linked to the appreciation in the value of the employer's stock over a specified time period. The value of stock appreciation rights is, therefore, a function of corporate performance.
Tandem Grant
The corporation may grant of stock options with SARS. These are normally referred to as tandem stock option-SARs. “Tandem” means that when an employee exercises either the stock option or the SAR, that affects the employee's right to exercise the other.
Please see the following articles for additional information: Employee Stock Option Plans, Tax Aspects of a Stock Option Plan, Federal Securities Aspects of a Stock Option Grant, Option Plan Decisions, Stock-based Compensation, Phantom Stock, Performance Units, Non-Qualified Deferred Compensation Plans, Texas Exemption for Employee Stock Option and Similar Plans.
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