Stock Appreciation Right - SAR

You are part of an employee committee demanding higher compensation from your company. Your main request: stock participation. You're tired of the fat cat owners getting rich off the sweat of your labor. You want your share.

Stock options are the obvious fix. However, there are problems. Stock options require the individual employees to purchase the stocks involved. If you are granted 100 stock options with a $15 strike price, you have to come up with $1,500 to get the shares.

There's another potential fix: stock appreciation rights.

SARs are similar to stock options, but they only cover the appreciation in the stock value over a period of time. They get paid out as either stock or as cash. Unlike a stock option, the employee doesn't have to buy them...they just get the cash or stock.

A stock rises from $15 to $20 during a year. The employee has 100 SARs, paying off anually in cash. They receive $500 for that increase in the share price. It's like a bonus tied to stock performance.