If you want to retain your valuable employees, or just show your appreciation for their hard work, there is a variety of ways to do so. One way is to create a stock appreciation plan, which is essentially a bonus given in the form of cash or stock. Here’s what you need to know.

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What Are Stock Appreciation Rights?

Stock appreciation rights (SARs) are rights given to an employee to obtain a cash or stock payout equivalent to the increase in the value of a given number of shares over a certain period of time. The increase in value is the spread between the value on the issuing date of the SAR and the value on the exercise date. You can give employees the flexibility to exercise their SARs when they choose. For planning purposes, employees should know in advance that their payout will be taxed as ordinary income.

Simply put, SARs are almost identical to employee stock options, except that the employee does not actually have to pay cash for the strike price of the stock when exercising the option. The payout in a SAR can either be cash or company stock, as determined by the rules of the plan.

There is a number of tax and accounting decisions that you need to make when you create your SAR plan, so be sure to check with your tax or accounting adviser.

What Is the Benefit of a Stock Appreciation Plan?

With a SAR, you can share your company’s success with your employees. A SAR allows you to share the value of the company’s performance without sharing equity in the company. It’s also useful if you’re not able to use other pathways to employee ownership. Alternatively, if you already have an employee stock ownership plan (ESOP), this is an additional way to provide incentives to employees.

Stock appreciation rights can motivate employees to align themselves with the goals of the company and shareholders. They will have a financial incentive to work hard to help increase the value of the company’s stock, because they will be financially rewarded above and beyond their salary by doing so.

The great thing about a stock appreciation plan is that even companies that don’t issue publicly traded stock (such as non-profits or partnerships) can create one, using metrics that emulate growth in equity as a basis to reward employees.

A Rewarding Culture

If you want to create a rewarding culture in your business, sharing your company’s financial success with employees is a great way to do it. You can use our Stock Certificate and modify it to reflect your plan for incentivizing employees. Stock certificates are not actual stock, but an indication of the gift or bonus that you’re providing. They detail the date of issuance, the holder’s name, the value on the date of issuance, and other important matters. If you have questions, you can communicate with a legal expert directly from the Stock Certificate page with your questions about stock certificates, or other legal concerns. Just scroll down to the chat box and get your answers today.

Get started Start Your Stock Certificate Answer a few questions. We'll take care of the rest.

Get started Start Your Stock Certificate Answer a few questions. We'll take care of the rest.