Getting the Most from Your Stock Appreciation Rights

By Michael Torney, CFP, J.D., LL.M.

Stock appreciation rights (SARs) are a type of equity compensation award.  They give an executive the right to compensation based on the difference between the company’s stock price on a certain date and a later date.  After the award is made, SARs become profitable once the company’s stock price rises, after a pre-determined period. Of course, if the company’s stock does not appreciate, SARs will expire and the executive does not realize any profits. 

Like other types of equity compensation, SARs are awarded as a long-term incentive to help the company grow. Unlike other kinds of stock grants, an executive will receive proceeds from stock price increases without needing to have cash to buy the company stock. SARs are often paid in cash, though it can also be paid in company stock. 

Finally, the term “rights” may be confusing. SARs do not include the rights to dividends, voting rights or any other benefit besides the price appreciation. 


Like other kinds of equity compensation, SARs are usually awarded over a period of time, referred to as a vesting schedule. Once the SARs vest, the executive can exercise and receive the proceeds. A vesting schedule will vary by company, though it often ranges from two to four years.  

Example of Stock Appreciation Rights

An executive is awarded 2,000 SARs when the company’s stock price is $50. The vesting schedule calls for the SARs to vest in three years. 

After three years, the stock is worth $85, an increase of $35 a share. If the executive exercises the SARs, he/she will receive $70,000 before taxes (2,000 SARs x $35 = $70,000) in additional compensation.  


Like other kinds of compensation awards, employers may withhold money from the award to pay federal, state and local taxes.  

However, no taxes are due when an executive initially receives the award or when it vests. When the executive decides to exercise shares of their award , the cash received is recognized as income and added to other income in that tax year. 

If the SARs are awarded as company stock – and not cash – there is an additional tax consideration.  In addition to the ordinary income recognized at exercise, there may be capital gains tax due once the shares are sold on any subsequent gain from the exercise date to the sale date. If the shares are sold for $95 three months after exercise, it is considered a short-term capital gain (which is taxed at ordinary income rates at the federal level). 

However, if the shares received from exercise  are held for at least one year , it is taxed as a long-term capital gain.  The rate here can be much lower than short-term capital gain rates. 

Other Items of Note

Like several other forms of stock compensation, an employer can take back the  equity award under certain conditions.  Known as “clawbacks,” these provisions could allow an employer to withdraw SARs if an employee goes to work for a competitor before a specified date. Check your employer’s plan rules before making any decision to leave the company. 

SARs can provide an executive with a potential windfall that could have a major impact on their wealth. With a careful strategy, executives with SARs can work to maximize the profit potential of SARs and minimize the taxes owed. If you have been granted or own SARs and would like to discuss them as part of an overall financial strategy, contact our team at We are always available to discuss how we can help people maximize their wealth. 


© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

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