CPEA compensation series: Stock appreciation rights

SARs are a type of employee compensation linked to the company's stock price during a predetermined period. SARs are profitable for employees when the company's stock price rises, which makes them similar to employee stock options (ESOs). However, employees do not have to pay the exercise price with SARs. Instead, they receive the sum of the increase in stock or cash. The primary benefit of SARs is that employees can receive proceeds from stock price increases without having to buy stock. FASB ASC 718 requires that SARs be valued at the fair value of the shares on the date of grant.