SARs and PARs Unraveled: Your Guide to Employee Participation

Do you want to know everything about SARs and PARs? Then you’ve come to the right place. In this article, we explain everything you need to know about these forms of employee participation. So grab a cup of coffee and read on!

What are SARs?

SARs, or Stock Appreciation Rights, give employees the right to benefit from the appreciation of stock value. They do not actually receive the stock but instead receive the difference in value between the time of grant and the time of exercise. The beauty of SARs is that employees get the benefits of a stock without the risks or obligations of actually owning the stock.

What about PARs?

PARs, or Phantom Appreciation Rights, are similar to SARs. The main difference is that PARs are often paid out in cash instead of stock. The advantage of this is that employees can directly benefit from the appreciation without worrying about selling stocks.

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Why are SARs and PARs so popular?

There are several reasons why companies choose SARs and PARs:

1. Flexibility: They offer a flexible way to reward employees based on company performance.
2. No dilution of shares: Since no actual shares are issued, there is no dilution of existing shares.
3. Incentive for growth: Employees are motivated to contribute to the growth of the company because their reward is directly linked to the company's performance.

How can you implement SARs and PARs for your company?

Implementing SARs and PARs requires a clear plan and a good understanding of your business goals. Here are some steps you might consider:

1. Determine the criteria: On what basis do you want to reward your employees? This could be based on individual performance, team results, or company-wide objectives.
2. Set the terms: How long must an employee stay with the company before they can exercise their rights? This is often referred to as 'vesting'.
3. Communicate clearly: Ensure that employees understand exactly how the program works and what it means for them.

Conclusion

SARs and PARs are powerful tools for employee participation. They provide a flexible way to reward and motivate employees without the complications of traditional stock options. Whether you are a start-up or an established company, it is worth considering how SARs and PARs can help your business grow and thrive.