Stock Appreciation Rights (SARs): Example
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What is a SAR scheme?
A Stock Appreciation Right (SAR), abbreviated as SAR or SAR scheme, is a financial arrangement that is often used by companies to reward and motivate their employees. In understandable English, it's essentially a type of bonus that employees can receive based on the increase in the value of the company's stock over a certain period.
Here’s how it works:
- Granting: The company grants SARs to selected employees. These employees receive the right to receive a cash amount in the future that is equal to the difference between the current market value of the company's stock and the price at the time of granting.
- Exercise: When the employee decides to exercise their SARs, the difference between the current market value and the grant price is calculated.
- Payment: The employee receives this difference in the form of cash or shares of the company, depending on the terms of the SAR plan.
Importantly, SARs allow employees to benefit from an increase in the value of the company without actually owning shares. This can encourage them to work hard and contribute to the company's success, as they are financially rewarded when the value of the company's stock rises.
We help many companies set up a SAR. A SAR is often set up as follows.
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Example of a SAR scheme
Article 1 Definitions and interpretation
Article 2 Grant of SAR
Article 3 Obligations on Exit
Article 4 Pre-Exit bonus payments
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Article 5 Lapse of SAR
Article 6 Non-transferability
Article 7 Confidentiality
Article 8 General
Article 9 Applicable law and choice of forum
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Schedule 1 DEFINITIONS AND INTERPRETATION
THIS AGREEMENT is made on [DATE]
BETWEEN:
@@@, a private company with limited liability incorporated under the laws of the Netherlands, having its registered office in @@@, the Netherlands and its office address at @@@@, @@@@ @@, the Netherlands, registered at the Trade Register of the Chambers of Commerce under number @@@@ (the "Company"); and
[•], born on [•] in [•] and residing at [•] (the "Employee").
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The parties to this Agreement are hereinafter collectively referred to as the "Parties" and individually as a "Party".
WHEREAS:
The Company wishes to award a stock appreciation right (“SAR”) to the Employee as Parties believe this will lead to a greater engagement between Employee and Company and commitment to the future financial results;
Parties have reached an agreement on the terms and conditions on which the Employee will be granted the SAR as set out in this Agreement.
IT IS HEREBY AGREED as follows:
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