SAR (Stock Appreciation Rights) Calculator

Stock appreciation rights pay out the rise in a share price between the date they are granted and the date they are exercised, in cash. There is no share to buy and none to sell afterwards. A grant of 1,000 units at a grant price of 20, exercised when the share price is 35, pays the 15 of appreciation on each unit, so 15,000 in cash for a holding that is fully vested.

That structure is why they turn up at companies whose shares have no public market. Nobody has to fund a purchase, no new shares are issued, and the holder never has to find a buyer afterwards. The trade-off is that the payout is capped at the appreciation: a share price that goes nowhere pays nothing at all.

What the number is, and what it is not

The figure this calculator produces is intrinsic value, which is what the rights pay if they are exercised today. It is not what the rights are worth while they still have years to run. A grant priced at 20 with the share at 20 shows zero here, and that is the correct payout on immediate exercise, but a right with time left on it is not worthless: the share price can still move. The same distinction shows up in accounting. An award settled in cash rather than shares still falls under the international standard for share-based payment, which requires transactions of this kind to be recognised in the financial statements and their effects reflected in reported profit or loss and financial position, rather than left off the books until they pay out.

Where the payout is most sensitive

The result is more sensitive to the share price than to anything else, because the appreciation is a difference between two numbers and the difference moves faster than either. At the defaults a 1% rise in the current share price lifts the payout by 2.33%, a 1% rise in the grant price cuts it by 1.33%, and a 1% change in the vested share moves it by 1%. The narrower the gap between grant price and current price, the more violent those first two get.

How rights compare with options and units

Against options, the difference is who funds the exercise. An option holder buys shares at the strike price and then owns them, with whatever upside and whatever tax treatment follows from holding. A rights holder receives cash for the appreciation and owns nothing afterwards. Against restricted stock units, the difference is where the value starts. Units track the whole share price, so they keep some value as long as the shares are worth anything; rights track only the movement above the grant price, so they can expire with nothing.

There is a further gap between what an award like this costs the company and what it is worth to the person holding it. Work on non-tradable options held by undiversified, risk-averse executives derives the value to the holder separately from the cost to the company, and finds the two diverge. Rights are a different instrument, but the reasoning carries over: someone who cannot trade an award, and whose wealth is already concentrated in one employer, does not value it the way a diversified investor would. The number on this page is neither of those figures. It is the cash on exercise.

What the calculator leaves out

Tax is outside the model and varies by country. In most systems a cash-settled appreciation payment is treated as employment income at the point it is paid, taxed at the rate applying to earnings and collected through payroll rather than as an investment gain, but the detail differs by jurisdiction and by the terms of the plan. The figure shown here is before any of that.

• Vesting conditions, performance hurdles and forfeiture on leaving
• Any cap or collar the plan puts on the payout
• Exercise windows, blackout periods and other trading restrictions
• Tax and withholding, which come off the figure shown here
• Time value, since the calculation is a snapshot at one share price
• What a share is worth at all where there is no public market for it

For educational illustration only

This calculator multiplies an appreciation per unit by a vested unit count. It assumes exercise happens now, at the price entered, with nothing withheld and no conditions unmet. The output is a snapshot figure for exploring how the payout moves with the share price, not a statement of what any grant is worth.