About Share Appreciation Rights Plans
Share Option Plans have long been the preferred plan type for smaller companies with significant potential for sharp increases in their share prices such as those involved with technology, resource exploration, research or development of new products or services. Unfortunately, options are also generally the most dilutive way to provide equity interests to employees, with typical option values being in the range of 20% to 50% of the value of a Share. Further, employees often struggle to fund the exercise price particularly if there is no market into which to sell the shares to repay funding sources.
SARs can solve all of these problems by making the exercise price “virtual”, and are sometimes referred to as “cashless exercise options”. This feature changes the nature of the instrument from being a security, to being an “derivative” which has tax and regulatory implications. Otherwise, the benefit outcomes of SARs are identical to the benefit outcome of options on the same terms.