What is Stock Appreciation Right ?

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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 stock appreciation rights is that employees can receive proceeds from stock price increases without having to buy stock.

Definition

Stock Appreciation Rights (SAR) are a type of employee compensation linked to the company's stock price over a predetermined period. When the company's stock price rises, SARs become profitable for employees, making them similar to Employee Stock Options (ESO). However, employees do not need to pay an exercise price with SARs. Instead, they receive the amount of the increase in stock or cash. The main benefit of SARs is that employees can gain from the stock price increase without purchasing the stock.

Origin

Stock Appreciation Rights originated in the late 20th century as a tool to incentivize employees. They were designed to provide similar incentives to stock options without diluting company equity. As companies increasingly focused on employee incentive mechanisms, SARs gained popularity worldwide.

Categories and Features

SARs are primarily divided into cash-settled and stock-settled types. Cash-settled SARs allow employees to receive cash upon exercise, while stock-settled SARs are paid in stock. Both types share the feature of not requiring employees to pay an exercise price. The advantage of cash-settled SARs is the immediate cash benefit, while stock-settled SARs allow further participation in the company's future stock price growth.

Case Studies

Case 1: Suppose a tech company granted employees 1,000 SARs in 2018 with an exercise price of $50 per share. By 2023, the company's stock price rose to $80 per share. Employees can choose to exercise and gain (80-50)*1,000 = $30,000 without paying any exercise price.

Case 2: A manufacturing company granted employees 500 SARs in 2019 with an exercise price of $20 per share. By 2024, the company's stock price rose to $35 per share. Upon exercise, employees can choose to receive (35-20)*500 = $7,500 in cash or the equivalent value in stock.

Common Issues

Common questions include: Do employees need to pay an exercise price? The answer is no; SARs do not require an exercise price. Another question is whether SARs dilute company equity. Typically, SARs do not directly dilute equity, especially in the case of cash settlements.

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Lisbon Treaty

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Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Fast-Moving Consumer Goods

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Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

Negotiable Instruments

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Negotiable Instruments

A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.

Renewable Resource

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Renewable Resource

A renewable resource is a resource that can be replenished naturally over time. As a result, it is sustainable despite its consumption by humankind.Renewable resources for the production of energy are considered especially important for their potential to replace non-renewable, or finite, resources. Additionally, renewable resources can offer cleaner energy solutions than those provided by non-renewable resources such as coal and fossil fuels.Examples of renewable resources include the sun, wind, water, the earth's heat (geothermal), and biomass.

Feasibility Study

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Feasibility Study

A feasibility study is a detailed analysis that considers all of the critical aspects of a proposed project in order to determine the likelihood of it succeeding.Success in business may be defined primarily by return on investment, meaning that the project will generate enough profit to justify the investment. However, many other important factors may be identified on the plus or minus side, such as community reaction and environmental impact.Although feasibility studies can help project managers determine the risk and return of pursuing a plan of action, several steps should be considered before moving forward.