Series 65: 2.4.3. Stock Appreciation Rights

2.4.3. Stock Appreciation Rights

A stock appreciation right is an option given to a company employee to receive a bonus equal to the appreciation in a set number of shares of the company’s stock. Stock appreciation rights are granted at a set exercise price, usually the fair market value of the stock on the date they were granted. Stock appreciation rights have a vesting period during which the option cannot be exercised (usually one to three years), and they have an expiration date (usually 10 years from date of issue). Once vested, an employee can exercise the option at any time prior to the expiration date. When the employee exercises the right, the employee receives the difference between the exercise price and the current market price of the stock. Payment may be made to the employee in cash or stock or both.

Example: When you start your new job, you are granted 1,000 stock appreciation rights at the current market price of your employer’s stock ($15). After your three-year vesting period, the stock has risen in price to $30, and you decide to exercise your option. You will receive your choice of $15,000 cash (1,000 × $15) or 500 shar