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A stock appreciation right is a form of incentive or deferred compensation that ties part of your income to the performance of your company's stock. It gives you the right to the monetary equivalent of the appreciation in the value of a specified number of shares over a specified period of time. Stock appreciation rights pay the appreciation in cash or in shares of the stock whose value determines the value of the rights. Taxes are deferred until the rights are paid.
Stock appreciation rights are similar to stock options in that they are granted at a set price, and they generally have a vesting period and an expiration date. Once a stock appreciation right vests, an employee can exercise it at any time prior to its expiration. The proceeds will be paid either in cash, shares, or a combination of cash and shares depending on the rules of an employee's plan. If proceeds are received in shares, they can be treated as any other shares of stock in your Stock Plan Account.
A stock appreciation right is very similar to a stock option, but with a key difference. When a stock option is exercised, an employee has to pay the grant price and acquire the underlying security. However, when a stock appreciation right is exercised, the employee does not have to pay to acquire the underlying security. Instead, the employee receives the appreciation in value of the underlying security, which would equal the current market value less the grant price.
There are two different types of stock appreciation rights:
One of the benefits of stock appreciation rights is that there is no money required to exercise them for cash. An employee automatically receives the proceeds from an exercise without having to pay for the cost of the shares.
There are no federal income tax consequences when you are granted stock appreciation rights. However, at exercise you must recognize compensation income on the fair market value of the amount received at vesting. An employer is generally obligated to withhold taxes. Depending on the rules of your plan, the employer may satisfy that withholding obligation by withholding cash or shares. The remaining net proceeds will be deposited into your Stock Plan Account. If you receive net shares and sell them at a later point, the appreciation in value of the shares from the time of exercise to the time of sale will be treated as a capital gain or loss. Whether it is a long-term or short-term gain or loss will depend on how long the shares are held.
There are two types of grants, classified by their tax status.
NSOs do not meet certain IRS requirements that allow you special tax treatment. With NSOs, you are taxed when you exercise the stock options. You pay ordinary income and Medicare taxes and are subject to Social Security tax if you have not paid the yearly maximum on the difference between the fair market value at exercise and the grant price.
Generally not, although details are set under each company's plan. Dividends are generally not paid on unexercised rights.
Stock appreciation rights do expire. The expiration period varies from plan to plan. Once your rights expire, they are worthless. There are often special rules for terminated, retired, and deceased employees. These life events may accelerate the expiration. Check your plan rules for details about expiration dates.
There are special rules in the event that you leave your employer. Generally, the expiration is accelerated. If you retire, you can typically hold your vested outstanding exercisable rights. Often the expiration is still accelerated, however. You will most likely have limited time to exercise. See your employer's plan rules for details.
Typically, your vested rights would be transferred to, or are exercisable by, your designated beneficiary, and the plan will generally set the expiration date. See your employer's plan rules for details.
See Accepting and Declining Grants for details.
Depending on the rules of your plan you may be able to decide how you receive your proceeds (cash, shares, or a combination of cash and shares). Check your plan rules for details. Your plan also determines when you may make your election. Depending on your company's plan, you may be able to make your election when you exercise.
On the Summary page, click Estimate Gain next to the accepted grant that you would like to model. The Estimate Gain page lets you estimate your gain if you exercise a specific number of shares, or tells you how many shares you need to exercise in order to receive a specific amount of cash or shares. The estimated results also help you to estimate the potential taxes you may owe from an exercise.
The Summary page for stock appreciation rights displays information about grant totals, unaccepted grants, and accepted grants. From this page, you can view detailed information about a particular grant, accept or decline unaccepted grants, exercise accepted grants, or estimate the gain on a particular grant.
You can view vesting schedule information, grant details, and the grant's current estimated value.
The total value of exercisable rights is equal to the previous business day's closing price minus the grant price multiplied by either the total rights or exercisable rights or 0, whichever is greater. Actual value at exercise may vary.
The vesting schedule is a schedule of dates on which you get the right of ownership for a specific number of stock options awarded as part of a grant. The vesting schedule for stock appreciation rights is defined in the grant agreement you sign when you accept a grant. For example, you were granted 1,000 rights on February 1, 2004. The vesting schedule may state that 200 of the rights will be vested on February 1, 2008, another 200 rights will be vested on February 1, 2009, another 200 on February 1, 2010, etc.
The expiration date is the date on which your agreement expires. The date, according to the terms of your grant agreement with your company and your company's stock plan, after which you can no longer exercise your grant. Under certain provisions of the stock plan and grant agreement, such as a change in employment status, the expiration date may be accelerated.
You can view a history of all transactions for your stock appreciation rights plan for the past 10, 30, 60, 90, or 120 days. Transactions appear in reverse chronological order, and can be sorted by transaction type, grant ID, grant date, or quantity. You can also view details pertaining to accepted and declined grants.
Click View > Plan Information and Documents. For accepted grants, you can also click View Details under Actions for a grant, then click View Plan Document or View Grant Agreement on the View Details page. You can also view your plan document and grant agreement when you accept or decline an unaccepted grant.
Your plan information and documents are in PDF format. You must have the free Acrobat® Reader® to view and print the plan document.
For stock appreciation rights, requests are open exercises. You can see all open exercises, as well as exercises which are pending cancellation. Details include quantity, symbol, grant ID, grant date, grant type, fair market value description, and other request details.
If an exercise request is still open, you can submit a request to cancel by clicking Attempt to Cancel next to the request on the Pending Exercises page. To submit the request, review the information on the Review & Submit Cancel Request page, and click Next. The Confirmation page displays a unique confirmation number for your cancellation request.
Note that the confirmation number does not indicate that your exercise request has actually been cancelled, only that a cancellation request has been placed. Your cancellation request is subject to prevailing market conditions and prior execution of your original request. To check the status of your cancellation request, return to the Pending Exercises page.