Stock appreciation right

Definition

A promise to pay a manager the increase in value, without shares.

Why It Matters

It is the incentive a buyer reaches for when they want a key employee thinking like an owner and do not want a second name on the cap table. The right pays cash on a trigger, usually a sale or a fixed date, measured against a starting value agreed at the grant. Settle two things before granting one: what that starting value is, and who computes the later one, because a right written against an undefined number becomes an argument at exactly the moment the business is being sold.

In numbers: A right granted at a $4M value paying 5% of the increase is worth $100,000 if the business sells for $6M.