Share Appriciation Rights: a different form of rewarding
The challenge for every company is to retain the best and brightest employees. In order to attract talent to your company, you sometimes have to come up with more than just a salary. It is also possible that you currently do not have sufficient financial resources to retain your staff. In such situations, it may be interesting to reward your employees by providing them with SARs.
What do you include in the SAR plan
In the SAR plan, you agree with your employee to what extent and under what circumstances the employee is entitled to collect his claim. What often happens is that the employee can assert his right to claim at the end of his employment, but you can also agree, for example, that the employee can only assert his claim at the time of a takeover or IPO of the company.
Another possibility is to make use of "fortress". This means that the SARs are paid out pro rata over a certain period of time. For example, you can agree with your employee that he can exercise 100% of his Share Appreciation Rights after 5 years of employment. Does the employee end his employment contract earlier? For example, after 3 years, the employee is only entitled to 60% of the Share Appreciation Rights. Of course, there are several possible constructions with a fortress. Always seek good advice on which form of fortress is best suited to your situation.
What to do with disappointing employees?
It may occur that you have granted Share Appreciation Rights to a promising employee who turns out not to be that promising after all. At a certain moment, a situation arises in which you have no choice but to dismiss the employee for compelling reasons. It would be unreasonable if you then still have to pay the employee the claim that the employee has on the basis of his Share Appreciation Rights. You can prevent this by including a so-called 'Bad Leaver' provision in the Share Appreciation Plan. By using a Bad Leaver provision in a Share Appreciation Plan, you can force the employee to transfer his Share Appreciation Rights back to the company in case of a Bad Leaver situation.
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Would you like support in drawing up a SAR Plan? Our legal experts will be happy to assist you. Please feel free to contact us for more information.