Salary & compensation · Updated October 2026
Stock appreciation rights (SARs) pay an employee the rise in the company’s share price over a fixed base price, for a set number of shares, without the employee having to buy anything. The payout can come as cash or as shares worth the gain, which makes SARs a lighter alternative to an ESOP for companies that want to share upside without heavy dilution.
| Point | Cash-settled SAR | Equity-settled SAR |
|---|---|---|
| What the employee gets | The appreciation in cash through payroll | Shares equal in value to the appreciation |
| Dilution | None | Some, but less than options for the same grant |
| Cash cost to company | Full payout | Little or none |
| Listed company rules | Outside the SEBI regulations, as SEBI has clarified | Covered by SEBI’s 2021 share-based benefit regulations, with a one-year minimum vesting |
The Companies Act, 2013 has no specific provisions on SARs, so a private company’s scheme rests on its board and shareholder approvals and the plan document. Most still borrow a vesting schedule from ESOP practice.
A listed company grants Meera 1,000 SARs at a base price of Rs 300. She exercises when the market price is Rs 520. The appreciation is (520 – 300) x 1,000 = Rs 2,20,000.
Either way the Rs 2,20,000 is taxed in the year of exercise or payout as salary income, with TDS on salary deducted by the employer. Shares received are then subject to capital gains on sale.
They are close cousins. Phantom stock usually pays the full notional share value, not just the rise, and is always cash. Both are forms of deferred compensation tied to share price.
As a separate taxable earning in the month paid, like other variable pay, so it flows to Form 16 and the TDS return correctly.
No. That is the main difference from an option: there is no exercise price to fund, so employees do not need to borrow or sell shares to cover it.
Payouts change the year’s tax bill, and you can model a SAR month in the income tax calculator before it lands.