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CS Executive · Capital Market and Securities Laws · Share Based Employee Benefits and Sweat Equity

Kaveri Pharma Ltd, a listed company, has designed a Stock Appreciation Rights (SAR) scheme for its senior managers. Under a cash-settled SAR, what do the managers receive on exercise?

Under a cash-settled Stock Appreciation Rights scheme, the employee receives the increase in the share price over a base price, settled in cash (or shares where the scheme so provides). It is a reward for share price appreciation, not a purchase of shares at face value or a loan.

  1. AEquity shares equal to the number of rights, issued at face value
  2. BAn amount, in cash or shares, linked to the appreciation in the company's share price over a base priceCorrect
  3. CA loan from the company to buy shares in the market
  4. DA refund of the amount they paid for shares at the time of the scheme

Explanation

A SAR entitles the employee to the appreciation in the share price, payable in cash or in shares, depending on the scheme. It is not a right to buy shares at face value, a loan, or a refund, so the first option is wrong for a cash-settled SAR.

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