Whereas Stock appreciation rights has been described as cash settled share based compensation with a disadvantage of requiring a current period cash outflow ,it is also mentioned in the summary that share based compensation has the advantage of requiring no current period cash outlays. I do not seem to catch the intuition here.what am I missing? Any help from the forum…
Share grants are done by the company issuing shares directly to the employee (causing dilution). This in effect has no cash outlay since the shares aren’t paid for by the company (though there is foregone cash raised by the company).
But what then causes cash outflow in case of Stock appreciation rights. OK ,may be as the share value goes up the holder cashes in on the upside whereas he is fully protected against downside risk ,more like a call option .
Because the company actually makes a cash payout based on the amount of increase the stock’s value (whereas under options the employee pays the options’ exercise price or under stock grants the company issues stock directly to the employee).