You are part of an employee committee demanding higher compensation from your company. Your main request: stock participation. You're tired of the fat cat owners getting rich off the sweat of your labor. You want your share.
Stock options are the obvious fix. However, there are problems. Stock options require the individual employees to purchase the stocks involved. If you are granted 100 stock options with a $15 strike price, you have to come up with $1,500 to get the shares.
There's another potential fix: stock appreciation rights.
SARs are similar to stock options, but they only cover the appreciation in the stock value over a period of time. They get paid out as either stock or as cash. Unlike a stock option, the employee doesn't have to buy them...they just get the cash or stock.
A stock rises from $15 to $20 during a year. The employee has 100 SARs, paying off anually in cash. They receive $500 for that increase in the share price. It's like a bonus tied to stock performance.
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Finance: What is a Rights Offering?6 Views
finance a la shmoop what is a rights offering all right people think a right
to buy and buy at a discount kind of companies may be fearful of a hostile [Woman pointing at woman behind reception desk]
takeover or some other big bad event that harms them and they want to give
existing shareholders preferential treatment over external non shareholders [Shareholders at a night club]
this rights offering is essentially a hostile takeover defense so they might [Bear attacking rights offering]
say ok pals for the next 60 days you have the right to buy an additional
share of our stock which is currently trading for 312 dollars each for $200 a [Man discussing company stock at presentation]
share and note the discount wink wink and you need to currently own 5 shares
for every one that you'll then buy sound like a plan well that is the company is [Man throws rights offering to woman]
offering those rights to buy at a discount and the shareholders can sell
those rights to other non shareholders for cash in essence is kind of a funky
one-time dividend that actually hurts both the would be external hostile [Metal anvil land on a bear]
takeover people but unfortunately also hurts the employees who have stock
options not actual shares so then they suffer the dilution of this rights [Anvil lands on employees]
offering with nothing to show for it yeah and you may ask is there such a
thing as a hostile take under mmm wondering about that [People protesting outside metal fence]
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