Contractual rights to a stipulated percentage of the increase in the value of an insurance agency over a given future period of time. They are used to convey a percentage of the increase in the agency's value to a key employee without resulting in the owner (s) of the agency owning less than 50%. The advantages of such a stock transfer for the agency owner include the following:
- Noncompete agreements not further reinforced since the key employee does not receive benefits if an agreement is violated.
- The key employee is tied to the agency because that employee can become an equity owner without actually committing his or herown funds.
These SARs are really long-term deferred compensation plans for the employee (s) whose ultimate value is tied to the increase in the value of the agency's book of business over the value at the time the right was granted to the employee (s). This circumstance should increase the commitment of the employee (s) to increase the economic value of the agency.