Final answer:
If the employer can elect to settle SAR (Stock Appreciation Rights) awards with company stock, SAR awards are classified as stock appreciation rights. (Option is 2).
Step-by-step explanation:
Stock Appreciation Rights (SARs) are a form of equity compensation where employees receive a bonus in cash or shares based on the appreciation of the company's stock over a specified period.
The key feature mentioned in the question is the ability to settle SAR awards with company stock. This characteristic aligns with the nature of SARs, where the employee has the option to receive the value of the appreciation either in cash or in shares of the company's stock.
Restricted Stock Units (RSUs), Employee Stock Purchase Plans (ESPPs), and Stock Options (which might involve company stock but not necessarily settlement with it) are distinct forms of equity compensation and are not directly associated with the feature of settling with company stock.
Correct Option: 2) Stock appreciation rights