Final answer:
Stock Appreciation Rights (SARs) are classified as such when employees can elect to receive cash. They are related to the company's stock performance and can be settled either in cash or shares. They form part of a compensation strategy, aligning employee rewards with company success.
Step-by-step explanation:
If employees can elect to receive cash, SAR awards are classified as Stock Appreciation Rights (SARs). These are a type of employee compensation linked to the performance of the company's stock, giving employees the right to the increase in the value of a designated number of shares. SARs can be settled in cash or shares, depending on the terms of the award.
In a company owned by a large number of shareholders, the company typically obtains money from its sale of stock during an initial offering or through subsequent public offerings. The rate of return that the company promises cannot be guaranteed when it sells stock, as it is dependent on market conditions and the company's performance. Decision-making is generally the responsibility of the company's management and the board of directors, who are elected to represent the interests of all shareholders.
Within the concept of compensation, people should be rewarded according to the costs they incur in their work activity; this also applies to the distribution of SARs, as it is a form of compensation linked to the efforts and contributions of employees to the company's success.