What characterizes a cash-settled payment?

A cash-settled payment is characterized by share appreciation rights (SARs), where the entity incurs liabilities based on the increase in the equity price. In this case, instead of issuing shares to the employee or service provider, the company pays cash equivalent to the increase in the value of those shares since the grant date. This method allows the company to manage its equity structure while still providing a performance-based incentive to employees.

This approach is particularly beneficial in terms of cash flow and aligning the interests of employees with the performance of the company, as the value they receive is directly tied to the stock's market performance at the time of settlement. Furthermore, it indicates that the settlement does not involve the issuance of new shares but rather a financial obligation in cash, which reflects the company's commitment to honoring the value created for its stockholders without necessarily diluting existing equity.

In contrast, payments made exclusively in shares would represent an equity-settled payment. Payments where equity is not considered might imply a lack of relationship to the company's stock price movements, which does not fit the definition of cash-settled payments. Lastly, payments made only for services rendered restrict the definition to compensation for work done rather than performance-linked equity incentives. This further clarifies the specific nature