Glanfield Inc. established a cash-settled stock appreciation compensation plan on January 1, 20X1. On this date, the company issued 100 cash-settled share appreciation rights (SARs) to each of its 200 employees, giving employees the right to receive cash based on the increase in the companys share price over the period the shares are held. The benchmark price of the underlying shares was established at $25.00. The plan expires on December 31, 20X9.

Date SAR value

Share market value January 1, 20X1 Not required $25.00 December 31, 20X1 $6.75 $27.50 December 31, 20X2 $6.00 $26.25 May 31, 20X3 Not required $29.75 December 31, 20X3 $8.25 $31.25

The SARs vest after employees provide two years of service. Other pertinent details follow: In 20X1, 20 employees left the company; it was estimated that 30 more would leave before the SARs vest. In 20X2, an additional 25 employees left the company. On May 31, 20X3, 50 plan participants exercised their SARs.

Required:

a) Prepare all required journal entries for the first three years of this plan.

b) Briefly explain why companies sometimes offer stock-based compensation plans to their employees