Certified Human Resource Professional (CHRP) Practice Exam

What type of plan involves employees purchasing shares in a company?

1. Employee stock bonus plan

2. Employee share appreciation plan

3. Employee stock option plan

4. Employee phantom share plan

The correct answer is: Employee stock option plan

An employee stock option plan allows employees to purchase shares in the company at a predetermined price, known as the exercise price. This type of plan provides employees with the opportunity to benefit financially from the company's growth and success. When the company's stock price rises above the exercise price, employees can exercise their options to buy shares at the lower price and then sell them at the market price, potentially realizing a profit. This aligns the interests of employees with those of shareholders, creating a strong incentive for employees to contribute to the company's performance. The other options, while related to employee compensation linked to company stock, do not involve direct purchasing of shares by employees. An employee stock bonus plan usually grants shares to employees as a form of compensation without requiring a purchase. An employee share appreciation plan provides employees with a cash bonus based on the appreciation of the company's stock value, rather than direct stock purchase. Lastly, an employee phantom share plan offers employees a cash payout based on the value of the company's stock without actual stock ownership, hence not involving the purchasing of shares. Each of these plans serves distinct purposes and has different structures compared to an employee stock option plan.