Human Resources Certification Institute (HRCI) Practice Exam 2025 - Free HRCI Practice Questions and Study Guide

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What is the proper definition of phantom stock?

Employees are offered stock options as incentives but are not allowed to exercise them until they are fully vested.

Employees are incentivized based on the stock price but never actually earn shares.

Phantom stock is a type of employee incentive program where employees are given bonuses or other forms of compensation based on the performance of a company's stock, but do not actually receive any ownership in the company. This is different from stock options (A) where employees can eventually exercise their options and receive actual shares, and stock shares (C) where employees are given ownership in the company. It also differs from equity shares (D) where employees are immediately granted ownership but may have restrictions on when they can trade or sell their shares. The key distinction of phantom stock (B) is that employees never actually earn any shares, they are only incentivized based on the stock's performance.

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Employees are offered stock shares at the strike price.

Employees are offered equity shares but must earn the ability to trade.

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