HRM/324T Total Compensation Practice Test 2026 – Complete Exam Prep

Stock options provide employees with the right to purchase a set amount of shares of stock for a predetermined price, known as the exercise or strike price. This benefit can potentially lead to financial gains if the market value of the company's shares exceeds the exercise price. When employees exercise their options, they can buy the shares below market value, and if they choose to sell the shares later, they can realize a profit based on the difference between the market price and the lower exercise price.

This type of compensation is often used by companies to align employees' interests with those of shareholders, incentivizing employees to work towards increasing the company's stock price. If the company's performance leads to higher stock prices, employees can benefit significantly, making stock options an appealing part of many compensation packages.