Final answer:
Duane's compensation plan, where no exercise is required to receive income, is consistent with a Phantom Stock Plan. This plan allows employees to benefit from the company's stock performance without receiving actual shares or exercising options.
Step-by-step explanation:
The compensation plan described in this question, where the CEO is granted an option that does not require exercising them to receive income, most likely refers to a. Phantom Stock Plan. Phantom stock plans are designed to provide employees with a bonus that is equivalent to the value of the company's stock without actually giving them real shares. The value of this "phantom" stock rises and falls with the company's actual stock, and at a certain point, the employee is cashed out, typically with cash or actual shares. Unlike Stock Appreciation Rights (SARs), which technically require some form of exercise, and unlike Restricted Stock Units (RSUs) which typically vest and are actual shares, phantom stock plans operate more like a cash bonus that tracks the performance of the company's stock. They do not grant any voting rights or dividends that actual shareholders might receive.
Incentive Stock Option Plan provide the opportunity to buy company stock in the future at a set price but require exercise to benefit from any potential stock price increase.