To solve this question, the user needs to know the different types of privileges in a database management system and their corresponding actions.

Now, let's go through each option and explain why it is right or wrong:

A. CONTROL: This option is incorrect because the CONTROL privilege provides all privileges on an object, including the ability to modify, delete, and grant privileges. It is not specific to the INSERT action only.

B. UPDATE: This option is incorrect because the UPDATE privilege allows the user to modify existing data in a table but not add new data.

C. INSERT: This option is correct. The INSERT privilege allows the user to add new data to a table. By granting only the INSERT privilege to USER1 on the EMPLOYEE table, USER1 will be able to add new data to the table but not modify or delete existing data.

D. INSERT WITH GRANT OPTION: This option is incorrect because INSERT WITH GRANT OPTION not only allows the user to insert data into the table but also to grant the INSERT privilege to other users. This means that USER1 can give the INSERT privilege to another user, which is not a requirement in this scenario.

Therefore, the correct answer is:

The Answer is: C. INSERT