Offering equity allows startups (as well as more established, but perhaps cash-strapped firms) to pull in top tech talent. Stick around for three or five years, goes the reasoning, and you’ll have enough vested options to buy a really nice house. There’s just one downside: if you leave the company before your options mature, you lose that unvested equity.
If you have stock options and want to leave your current position, you often need to exercise those options (and pay the IRS a staggering amount of money) if you want to keep the stock. That’s an annoying burden to face, especially if you don’t have the cash to cover the resulting bills.
Some tech companies (most notably Pinterest) have responded to complaints about equity by giving employees a full seven years to exercise options after they leave. That makes equity a more attractive perk for workers considering whether to join a firm.