While options are lauded as an effective incentive to keep employees motivated to achieve the long-term goals of a company, they can, however, often bring about the opposite result. Options, which can well turn out to be worthless, place undue risk on many unsuspecting employees. Conversely, among a minority of more savvy workers, options create a lottery mentality that perversely drives employees from company to company in restless search of the next big payoff, snubbing any expectations of loyalty to a particular company. That's when options are being doled out at rock-bottom prices, often under a dollar a share. If all goes well, and the company later goes public at a significant multiple of the option price, the average employee can reap a huge payoff.
Some employees time their comings and goings with a cool eye toward their company's performance.
That gives more people the opportunity to join a startup, cash out and try again. At the same time, companies are out there looking for the same few good people. They have to increase the price they're willing to pay. It is axiomatic in the world of finance and investment that if an idea sounds too good to be true, then it probably is. Employee stock options can sometimes fit that description because they make, in effect, a set of imposing presumptions.