There doesn't seem to be any elegant solutions for equity compensation yet. The main issues seem to arise once an employee leaves or gets fired. While the employee did put in many years of work, its not too fair to have the options disappear after 90 days. At the same time, as mentioned in the article its not 100% fair for the employee to keep the unexercised options for a long period of time.
A solution a few people have discuss would be to allow the unexercised options to remain under the employees name, but the company would be able to re-issue the options to new employees at a higher strike price. When the new employee exercises the option (assuming the value has risen), the company would get the strike price of the initial unexercised option and the former employee would get the difference between the higher strike price and the original lower strike price.
For example:
Employee A is granted options with a $1.00 strike price.
Employee A leaves the company after a few years but doesn't exercise the options
The company re-issues the option grant at $3.00 to Employee B
Employee B decides to exercise and pays the company the strike price.
The company would keep $1.00 and Employee A would receive $2.00
This seems fairer than the current structure and allows Employee A to still benefit from the options if the company continues to do well without him. Of course, implementation would be much harder/complex.
A solution a few people have discuss would be to allow the unexercised options to remain under the employees name, but the company would be able to re-issue the options to new employees at a higher strike price. When the new employee exercises the option (assuming the value has risen), the company would get the strike price of the initial unexercised option and the former employee would get the difference between the higher strike price and the original lower strike price.
For example:
Employee A is granted options with a $1.00 strike price.
Employee A leaves the company after a few years but doesn't exercise the options
The company re-issues the option grant at $3.00 to Employee B
Employee B decides to exercise and pays the company the strike price.
The company would keep $1.00 and Employee A would receive $2.00
This seems fairer than the current structure and allows Employee A to still benefit from the options if the company continues to do well without him. Of course, implementation would be much harder/complex.