It may be "free money" as you frame it. But a cash stream that provides n dollars per year forever can be valued in today's dollars, assuming a discount rate of d, at n / (1-d). So it's reasonable to prefer cash now to revenue forever, at that exchange rate, depending on your corporate interests.
This article is incoherent, because the notion of dead equity being unfair doesn't make any sense. If I buy a share of Microsoft, that's 'dead equity' since I don't work there and am not contributing to the company's value, yet when Microsoft sold that stock, they got paid in cash. Is that unfair to current employees?
Exactly the same for startup stock. The company granted the stock to investors for cash and employees for their service as part as a compensation package, and as the employee fulfills their service, they earn the equity as well as their salary.
>Are there any other management practices where one would optimize for former employees at the expense of current employees? I can’t think of any.
This is exactly backwards. You don't offer the 10-year clause ex post, you do it when the employee signs. That's optimizing for new employees, not old ones!