Abstract
Option grants were designed for a world where liquidity arrived within an employee’s tenure. Companies now routinely stay private well past a decade, and the compensation instrument has been quietly re-engineered around that fact — through refresh cycles, extended exercise windows, tender programs, and new instrument choices. This paper traces the changes and what a rational employee should ask in each regime.
1. The instrument drifted
The classic package — options vesting over four years, exercisable for 90 days after departure — embeds two assumptions: the strike stays meaningfully below value, and liquidity arrives before the holder must decide alone. Longer private lives broke both. Strikes reset upward with each 409A march; departing employees faced exercise costs and tax spreads with no market to sell into. The market’s responses: restricted stock units in later-stage companies (no strike, no exercise decision), extended post-termination exercise windows at some employers, and — the structural fix — recurring tender programs that restore the missing liquidity leg.
2. Liquidity became part of compensation
Once tenders recur, they stop being events and become a term of employment — competed on like salary bands. A credible liquidity calendar changes employee behavior between windows, reduces gray-market selling, and lets companies pay partly in expected access rather than cash. The operator’s side of that design is our companion paper on company-sponsored programs; the employee’s side is a new diligence habit: ask about the liquidity program in the offer conversation, with the same seriousness as the equity percentage.
3. The questions that replaced ‘how many shares?’
A modern equity conversation runs: What instrument — options or RSUs — and what happens to each at departure? What is the current 409A and preference stack (the waterfall decides what shares are worth at exit)? Is there a liquidity program — cadence, eligibility, caps, and its track record of actually running? How were employees treated in the last down round (repricing mechanics)? And what refresh policy prevents the grant from decaying into a memory by year six?
4. What the shift rewards
The decade of staying private transferred decision burden to employees — exercise timing, tax planning, concentration management — while the sophistication to carry it stayed institutional. The equalizers are structural and educational: honest liquidity programs, transparent pricing references, and employees who read their documents before the documents read them. Companies that supply the first two increasingly win the talent that does the third.
Conclusion
Equity compensation didn’t break; it moved. The employers, platforms, and employees who acknowledge where it moved — from a lottery ticket with a date to a managed asset without one — are the parties for whom it still works as designed.
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