A handful of trends are causing the historical Silicon Valley model of compensation to fail employers and employees. I am not entirely sure how to fix it. But I believe that at least part of the solution will be a move away from equity compensation and toward a heavier reliance on cash bonuses.
As is widely understood, traditional startups compensate employees in two parts. People are generally paid a cash base salary and some equity participation that vests over time. The second piece is usually in the form of options for early employees and RSUs for later ones.
In an ideal world, this makes a lot of sense. Unlike transactional businesses like banking or consulting, technology startups bind their human capital together and create a valuable and durable asset. The equity component of their compensation is effectively a stake in the asset they are building.
That said, in practice things get a lot more complicated, and this compensation model has been criticized as out of touch with reality on a few fronts.