We're Building Tomorrow's Companies With Yesterday's Reward System
Over the past twenty-five years, I have helped scale organizations through hypergrowth, international expansion, acquisitions, restructurings, and organizational transformation. More recently, while advising founders and leadership teams building AI and other frontier technology companies, I have become increasingly interested in a question that receives far less attention than it should: whether the economic proposition being offered to employees still matches the people these companies need to recruit.
The thesis can be stated simply. The traditional venture-backed bargain was built around lower cash today, a four-year equity vest, and a credible chance that liquidity would arrive close enough for the risk to feel worth taking. Many frontier and late-private companies now need seasoned talent much earlier, while the path to liquidity can extend for a decade or more. The business may have time to wait. The individual may not.
That does not make equity obsolete. It means cash, bonus, and equity can no longer be treated as interchangeable pieces of a benchmarked compensation package. Each needs to do a different job, and each needs to reflect the time horizon, opportunity cost, and concentration risk of the workforce being asked to build the company.
The Workforce Has a Different Risk Profile
The demographic change is not simply that employees are older. It is that the talent mix increasingly includes people who have already spent fifteen or twenty years building careers elsewhere. Frontier companies need experienced commercial, operational, finance, people, manufacturing, regulatory, and technical leaders earlier because complexity arrives earlier. SignalFire's State of Tech Talent report found that new graduates accounted for less than 6 percent of startup hires in its dataset, with new-graduate hiring continuing to fall while mid- and senior-level hiring recovered.¹ These companies are hiring for proof, not only potential.
That changes the economics of an offer. An experienced leader may be leaving public-company equity that can be sold, a reliable annual bonus, a meaningful retirement match, or an established path to the next role. The person may also be balancing a mortgage, college costs, caregiving responsibilities, or a shorter window to fund retirement. Not every experienced employee has the same circumstances, but the underlying equation is different when someone has ten to fifteen peak earning years remaining rather than thirty-five. Asking that person to wait ten to fifteen years for liquidity is not the same proposition as offering long-duration equity to someone at the beginning of a career.
Experienced employees are not necessarily equity-averse. They are more likely to be duration-averse and concentration-averse. They may be willing to commit deeply to a company and still resist placing a disproportionate share of their remaining wealth creation behind one illiquid outcome. In fact, Bureau of Labor Statistics data show that workers between 55 and 64 have much longer median tenure than workers between 25 and 34.² The issue is not an unwillingness to stay. It is whether the reward structure recognizes the value of their experience, the opportunity cost of joining, and the finite amount of time they have to realize a return.
Equity, Cash, and Bonus Should Do Different Jobs
Equity should reward long-term enterprise value creation and give employees genuine participation in the upside they help create. Cash should compensate for the role, the scarcity of the capability, and the opportunity cost of choosing this company over another. Bonus should reward measurable progress that creates value before an eventual exit. When equity is expected to substitute for competitive cash, create retention, reward annual performance, and absorb the entire risk of a long liquidity horizon, the design asks one instrument to do too much.
Equity remains a powerful tool, but time changes its value. A four-year vest inside a twelve-year private-company journey can leave an employee fully vested and still eight years away from liquidity. If that employee leaves, a conventional post-termination exercise window may require a decision within 90 days, forcing the person to fund both the exercise price and potential taxes on an asset that still cannot be sold. Carta's H2 2024 startup compensation study found that employees exercised only 32.2 percent of vested, in-the-money options in the fourth quarter, down from 54.2 percent three years earlier.³ That does not necessarily mean employees lack confidence in their companies. It may mean the equity has become too expensive, too concentrated, or too uncertain to hold.
The improved exit market in 2026 does not eliminate this concern. Carta's recent analysis shows that headline exit value has been unusually concentrated in a small number of very large transactions, while many otherwise viable companies continue to face difficult or uncertain paths to liquidity.⁴ Boards may value an equity grant using a benchmark or accounting model, but employees experience value differently. They discount for time, dilution, exercise cost, taxes, and the probability that they will be able to sell. An equity award can be statistically competitive and still be economically unpersuasive.
Cash is not the opposite of alignment. It is the floor that allows an employee to take meaningful risk without making one company responsible for nearly every financial objective. For an experienced hire, that may mean a stronger base salary, a sign-on or make-whole payment for compensation left behind, or a multi-year cash component that vests with continued contribution. Paying more cash does not always increase total cost. It may allow a company to avoid issuing an oversized equity grant that the candidate heavily discounts, only to issue another grant later when the first one fails to retain.
Bonus also needs a more deliberate role. A conventional annual plan tied primarily to revenue or EBITDA may make little sense for a business still moving through technical validation, regulatory approval, manufacturing scale-up, or early commercialization. The more useful question is what evidence of progress materially reduces risk and increases enterprise value during the year. That could include a successful technical milestone, a regulatory submission, a major customer deployment, a target manufacturing yield, stronger unit economics, a financing completed within disciplined parameters, or the construction of a leadership team capable of carrying the company into its next phase. A well-designed bonus makes some portion of value creation tangible before exit, while still reserving the largest upside for sustained enterprise success.
Design for Time, Risk, and Choice
There is no single replacement for the traditional model. The better answer is a portfolio of levers that can be matched to the company's stage, capital position, workforce, and expected path to value creation.
First, shorten the distance to cash where the company can responsibly do so. A board can establish a framework for periodic employee liquidity through tender offers or structured secondary windows when financing, valuation, and balance-sheet thresholds are met. This is not a promise of an IPO or an unrestricted right to sell. It is a credible governance commitment to consider partial liquidity as the company matures. Carta reported that 16,538 employees sold equity through tender offers in 2025, the highest annual total in its data, although that remained a small fraction of the employees on its platform.⁵ The rarity is precisely why a thoughtful liquidity policy can become a meaningful recruiting and retention advantage.
Second, add a floor beneath the upside. Cash-based long-term incentives can vest over three or four years and pay against sustained performance or strategic milestones. A deferred cash account can reward continued service without requiring the employee to finance an option exercise. Phantom equity or stock appreciation rights can provide participation in value growth without the same purchase requirement as traditional options. Enhanced retirement contributions, profit-sharing, or nonqualified deferred compensation can be especially valuable to experienced employees with a shorter compounding horizon. These tools do not need to replace equity. They can make the overall proposition credible enough for equity to retain its motivational power.
Third, match the instrument to the company's actual stage and timeline. Restricted stock or early-exercisable options may work well when a company is young and the exercise cost is low. Options become less compelling when strike prices and tax exposure rise while liquidity remains uncertain. Later-stage companies may need to consider restricted stock units, extended exercise periods, net-exercise features, or other instruments that reduce the amount of personal capital an employee must place at risk. Refresh grants should reflect the remaining journey rather than mechanically repeating the original four-year cycle. Longer vesting can support retention only when it is paired with greater award value, interim liquidity, or a stronger cash floor. Otherwise, it simply asks the employee to absorb more delay.
Fourth, offer choice within clear guardrails. Companies can create two or three approved compensation mixes, such as cash-forward, balanced, and equity-forward, with consistent economic ranges by level. An employee earlier in a career may choose more upside. An experienced leader may prefer stronger cash, retirement support, or a cash-based long-term incentive while still retaining meaningful ownership. Choice acknowledges that employees value risk differently without turning compensation into an individual negotiation every time. It can also improve the perceived value of the same total reward investment because employees are not forced into an allocation that works against their life stage.
These alternatives do not require every company to spend more. They require companies to spend reward dollars where those dollars create the most value. A cash-forward package for an experienced functional leader may be more efficient than a larger option grant that is heavily discounted. A limited tender window may retain critical talent more effectively than another refresh grant. A retirement contribution may carry more value for one employee, while meaningful equity remains the strongest motivator for another. The goal is not uniformity. It is coherence.
Boards and leadership teams should be able to answer five questions clearly: What is cash paying for? What progress is the bonus rewarding? What risk is the equity asking the employee to bear? When and how can that value become usable? What happens if the company journey outlasts the original grant? If the answers do not fit together, the reward system is not yet strategy. It is inherited practice.
The companies that win experienced talent will not necessarily be those that pay the most. They will be the ones that offer the most credible economic relationship. That means preserving meaningful upside while recognizing time, creating nearer-term evidence that value is being shared, and giving people enough flexibility to take a long-term bet without putting the rest of their financial lives on hold.
Footnotes
1. SignalFire, State of Tech Talent Report 2025.
2. U.S. Bureau of Labor Statistics, Employee Tenure in 2024.
3. Carta, State of Startup Compensation: H2 2024; Carta, “Post-Termination Exercise Period (PTEP).”
5. Carta, “Startup Tender Offers Hit Record 16K Employees in 2025”; Carta, “Tender Offers Are Helping Fill the Gap Left by Venture Capital's IPO Lull.”
Selected Research and References
SignalFire. State of Tech Talent Report 2025.
U.S. Bureau of Labor Statistics. Employee Tenure in 2024.
World Economic Forum. Future of Jobs Report 2025.
Carta. It Takes a Decade to Build a Startup and IPO Is Getting Later.
Carta. State of Startup Compensation: H2 2024.
Carta. Post-Termination Exercise Period (PTEP).
Carta. Tender Offers Are Helping Fill the Gap Left by Venture Capital's IPO Lull.
Carta. Startup Tender Offers Hit Record 16K Employees in 2025.
