> It's to reward employees who may need to sell stock based compensation to pay bills and other things that require currency.
Don't spend money before you have it.
On the other hand, equity is worthless until it's fungible. Fungibility problems turn into retention problems. Otherwise, the company has to pay large bonuses to key employees who may decide to cut their losses.
Sometimes it can be hard to time your expensive emergencies. Drunk drivers, cancer cells in a loved one's body, natural disasters, and law enforcement officers having a bad day rarely wait for the moment when your assets are at their most liquid.
That’s what the employee equity is in the first place...a way for the startup to spend money it doesn’t have to get the employee. The employee, in theory or at least tech anyway, is sacrificing a better salary at an established (likely public) company to join the startup in exchange for that small chance they make it up with the equity on the backside.
Although everyone loves to pretend the US is a Captialist system...it’s not, it’s debt driven. The entire Country is premised on spending money it doesn’t have in hopes the can turn profit before it all crashes, and that is reflected in every single high-growth tech startup seeking to IPO.
Want the employees to hold on longer for benefit of investors...change the whole system and reverse the tax rates of wages and capital gains. Why should the hard working employee pay 40% of their wage to Uncle Sam while the investor who sits on their ass pays 10% so long as they can hold on for a year?
In theory, an 83b election should be looked at for any restricted stock grants to minimize the ordinary income tax issue you describe. I know it's not always possible.
Most employees who are granted equity have no desire to be an investor in their company. They view their equity as a potential bonus somewhere down the line. Sure, many employees will hold some of their company stock for a while after going public, but for most employees, they'd be financially irresponsible to tie up most or all of their net worth in a single company.
