A charitable explanation is that he would like to motivate his workers by equity... but in the company as big as Google, equity doesn't work that way anymore, and there is no good substitute.

Motivating by equity in startups is extremely misleading most of the time. You give people paper money that are extremely unlikely to have any value, even if startup has successful exit due to liquidation preferences (excluding really one of cases, of most the time good IPOs).

That in my opinion is morally equivalent to fraud, although the law sees it differently. And yes it seems to happen all the time.

It really depends. Some kinds of equity at firms means you get a percentage cut of monthly pnl. Some kinds of equity you can sell. Some kinds of equity are, for all intents and purposes, worthless.