But if it's worthless, and the employee realizes it, then it will not serve its purpose. Case in point: my last gig gave me something like 0.15% of the company vested over 4 years. I left after 2.5 years and the equity did nothing to keep me there even though the company was in a reasonable place financially. Why? Because 0.15% * the valuation * likelihood of a sale * sale price * likelihood of my shares actually being given any value in a sale is effectively 0.

Everyone keeps suggesting that when evaluating a compensation package, one should not count equity for anything since it's worthless. Well, it is nearly worthless, unless you happen to hit the startup that becomes Facebook, Google, Dropbox, etc. and you get in early enough (usually only employee #1 gets over 1%). So why bother even offering a worthless piece of compensation. The startup might as well include a bunch of lottery tickets with every paycheck instead.