Right, so in your case it makes perfect sense. You are a third partner with a 10% stake in the company. Contrast this with a first employee who is getting a 1% stake and less than half the normal salary. Would you have taken this position for a 1% stake, all else being the same?

Edit: your point is that good engineers cost $150k (really closer to $200k with taxes, etc). That's correct. So what happens when these engineers as a group realize that taking $70k + 0.5% equity is not the same as taking $150k + full benefits elsewhere? What other options do startups actually have at that point? More importantly, will this point happen and will it happen soon?