I have to say that's a heck of a lot of dilution, too. 200x growth in valuation vs. only 25x in your stake? What's that, over 85% dilution?? Sounds like that juicy unicorn valuation was only achieved by a lot of fundraising rounds under presumably not awesome terms. Not that that makes you feel any better.
I'm thinking there should be some kind of extra incentive for early stage teams to stick together, but with a more explicit maturity point. It used to be IPO/acquisition. Now that IPO is often farther off there should probably be some other metrics. What are they? Valuation? Number of employees? Length of employment? Revenues? Some combination?
US startup stock options push the tax externality to their employees. In somewhere like canada, your tax bill is due at liquidation, not at the purchase of options. It makes a lot more of this problem go away. For most early stage employees that do well in a tax scheme like canada's then paying $20k for stock in a large valuation company isn't nearly as painful as paying $20k + $100k in AMT tax.
I think that would probably be reasonable for most angel investment and stage A teams. It isn't a stretch for the company to pay an extra $10-30k for a stock transaction where %60 of it cycles back to them anyway for a total of $4k-12k of a tax bill.
Also another way to value the stock to give to early employees is to treat them as investors investing the $500k+ or whatever equivalent they are giving up for 4 years and giving them that as their stock where you foot the tax bill. Also giving them the same visibility and protections that those equivalent angel investors would get.
The percentage points you start giving up for that although starts becoming too large for most founder's tastes, and thus we get the current situation we have today. Many engineers tell themselves, why should I join an early stage startup when I can do so much better as a founder with a similar risk profile?
I realized you want a way to keep the golden handcuffs that are unique with the US tax law and current equity structure to incentivize poor-ish early employees to stick around without creating an incentive to fire them with back loaded options.
You could create a second stock option reward for the early employees with a company performance + time condition vesting condition and pay the tax bills by giving them the stock right away.
Pinterest's long term stock option expiry date is contingent on being with the company 2-3 years, otherwise it goes back to the same 90 expiry window I think.
You could try many structures, and the market will respond to it compared to their other offers. A good way to start is to explicitly state what you actually want, and then engineers could state what their price is for that ask in comparison with what they can get.
But then it's hard to set a definite timeframe. What you want is to incentivize sticking together as an effective team to reach a point of maturity, to maximize the chances of getting there and thus the options being worth anything. It's probably more about size and valuation. That's what was nice about effectively tying it to IPOs (when IPOs happened earlier). Going public was a decision that the board made when they company was "ready".
The engineer market in SF right now is very highly heated, and this kind of incentive makes an offer from pinterest far more appealing. That and people are starting to compare notes and make articles on medium and others really spelling it out is probably hurting recruiting and this is coming out as a response.