Ive been thinking that a properly constructed company-wide and long-term profit sharing scheme is the best way to combat this.
Early employees take onboard the most risk with a venture and even if they don't want to be or are not able to be VP of X when the company sales they should still maintain the material (and psychological) benefits. I bet people would have less of a problem being demoted if they knew their eventual payday would be larger than their new boss.
It's possible to construct a profit sharing scheme where x% of future profits is dedicated to a pool of employees and weighted more according to risk than seniority. And to offset the negative aspects (investor wise) of this with buyout clauses based on some fair metrics.
It's a nice idea, but I don't see how you can objectively measure the risk or value of individuals like that. For example, if a company spends 5 years treading water/pivoting before it takes off, how do determine how much of future profits an employee who joined and left in year 1 should get?
I agree that the current system is far from ideal (just read through the Ask HN post asking early employees how much they made from their startup's exit).
You can use vesting schedules to deal with the time component. Any measure of value is going to be difficult (it is under any scheme) but risk taken is a little easier. If I look at the companies I have been involved in there are very distinct phases during growth in terms of salary, prospects and job security.
Early employees take onboard the most risk with a venture and even if they don't want to be or are not able to be VP of X when the company sales they should still maintain the material (and psychological) benefits. I bet people would have less of a problem being demoted if they knew their eventual payday would be larger than their new boss.
It's possible to construct a profit sharing scheme where x% of future profits is dedicated to a pool of employees and weighted more according to risk than seniority. And to offset the negative aspects (investor wise) of this with buyout clauses based on some fair metrics.