This is a cute system and I'm not going to be against a company having a secret bonus that might give employees free money. But c'mon, don't write a blog post about how this is great. This system is much worse than equity. This is basically like a lottery that might give extra money to employees lucky enough to be presently employed in case the magic numbers hit.
The whole point of equity is to incentivize people to create value for the company and give them upside in case the company does grow a lot (how people personally value equity is another story, but the incentive is the same). This plan doesn't do that at all...
1) The company says it has no plans to exit so there really isn't an incentive for an employee to think their contributions might return them upside.
2) The 5% figure for all employees is tiny. A growing startup might give away 5-10% in equity, per year, to employees via stock grants. This is 5% total. Every year that goes by employees should own more of the company because they are doing more of the work, a fixed number makes no sense.
3) Past employees who might have made significant contributions and created tons of value get nothing. Do you think if any founders leave they are giving up their real equity?
> it’s a great alternative to the organizational complexity of option grants, acceleration, strike prices, conversion into shares, private markets vs. public markets, dilution by outside parties, partial vesting, etc.
So no, it isn't a great alternative to equity, it does completely different things. It is a random bonus that nobody can expect which is loosely correlated with whatever value they may have contributed. This is certainly better than no bonus, but maybe is worse than a good bonus (though they might also have other bonuses, I have no idea).
Well-put. I'll only add that even with options,
3) Past employees who might have made significant contributions and created tons of value get nothing
However, even ISOs with 90 day expiry periods are way better than this. If you are presently employed at the company at the time of IPO/acquisition then you don't have any issue with the 90 day window, and if you do run into the 90 day window at least you have the choice to exercise them or not. And if early exercise is available then you could exercise options early on when the company is worth very little and then not have to worry about the 90 day expiry period later.