[abalone]

There actually are other non-nefarious reasons. When employees exercise they become shareholders, and certain securities law regulations come into effect. A young startup might want to defer those until they are big enough to handle the administrative overhead.

Also, while it's a tremendous tax benefit and pretty much a no-brainer to early employees, once the strike price constitutes an investment of tens of thousands of dollars, all of which could be lost, it's not necessarily a popular or prudent choice for later employees. So then it becomes this thing that only the early employees get, which perhaps might lead to some resentment and morale issues. Just some issues for companies to consider.

Good overview of the pros and cons here: http://www.startupcompanylawyer.com/2009/01/11/should-a-comp...