Trading Cash Compensation for Options in a Startup: A Formulaic Approach

Sean told me about this approach to compensating employees at an early stage startup and I'd be interested in some feedback:

You take what you normally would pay someone and for every dollar that they don't take in cash, you give them two dollars of equity.

So, if a developer normally gets paid $100k, and he agrees to work for your startup for $60k, then you have to give up $80k worth of options.

It's really the first time I've ever someone put something logical like that on paper.  Has anyone seen this before?

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