It's cash-neutral for us. Suppose a new hire gets 10,000 options with a strike price of $1.00. (These are not real numbers.) They will pay $10,000 up front to early-exercise the options. We give them a bonus of $10,000. Net cash impact to us: zero. (As I noted, there is some cash impact to the new hire, as they will have to report $10,000 income and pay taxes on it.)
We've lost the opportunity to earn a little money from the new hire by selling them stock at a nonzero price. But that's not an opportunity we want.
As we grow into higher valuations, the tax impact may become an issue. We might have to start grossing up the bonus. Also, if someone leaves before they're fully vested, all this has to be unwound and I'm not certain of the tax implications there. We haven't worried much about that because at this stage no one is leaving. :)
We've lost the opportunity to earn a little money from the new hire by selling them stock at a nonzero price. But that's not an opportunity we want.
As we grow into higher valuations, the tax impact may become an issue. We might have to start grossing up the bonus. Also, if someone leaves before they're fully vested, all this has to be unwound and I'm not certain of the tax implications there. We haven't worried much about that because at this stage no one is leaving. :)