Actually, it is. For some theoretical literature on this, look into the Kelly Criterion, which argues that the best financial strategy is to optimize for log(W), where W is your total wealth (including future income, properly discounted, less costs of living, if one wants to get technical). The assumption is that, since it's (approximately) as hard to go from $50 to $100 as from $100 to $200, the proper utility function is the logarithm.
If you're a person of average means, you'd rather have $4.5 million than a 50-50 shot at $10 million. If you're a billionaire, you'd rather have the latter because of its superior EV.
Correlations also play a role. Assets with negative beta (correlation to equity market performance) can actually trade above expected value because of their risk-reducing benefit: they go up when the world goes down, which makes them desirable as hedges. All in all, you'd rather not have a basket of assets that all dive at the same time.
As a startup employee, you're typically poor enough to be risk-averse, and the one asset that you hold (equity) is correlated to your job and your reputation. Taking equity in lieu of cash makes you very exposed. You should expect a lot of equity to account for this. If you're giving up $20,000 per year in salary, you expect about $100,000 per year in equity at-valuation. Why? Because in addition to the concerns above, not only are you giving up some salary at the time, but you're also giving up future salary because startups tend not to give raises. (When things go well, the equity appreciation is the raise; when things go to shit, it's not a time to ask for much of anything.)
As an investor, you're rich and diversified enough that you can value assets at EV. As an employee dependent on stable income and reputation, you should be a lot more cautious about taking on that high-risk asset. Your life can go to shit in all sorts of ways: business failure isn't even the worst of them. The investor just sees the loss as a cost of doing business.
If nothing else, Zynga established what can go wrong when the bulk of your financial wealth is tied up by your employer. I mean, talk about a gigantic abuse of power: one's financial portfolio controlled by someone with firing authority.
VC-istan is built on the backs of young engineers who don't understand this stuff.
I agree that very small equity grants don't exactly help engineers pay the bills compared to salary. In fact, small increases in salary seem to confer disproportionate financial and psychology benefits to employees, while stock options are more abstract, and looking to other fields they don't seem necessary to retain skilled professionals. So why not pay engineers with all salary and hold onto the stock? Mainly because start-ups have limited cash too, and equity to give away.
However, at the risk of over-generalizing, I think the competitive job market in the Bay Area means that engineers are paid good salaries plus at least a token amount of stock. For an early employee, it could mean a little icing on the cake, or in the best case significant wealth.
