cash, and it’s not the concentration of talent. Indeed some people say those things make life in Silicon Valley too competitive to have room to thrive.

It’s the Valley’s culture of stock options; the usually misguided hope that any startup can be the next Google and any receptionist can be the next multimillionaire. Stock options, so the story goes, are the reason everyday employees are willing to trade a steady job with a large company for a riskier post with a startup. It’s the reason companies — allegedly– don’t have to pay startup employees a market rate, meaning more of that venture funding can go towards building the business, not paying outsized salaries. Whenever there’s a movement on Capitol Hill to change how you account for or tax options everyone in Silicon Valley goes nuts. It’s options that keep this place humming– whether it’s the misguided “feeling” of wealth that comes from them and keeps people slaving away to build a great company or it’s the actual wealth that results from them and gets turned into local purchases and angel money for future startups. There was a time when landlords would take options over rent payments.

But lately, it seems like the Valley is falling out of love with options. That is weird, because people keep saying we’re in an early stage funding bubble. Typically when you’re in a bubble people put more unrealistic expectation on options, because it seems a near-certainty stock will keep going up. But, instead, we’re seeing a bigger emphasis on cash compensation. That’s because this isn’t a bubble based on exits and liquidity, it’s a bubble based on too much early stage money throwing itself at too few good ideas.

This week we’ve seen evidence of this shift in compensation demands with a study showing how out of control CEO pay is getting at venture backed companies– up from $238,000 last year to $250,000 this year with an expected bonus another $100,000 or so. Bonus? Isn’t the bonus going public one day? Anecdotally Om Malik muses about the talent grab exploding in Silicon Valley saying the biggest cost of startups– salaries– is going to get a whole lot bigger. Note his examples include people paying more, not necessarily giving bigger grants of stock. Malik compares the ebullience to the 1990s, but back then people were angling for more stock. Cash would have been a sucker’s bet at a time when companies were going public in 18 months. It seems like there’s something different happening, partially driven by companies and partially driven by employees, but all tying back to the lack of huge homeruns that make everyone rich.

On the employee side, there’s increasingly a disconnect between when founders and investors make money and when employees make money. In the past when it took large amounts of venture capital to build a successful business, investors owned the lion’s share of the company and founders and employees both needed a huge exit to make a life-altering amount of money. But now that the Web is so much more capital intensive, angels love to talk up that founders can have a huge payday with a relatively tiny acquisition and the angels can do pretty well too. But what about the employees? Instead many are finding themselves churning through a series of companies building to flip, never making much money themselves and just jumping between treadmills.

Even companies that sell for large amounts, like Slide, have this disconnect of incentives. Slide was not the hit that founder Max Levchin was hoping for, but because he did the first round of funding himself, he personally made a large amount of money. But most of the employees– who worked hard for several years at what they hoped was the next PayPal– didn’t make anything other than their paychecks. It’s not that they were wronged. Planning your finances based on unrealized promises of options is like taking a home equity line of credit on an inflated house just to pay for a vacation. Who on earth would do something like….oh right. Most of America over the last few years, that’s who.

America’s 1990s love affair with options and 2000s love affair with debt aren’t so different from one another. If you buy Peter Theil’s argument that the Internet bubble never popped, rather if shifted into the housing market, it’s as if the promise of something-for-nothing just shifted from the geographically constrained group of employees at dot coms to everyone who could get a crazy mortgage on a house. So, broadly as a culture, it’s probably appropriate for us to be in a mood to take the bird in the hand and give up on those two in the bush.

What about those reports of people flooding out of Google no matter what they pay them, lured by Facebook’s pre-IPO stock? They’re not exactly buy-and-hold investors. Even employees that do have stock in hot companies can’t seem to cash it out fast enough. This week, Bloomberg reported that companies like Zynga and Facebook were having to start charging higher rates and place more restrictions on how employees could sell stock on secondary markets because they were concerned about the rate at which it was all changing hands. If that trend continues– we’ll see even more restricted grants of options, making them less of the compensation conversation to begin with.

This has already started to happen inside large public tech companies, where options have been almost completely replaced with restricted stock units or RSUs, which give employees far less flexibility around how and when they can exercise and cash out emails. This was driven mostly by the change in accounting rules around options, and when the rules were first enacted a few years ago, it was mostly lower-level employees who suffered. But increasingly RSUs are climbing the corporate compensation ladder as part of the standard executive package. Recently I was talking to a human resources executive of a large public Internet company who said that fewer employees were focusing on the stock part of packages anyway, doubtful it would turn into much and favoring a higher paycheck instead. So why would the company take pains to offer them?

A grounded reality that most of us won’t make millions by joining a small venture is a healthy truth in some ways. But there was something about the irrational belief in them that was unique to the Valley, and made its ecosystem more bullet proof. It’s like we’re a bunch of kids that no longer believe in Santa.

But unlike Santa this sense of “reality” can go too far. The danger is we get to a point where we don’t care about options at all. When employees don’t demand options, employers aren’t going to just grant them out of the goodness of their hearts and that leads to a place where everyone is working for a paycheck.

It’s natural that employees are jaded– but it’s in the Valley’s best interest for employers to keep giving them stock nonetheless. At some point we’ll have IPOs again and the stories of the receptionist who became a millionaire will drive a new generation of the best and brightest here. That or you’ll have the Skype effect: A company sells for $2 billion, the founders get rich, but the broader ecosystem is still just as wary about joining a sketchy startup.

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Authors: Sarah Lacy

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