Stock equivalent options if the company is self funded and does not intend to go public

Just because a company isn't public doesn't mean you can't provide stock/shares in the company privately. In fact, most companies do this for investors and their early employees. Giving out shares in your company can be a tricky thing, so be sure to research it before doing it. For starters, though, I'd recommend making sure the stocks don't fully vest for a few years. Even up to 5 years is common. This means the employee would need to work for you for 5 years before fully earning the stock.

Second, there are tons of perks that you can provide that don't cost money, or that don't cost nearly as much money as the value they provide. For example:

• Flexible work schedule. Allow employees to work during whatever hours suits their needs best.
• Ability to work from home, either all the time, or a part of the time.
• Extra paid time off. PTO is usually worth 2 or 3 times as much to a person as their salary for that day. If a person gets paid, say $200/day, and you give them an extra week off ($1000/week), most people would probably be willing to get paid $2000-3000 less in annual salary for that time off.
• Some companies are crazy enough to say "We don't have a PTO limit. Take whatever time off you need, just make sure you get your job done." I know I'd love to work in a company with that policy.
• Free soda.
• Free lunch.
• Free coffee.
• Give them their own office. This obviously costs money, but if you're a knowledge worker (like a programmer) having your own space where you can shut the door and have things be quiet makes a huge difference. Also, there's the prestige factor of having your own office, which makes a big difference. (This was a big part of what convinced me to work with a startup.)
• Get them the right equipment to do their job. If you can, let them determine what that is. It might be two monitors, a nice chair, a whiteboard, certain software packages, etc. If they're comfortable at work, they'll be much happier with it.
• Pay for part/all of their gym membership.
• iTunes gift cards, or pay for their Grooveshark membership, or something.

These are just a handful of ideas, and some things work in some situations, but not others, so you'll have to think about what would be a good fit for your company. The list is endless. Get creative!

The purpose of stock options is to give the employees a stake in the success of the company. If the company does well and is acquired or goes public, then they can exercise their options and get rewarded.

So, if your company is looking forward to either of those possibilities, then you can still grant stock options. You can also skip the option part and just issue stock (taxable to the employees, but not much tax if the stock isn't worth much). You can also create Stock Appreciation Rights -- basically, if the value of the company increases, they get the right to what they would have had if the stock had increased, but don't get other rights as stockholders.

If the company isn't thinking of either of those, then you probably don't want to give your employees stock, since there would never be any market for it and you don't have to worry about having minority stockholders. Instead, look at cash-based awards. What sort of awards? A profit-sharing plan or a bonus plan tied to a certain level of earnings would be good examples.