In earlier times, this was not much of a problem because companies backed by venture capital went public rather quickly, in some cases before employee shares even vested. But now, the average venture-backed company waits about eight years to go public, creating a headache for employees.

Scott Kupor, a managing partner at Andreessen Horowitz, highlights the issue in a recent blog post. Basically, employees who leave their jobs now must exercise their options almost immediately. But to do that, they need cash – cash they might not have. Once the former employees exercise their options, the stock they receive is often illiquid and not sellable. A private secondary market for these types of shares grew up around pre-I.P.O. Facebook stock, but many venture-backed companies place restrictions on the ability of employees to sell the stock they receive in an option exercise until there is a liquidity event like an initial offering or sale.

Palantir did not impose restrictions on employees or stockholders selling shares in the private market. Perhaps as a way to get current and former employees to participate, Palantir’s repurchase offer threatened to make it harder to resell the company’s stock in the private market.

Employees need to consider another headache – taxes. Not only must employees put up cash to exercise their options, they must pay taxes, which can be an extraordinary amount if the private company has a high valuation. But because the company is not public yet, one cannot even be sure that valuations will materialize, particularly in the era of the overvalued start-up. This was a problem in the day of the tech bubble. Employees exercised options worth millions of dollars but found that when taxes were due, their companies and stock were worthless.

Mr. Kupor recommends extending the vesting period to conform with the longer time it takes for a company to go public. He also suggests a longer period for employees to exercise options after they leave, up to 10 years. That figure is endorsed by Y Combinator in an argument that any lesser period is unfair to employees. Palantir gives departing employees three years to exercise their options. Other companies have adopted the 10-year period for employees leaving after two years. The downside is that this solution can lead to a mass exodus after two years as employees race to their next start-up, options safely in hand.

Mr. Kupor notes that extending the exercise time for former employees makes their options more valuable at the expense of employees and investors. (It does so because former employees have a longer time to exercise their options and dilute the other shareholders.) Mr. Kupor has no solution other than to allow companies to extend the time at their discretion. But as we see in the Palantir case, companies can pick and choose favorites, or even refuse to accommodate former employees.

The Palantir repurchase and Andreessen Horowitz’s ruminations highlight a more fundamental point: Compensation at venture-backed companies needs to be rethought in an age when many of these companies are staying private longer.