"Equity is the founder's only payoff, so they're going to be incredibly stingy about it, while playing up the intrinsic benefits"
There's also a lot of weight behind the "this is how it's done". 1% used to be very generous when founders had to roll the dice with 12+ months of their life to get seed funding and take big dilution when they did. Nowadays, it's cheaper/easier/faster to start a company, easier to get early stage funding, etc. It might make sense to reward employee #1 with a bit more equity... IF you can't pay them market rate (you buy equity by taking risk-- if you aren't underpaid, you aren't risking much beyond opportunity cost).
There's also a lot of weight behind the "this is how it's done". 1% used to be very generous when founders had to roll the dice with 12+ months of their life to get seed funding and take big dilution when they did. Nowadays, it's cheaper/easier/faster to start a company, easier to get early stage funding, etc. It might make sense to reward employee #1 with a bit more equity... IF you can't pay them market rate (you buy equity by taking risk-- if you aren't underpaid, you aren't risking much beyond opportunity cost).
See: http://startupboy.com/2011/12/13/why-you-cant-hire/