How can startup advisor stock options be correlated to their value-added so there is an egalitarian solution for multiple startup advisors with variable contributions to value creation?

This is tricky: if you already know the advisor, and have established a prior relationship that allows you to have a good feel for the output of "engagement", you can try and frame your expectations - and get the corresponding commitment. If you are getting into a new industry, and are connecting with execs in the field to get advice, the only thing you can really do is get a few quiet references before going too far with someone. In general, you need to be very clear about what you need - type of interactions (meetings, emails, phone calls), time allocation expected, response time, etc. - understanding that most often the amount of stock advisors receive won't make a difference to them. There are exceptions with seed-type advisors who might get 1% of the company for the help they provide, and some of these guys can be absolutely pivotal to the future success of the company. It is OK to have a one or two year initial vesting schedule with someone, and re-up if things are working well. If expectations aren't met, then you want to talk about it and see how things can be fixed. Firing an advisor who is not performing can be tricky: even if they understand the concept of vesting, they will feel that betrayed that you take the options away from them, and if they are influential in your target industry you might create a real issue for yourself. So make sure that whoever you name as an advisor is right for you. The only way I would see a performance-based compensation is to engage them on a consulting basis, and pay cash.

Negotiate a deal with each that "feels right" to you based on the value you expect them to contribute.  Each may get different deals. Set out expectations ahead of time for what you want their activity and their contribution to be. Set a fixed term plus a vesting schedule to the relationship.  Perhaps one or two years.   Re-up if it is going well.  Not if it is not. This is a series of conversations and negotiations and will yield something not entirely egalitarian. You can search all day for a mathematical proof that you have a fair solution, but you'll never find it.  Sign these folks on, then move on.

The most common approach, which I prefer, is to reward everyone equally.  The equity is just a goodwill gesture anyway.  Giving less to some people you think aren't as useful is kind of like giving less of a handshake if you don't think a person is important... kind of defeatist. Equity isn't the main reason an advisor joins a company.  It's a relationship thing, and they will get as much or little out of it as they put into it.  If someone works out well there will be many opportunities - access to the company, new technologies, new business ideas, connections, personal satisfaction and mental stimulation, a first crack at investing, staying on top of the game.  Having a loyal ally.  If they don't work out they won't get these things, and they'll either drift off our you can let them go.  Or else be philosophical about it.  You still have room in the option pool to try again with 20-30 other advisors, so it averages out. If you must, you can give something extra to especially valuable people, either upfront or as a reward.  Throwing more stock at them is a little unimaginative.  I'm sure you can think of some other things.  Gifts, take them to meetings or a convention, take them to dinner, give them a guest desk in the office, offer to help them with their projects, etc.

Great question, we built a calculator to help you figure it out. Try it out - http://www.kulpulator.com. We've also found at http://www.badassadvisors.com that you should you the 30D/6M/2Y formula to determine if a relationship is working out. Try out the advisor for free for 30 days, if you like them sign some paperwork to make it official Re-evaluate after 6 months, if it is still going well (they are getting you the results you wanted) you keep their options vesting monthly but if it isn't you end the relationship. Re-assess after 2 years, your business has probably changed dramatically now.