That approach appears to provide an incentive for employees to leave so they can liquidate their holdings.
Suppose the (ex-)employee sells the company an option on his options.
If he exercises prematurely, the company sits on its option and the employee can't flip the shares onto the secondary market. When the company exercises, the employee is compelled to exercise to cover his position. Figuring out the strike price on the options could be tricky, but it removes the incentive to quit and force the company to scoop the shares.
also 'fair market value' is difficult for a private stock