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Strictly on market cap alone, there is a lot more headway in YHOO. It's much easier to image their stock (and thus stock options) tripling in the next few years than GOOG. Microsoft ran into this problem when Google was still small.

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Right, but people who are still at Google are usually there for reasons other than the money. They like their coworkers, or they believe in the company's mission, or they feel that they are not in a position to take a big risk in their life right now. If they jump from Google to Yahoo now, they are taking a risk, moving from a company with strong product/market fit in their core businesses to one that's an also-ran in their core businesses, and for - tripling of their stock options? If they're willing to take on that sort of market risk, why not jump to a startup where the stock could potentially go up 3000x in the next few years? Or a fast-grower like Twitter or Facebook where the stock might triple, but the company already has product/market fit and doesn't need to stumble around searching for it?

This argument is used a lot and I don't really understand it. If you are really confident that Yahoo's stock will triple but you like Google better you could just buy shares (or options) to hedge that.

On a purely economic basis you probably are right. But employee options are granted, not purchased, and I suspect you work harder if you have skin in the game.

Also, from a self-actualization perspective it may be preferable to by VP of Worldwide Widgets at Yahoo than Director of EMEA Widgets at Google.

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