It is confusing, so I will try to break it down as simple as possible at least the way I understood/understand it. The reason the reverse split happened in the first place was that the company was trying to get a certain valuation with a certain opening price for the stock at IPO. With the number of shares they had granted in the option pool, hitting those target numbers was impossible. To adjust for this, it was decided to do a reverse split to reduce the number of shares out thus allowing them meet their valuation and opening price for the IPO. For example, if they wanted raise $8,000,000 on the IPO and have a $20 opening price they could only have 400,000 shares out. Instead they had 32,000,000 shares out. This would have meant to hit the same $8,000,000 raise, they would have had to open at $0.25. So to adjust they did the 1 for 8 reverse split meaning they went from the 32,000,000 shares to 400,000 shares out. Now they can open at $20 and raise their $8,000,000.
Using the same example above, here is where it hits the employee. Let's say on opening day the company opens at $20. Now let's say in the original picture you owned 8000 shares and stock closed that day at $60. You would stand to have made approximately $320,000 ($480,000 - $160,000). However, now with the reverse split you now only have 1000 shares. The stock still opens at $20 and still closes at $60. But now you only made $40,000 ($60,000 - $20,000). That's the downfall of a reverse split.
At least with a normal split (i.e. 2 for 1) you have an upside potential on earnings. This is how a lot of early employees of companies like Microsoft, Apple, Under Armour, etc... have made out significantly well for themselves. With a reverse split they are taking away shares so there is no upside.
Using the same example above, here is where it hits the employee. Let's say on opening day the company opens at $20. Now let's say in the original picture you owned 8000 shares and stock closed that day at $60. You would stand to have made approximately $320,000 ($480,000 - $160,000). However, now with the reverse split you now only have 1000 shares. The stock still opens at $20 and still closes at $60. But now you only made $40,000 ($60,000 - $20,000). That's the downfall of a reverse split.
At least with a normal split (i.e. 2 for 1) you have an upside potential on earnings. This is how a lot of early employees of companies like Microsoft, Apple, Under Armour, etc... have made out significantly well for themselves. With a reverse split they are taking away shares so there is no upside.