Blue Origin employees finally have a route to match SpaceX’s new millionaires — but there’s a catch.
Jeff Bezos’ rocket company has sought to address internal backlash over its stock option plan, which left employees holding worthless options while their counterparts at SpaceX made huge fortunes, by introducing a new, more generous equity scheme.
However, the plan also includes an unusual non-compete clause, which has not previously been reported. It says that employees will forfeit all their stock options if they join a competitor within 18 months of leaving Blue Origin, according to a copy of the agreement seen by Business Insider.
Employment attorneys and wealth managers told Business Insider that including this type of non-compete clause in an employee options scheme was unusual for fast-growing private startups.
Mary Russell, an attorney at Stock Option Counsel PC who specializes in startup equity compensation, told Business Insider that these conditions make it less likely that employees will be paid out on their equity if the company strikes it big.
“If someone is planning to stay with the startup through an acquisition or IPO, this may not be important,” Russell said. “But startups are staying private much longer than they did in earlier eras, so it’s very likely that startup employees will leave before a companywide exit event.”
Blue Origin did not respond to a request for comment.
An unusual non-compete that doesn’t apply to all employees
The non-compete clause does not apply to workers in California and Washington, which have passed strict laws banning non-competes.
However, it still covers a significant portion of the company’s workforce, which is based mostly in Florida, Texas, and Alabama. These workers now face greater restrictions on cashing in on their equity than colleagues on the West Coast.
Blue Origin’s total number of employees is not known, but the company reportedly employed around 12,600 workers as of last February. Blue Origin has said it employs around 4,000 people in Florida and 1,600 in Alabama.
Russell said that such non-compete forfeiture clauses are “very rare” among tech startups in the US, adding that stock options with forfeiture or repurchase conditions were more common in Europe and in private-equity style companies.
Two former SpaceX employees who left the company to join Blue Origin told Business Insider that their option plans at SpaceX — which is headquartered in Texas, where the practice is allowed — did not have a non-compete clause.
Blue bets on retention
The new stock option plan comes as Blue Origin attempts to retain its best talent in its race with SpaceX, which has built a commanding lead in the space industry. In the past, the industry’s close-knit nature has meant that employees have often moved between the two companies.
Fast-growing private startups often attract employees with stock options, which can offer a lucrative payout if the company’s valuation grows — or be worth nothing if the startup crashes and burns.
Blue Origin’s new stock options plan, adopted in May, offers more opportunities for employees to cash out, including certain external funding rounds. In addition, it includes several restrictions on how employees can cash in their equity.
Under the agreement, Blue Origin employees would never actually own any of the company’s stock. Instead, once their options have vested and are exercised to buy shares during a “liquidity event”— either an IPO, a sale of the company, or certain external funding rounds — those shares are “immediately and mandatorily” repurchased by Blue Origin.
Employees get paid for their options at a “fair market value,” which, if Blue Origin hasn’t gone public, is determined by the company.
Russell said that such a structure was more common among private-equity-backed companies but rare among venture-capital-backed firms.
The Blue Origin options, offered at a fixed price of $9.50 for employees, vest up to 25% in the first year, then in quarterly installments. If there is no liquidity event, they expire 18 months after the employee leaves the company.
Ars Technica and The Financial Times previously reported some elements of Blue Origin’s stock option plan.
Blue Origin first introduced employee stock options in 2016. Former employees previously told Business Insider that the options were structured to expire within 10 years and could only be exercised if Blue Origin was sold or went public, making them effectively worthless because the company met neither condition.
By contrast, SpaceX’s option program allowed current and former employees to cash out their vested options around twice a year, one former SpaceX employee told Business Insider.
SpaceX’s rapid ascent to one of the world’s most valuable companies made many of its employees — including welders, cafeteria workers, and janitors — rich, with the company’s recent IPO minting thousands of millionaires.
Meanwhile, Blue Origin has hit rough air. Most notably, the company’s huge New Glenn rocket, a key part of NASA’s plan to return to the moon, exploded on the launchpad in May.
Last week, Blue Origin told employees that, for the first time, the company, which has been funded by Bezos since its inception in 2000, would seek external funding, raising $10 billion at a valuation of $130 billion.
The new stock option plan allows employees to exercise their options during a “qualifying external funding round,” but it’s unclear whether this funding round counts.
The stock options document viewed by Business Insider states that Blue Origin has the “sole discretion” to determine whether a funding round qualifies as a liquidity event — which means employees may need to wait a little longer before they can cash out.
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