SpaceX requires employees to agree to some unusual terms related to their stock awards, which is having a chilling effect on staff, according to sources and internal documents seen by TechCrunch.
This includes a provision that allows SpaceX the right to repurchase vested shares within six months after an employee leaves the company for any reason. SpaceX also gives itself the right to bar past and current employees from bidding if they are found to have committed an “act of dishonesty against the company” or violated written company policies, among other reasons.
Employees are often unaware of the “dishonesty” status when they first sign up to the equity compensation management platform, a former employee said.
If SpaceX bars an employee from selling shares in the tender offers, the person would have to wait until SpaceX goes public to cash out the shares — and it’s unclear when that will happen, if ever.
SpaceX did not respond to multiple requests for comment.
Employees pay taxes on their shares
Like most tech companies, SpaceX includes stock options and restricted stock units (RSUs) as part of its compensation package to attract top talent. Without a doubt, it has paid off: SpaceX’s 13,000-person workforce is helping to push the limits of what was thought possible in aerospace, including delivering crew to and from the International Space Station and building the largest satellite constellation in history.
Unlike shares in public companies, shares in private companies cannot be sold without the company’s permission. Thus, employees can convert this part of their pay into cash only when their employer allows such transactions. SpaceX is known for holding buyback events twice a year — meaning SpaceX will buy the shares back from employees. This schedule, which has been fairly reliable in recent years, means that employees have semiannual opportunities to liquidate assets that have likely appreciated since the vesting date.
It is not uncommon for additional conditions to be attached to employee stock compensation in startups, and employees who stay with the company long enough to vest may have acquired stock under various stock plans with varying terms. However, no employee in startups and private companies is allowed to sell their stock without their employer’s approval.
Indeed, at SpaceX, if an employee were fired “for cause,” the company said it could buy back their stock at $0 per share, according to documents seen by TechCrunch.
“It sounds unusual to have [a] cause a press lockout provision in an offer agreement,” attorney and stock options expert Mary Russell told TechCrunch. He also said it’s unusual for a traditional venture-based startup to have repurchase rights for vested shares that aren’t related to a bad-actor-type “for cause” termination.
Those terms “keep everyone under their control, even if they’ve left the company,” said one former employee, because workers don’t want to be forced to return their valuable stock to SpaceX without compensation. “And since there’s no immediate need for SpaceX to go public, the bid ban effectively zeroes out your shares, at least for a long time. Even though you paid thousands to cover the taxes.”
“They also try to force a non-disparagement agreement on you when you leave, either with a carrot or a stick if they have one,” the person said.
SpaceX calls Elon Musk’s actions a ‘risk factor’
As recently as 2020, SpaceX also provided employees with a separate document outlining the risks of investing in the company’s securities. It reads similar to an S-1 registration statement that public companies must file. Since SpaceX is privately held, it’s a unique revelation of the company’s risk profile.
To a large extent, such documents are drawn up to minimize the company’s legal liability. The SpaceX document correctly points out that equity investments are inherently risky because participants are trading a highly liquid asset – cash – for highly liquid stocks. As such, they exhaustively list various major risk factors, no matter how unlikely — for example, in the risk document seen by TechCrunch, SpaceX includes that Hawthorne, California, where its headquarters are located, is a “seismically active area”.
The company also includes a number of risk factors related to Elon Musk, its CEO and founder.
“To date, the Company has been highly dependent on the leadership provided by the Company’s founder, CEO and Chief Technology Officer, Elon Musk,” the document states. “SpaceX, Mr. Musk and other companies with which Mr. Musk is associated often receive enormous media attention. Therefore, Mr. Musk’s actions or public statements could also have a positive or negative impact on SpaceX’s capitalization.”
The document also mentions a $40 million settlement between Musk and the SEC, which came after he tweeted in August 2018 that he was considering taking Tesla private. Although that tweet was not about SpaceX, “the settlement has implications for SpaceX,” the document says.
“If there is a lack of compliance with the settlement, additional enforcement actions or other legal proceedings could be brought against Mr. Musk, which could have adverse consequences for SpaceX. More specifically, the SEC could deny SpaceX the right to rely on Regulation D, which is an exemption from registration under the Securities Act of 1933 for private financing transactions. A denial of future reliance on Regulation D could potentially make it more difficult for the Company to raise capital in the future.”
While Tesla’s recent securities filings invoke the SEC settlement, they don’t direct potential media attention in the same immediate way.
The document also says there’s a risk there may never be a public market for the company’s common stock — a matter that should ever bar an employee from bidding events.
SpaceX is one of the most valuable private companies in the world, with a valuation exceeding $180 billion as of last December. Like other private companies, its shares are divided into preferred and common. Employees are awarded the latter, while preferred stock is generally owned by institutional investors and entities connected to Musk. Preferred stock has certain superior rights attached to it, including liquidation preferences and dividends.
The common stock is divided into three classes of shares: Class A, B and C. Under a stock incentive plan approved by SpaceX’s board of directors in March 2015 that expires in 2025, employees receive Class C shares, non-voting share.
