Blue Origin adds richer equity plan with job-switching penalty

Blue Origin is reportedly offering employees a richer stock-option plan as SpaceX’s public-market debut raises the stakes in the contest for aerospace talent. The plan could help Jeff Bezos’ space company retain workers, but advisers told Fortune that its forfeiture rules may make the equity harder to treat as real wealth.

Business Insider reported, citing agreements it obtained, that Blue Origin is rolling out the new equity program after internal criticism of an earlier plan that left workers with options that were effectively worthless. The change follows SpaceX’s June 12 Nasdaq listing, which Fortune reported was the largest IPO in history and turned an estimated 4,400 current and former employees into paper millionaires.

The Blue Origin plan includes a clause requiring employees to give up all stock options if they take a job with a competitor within 18 months of leaving, Business Insider reported. SpaceX is the clearest example of the kind of rival such a rule could affect.

Evan Mills, an associate financial adviser at Scholar Financial Advising who works with SpaceX employees, told Fortune that employees face a trade-off between potential gains and future job flexibility. He described the arrangement as “golden handcuffs,” because the equity may have value if the company performs well but can be lost if a worker leaves for a rival.

Blue Origin did not immediately respond to Fortune’s request for comment.

How the equity plan works

Business Insider reported that Blue Origin employees would not directly own company shares under the plan. After options vest and are exercised during a liquidity event, Blue Origin would immediately repurchase the shares, according to the agreements described by Business Insider.

The company also has “sole discretion” to decide whether a funding round qualifies as a liquidity event, Business Insider reported. The options are offered at a fixed price of $9.50, can vest up to 25% in the first year and then vest quarterly after that, according to the report.

The options expire 18 months after an employee leaves if no liquidity event has occurred, separate from the forfeiture tied to joining a competitor, Business Insider reported. That structure means the company controls both the timing of any payout and whether a worker can keep the benefit after leaving.

Legal and financial questions

Edward Hones, an employment lawyer and owner of Hones Law Seattle Employment Lawyers, told Fortune the forfeiture clause functions like a non-compete, even if written as an equity condition. He said Washington courts look at the effect of a provision rather than its label.

Hones said Blue Origin reportedly excluded employees in Washington and California from the clause, which he said suggests concern about whether it would survive in those states. California bars most non-compete agreements, and Washington sharply limits them. Fortune reported that the carve-out still leaves much of Blue Origin’s workforce covered because employees are concentrated in Florida, Texas and Alabama.

Hones also told Fortune that courts are often more cautious about allowing companies to claw back vested options, which he described as pay already earned, than unvested awards. He said tying forfeiture to competition is uncommon outside private-equity-style firms, and that an 18-month period is longer than he typically sees.

Osman R. Minkara, founder and managing director of CIG Capital Advisors, told Fortune that private-company equity can matter to a worker’s finances but is not the same as cash or publicly traded stock. He said value becomes more certain only when a liquidity event occurs.

Mills also warned Fortune that SpaceX employees who became wealthy on paper still face concentration risk if much of their net worth remains tied to one company. He said workers at fast-growing companies often believe strongly in their employers, but relying on one stock can be dangerous for retirement planning.

This story draws on original reporting from Fortune.