SpaceX investors say the rocket company uses a 'very smart' internal stock market to keep workers happy in spite of long hours and 'mediocre' salaries

• A private investor in SpaceX, the rocket company founded by Elon Musk, is in the middle of an internal tender offer for its employees.
• Employees can gradually buy vested stock in SpaceX. A former employee says staff get a 10% discount off the latest strike price.
• But to keep tight control of the company's shareholders, SpaceX reportedly uses an internal stock market. The private exchange matches up employee-shareholders with approved investors.
• SpaceX allegedly makes no money off such internal tenders, but the system motivates staff with options to keep working hard for the rocket company.
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Startup jobs are notorious for grueling hours and laughable work-life balance. For many employees at SpaceX, the stereotype seems to fit. After all, staff are toiling to make real the dream machines of Elon Musk - the rocket company's founder, CEO, and chief designer - and then launch them into space on aggressive timelines.

But for all of their labor, expertise, and magic-making within the space industry, purported employees on the job site Glassdoor frequently cite wages as a negative. Some anonymous reviews on the site describe SpaceX's salaries in terms such as "underpaid," "minimal compensation," and in some cases "lowest pay in the industry."

So how does SpaceX keep any of its roughly 6,000 employees sticking with the company, aside from buying into Musk's charisma and vision?

"[T]he stock options are incredible," a purported supply chain engineer wrote in December. "My salary is mediocre, but I'm pretty confident I will leave this company with a small fortune."

While stock-option compensation at a Silicon Valley-style startup is no surprise, one current outside investor in SpaceX says the company has a "very smart" way of getting employees liquidity. (Business Insider verified his identity, but he asked not to be named to avoid any reprisals from the company.)

He says SpaceX's employee- and shareholder-facing financial system - what the Los Angeles Times once described as an "internal stock market" - not only helps out staff get paid above and beyond their salary and keeps them working hard, but also gives SpaceX precise control over who owns pieces of the company. The latter is of tantamount importance to Musk, who has an audacious vision of "enabling human life on Mars" with SpaceX and indicated on several occasions that he won't sell the company until that happens.

Right now, says the anonymous investor, SpaceX is in the middle of using that internal tender system to put more money in the pockets of employees, and it does so roughly twice a year.

"They facilitate the process, and they do not make any money off of it," he told Business Insider. "But any large company that wants to retain their top employees should do this. There is no benefit in terms of capital to the company, but the retention factor is huge."

How SpaceX employees get ahold of company stock

Getting ahold of SpaceX shares for an employee isn't too different from how other startups handle stock option plans.

SpaceX typically offers every full-time staff member the option to participate in its employee stock purchase program, or ESPP. This grants workers access to buy a small amount of stock as it vests, usually over four years, according to a former employee, who described the company's stock program to Business Insider after he was laid off in January 2019. (Business Insider verified his identity, though he is not named here to protect his privacy.)

Workers can buy shares out of their paycheck for 10% off the going price as they vest, but SpaceX permits no more than 15% of pay to go toward purchasing options, the former employee said.

Higher-level employees are also offered incentive stock offerings, or ISOs, of varying amounts; typically, the higher an employee's position is on the company ladder, the more shares they're offered. The investor said executive-level positions can gain access to hundreds of thousands or millions' worth of options. Employees still have to purchase the shares at the going rate, though, so the investment can be significant and risky, the investor said.

"You can see your stock go up, but it can also go down. You're not guaranteed a return on it," he added.

But at SpaceX, the trend has been much like a rocket flight: up and up and up. Back in 2013, the former employee said, he was offered several hundred shares that were worth roughly $2 each at the time. When he was laid off and offered a chance to finish purchasing his remaining options, those shares were each worth more than 100 times as much.

"Based on what Elon is doing right now, based on putting a constellation of satellites around the globe for high-speed, low-cost internet for everyone, and also our Mars ship - our stock could possibly go up to $500 or $600 a share," he said. "That would be a good retirement for me."

The employee was referring to two of SpaceX's biggest private projects: Starlink and Starship.

Starlink aims to surround Earth with up to 42,000 satellites- five times more objects than humanity has every launched to orbit - and bathe the planet in web access. Musk estimates the system could gross SpaceX tens of billions of dollars a year. Starship, meanwhile, is a planned steel rocket system that'd be fully reusable. If realized, it threatens to make obsolete the entire rocket industry, which relies on single-use launchers, by making getting to space hundreds of times if not 1,000 times cheaper.

Many employees are choosing not to sit on their shares and sell what they can, the investor said. He noted that Los Angeles, where SpaceX is headquartered, isn't a cheap place to live and a surge of cash goes a long way toward a down payment, paying off a mortgage, or buying into a retirement fund.

But the anonymous investor said the company doesn't just let employees sell to anyone at any time: It uses an internal "matchmaking service" with vetted investors to get employees cash for their options.

How SpaceX's internal stock market works

Employees could ostensibly try to sell their shares on their own, such as through a broker. But because SpaceX is not a public company and its shares come with a right of first refusal, the company's board of directors can kill a private sale.

But with a growing number of employees - and more and more staff whose shares are vesting - SpaceX decided to launch its own internal exchange, the investor said. The system is allegedly structured to give employees the ability to sell part of their vested shares on a biannual basis, but with some limitations.

"Normally they allow 10% or up to $1 million. If you have $10 million worth of stock, say from an early employee or higher-level employee, they don't want you to cash out and leave," the investor said.

He added the strike price is set by the last SEC-reported fundraising round, and that the price never goes higher to avoid public filings that may affect SpaceX's valuation. According to Pitchbook, a service that tracks startup financials, the last price - based on a $314 million fundraising round that began in June 2019 - was $214.

It's up to employees how much of their vested stock they want to sell through the system. But the investor says all the stock that is offered gets snatched up, as does stock offered in fundraising rounds.

"They always succeed," the investor said. "In the past five or six years, they've always hit their target number."

Once SpaceX has a handle on which employees are selling what, they approach investors - but only those trusted parties already in the company's capitalization table, or cap table. Top investors get first pick as to how much they'd like to buy, then SpaceX work its way down the list.

"They get people like me who are previous investors, which doesn't change the cap table," the investor said. "From a company perspective, they don't want their guys leaving and trying to sell the stock to other players. They want to control that process. It's very smart. SpaceX kind of controls the market."

'They're the most in-demand private stock that exists'

A second anonymous investor in SpaceX, who backed up some details included in this story, said SpaceX is in a very powerful position in regard to its stock. (Business Insider also verified his identity yet is honoring his request not to be named.)

"They're SpaceX, so they can do almost whatever they want - they're the most in-demand private stock that exists. The don't have to do things the way things are traditionally done," the second investor told Business Insider.

He added that there is so much demand in part because because of its exclusivity, but also because the sky is not the limit for where the company may go beyond its rocket-launch and internet-satellite businesses.

"You've also got all these unknowns, like, 'What is the value of a company that is managing a planet?' That's the fun part to think about," the second investor said, referring to SpaceX's potential future control of the rocket-launch industry and Mars habitation plans. "But even with the stuff we do know, the business case closes."

It's uncertain how much stock employees are currently trying to sell because the internal tender has not yet closed, the first investor said. But he added "this one is weird" because SpaceX's internal tenders are - as of late - typically associated with a primary fundraising round.

Both investors emphasized that SpaceX's internal tenders don't net the company any money; if anything, it costs them. But the price of playing matchmaker is likely worth it, and he said similar practices are "becoming more common practice with late-stage companies, where the stock has appreciated significantly."

"It's work for them," the first investor said, but "a tender offer at last round's pricing makes employees happy."

Do you have a story to share about SpaceX or other space companies? Send Dave Mosher an email at dmosher+tips@businessinsider.com or send him a Twitter direct message to @davemosher. You may also consider more secure communication options listed here.

Meghan Morris contributed reporting to this story.