Palantir will start paying employee bonuses in stock units instead of cash even though an IPO may be years away

• Palantir, the controversial data analytics company founded by Peter Thiel, is making a big change to the bonuses it pays employees.
• Instead of getting cash bonuses, Palantir employees will receive restricted stock units, according to a memo obtained by Business Insider.
• The change means that employees will not be able to cash out their bonuses until Palantir goes public or is acquired by another organization.
• Visit Business Insider's homepage for more stories.

Palantir is phasing out cash bonuses for employees following a company review of how it spends its resources, according to an internal memo obtained by Business Insider.

The secretive data analytics company, founded by conservative billionaire Peter Thiel in 2003, will issue this year's bonuses half in cash and half in Restricted Stock Units, director Khan Tasinga said in the email to staff on Friday. By 2021, company bonuses will be entirely RSUs, according to the email.

The change is likely to cause ripples among Palantir's ranks of employees, since it means their bonuses will effectively be worthless until the privately-held company, last valued at $20 billion in 2015, lists its shares on the stock market or is acquired.

"Palantir has entered a new stage where we need to not only continue focusing on growth, but also to ensure that growth is long-term sustainable as we march toward a successful IPO," Palantir's Tasinga said in the email. "Doing so requires revising assumptions and reevaluating how we can best use company resources to advance the business while supporting our people."

Palantir declined to comment.

Read more: Insiders say a Palantir exec claimed profitability and compared Project Maven to the nuclear bomb in January all-hands

The change comes at a time of financial uncertainty for the company, which was widely viewed as an IPO candidate for 2019. In June, Palantir cofounder Joe Lonsdale told an audience that he thinks the company is years away from going public, and in September, Bloomberg reported that Palantir was looking to raise another round of private funding, though nothing has been announced.

Palantir told employees in January that it had achieved profitability, though it's not clear what metric the company used for its definition of profitability, Business Insider previously reported. It has beefed up its revenues through expensive government contracts working with the Department of Defense on its artificial intelligence for drones endeavor, Project Maven, as well as well as an $800 million contract to build software for the Army.

Employees have struggled to sell equity

RSUs have become a contentious issue at the 17-year-old company after it stopped issuing vesting-dependent stock options altogether in early 2019, according to a former employee. For those who joined Palantir before 2019, much of their compensation was composed of these stock options, leaving many current and former employees with hundreds of thousands of dollars in equity, but few opportunities to sell it.

"Palantir is actually one of the most well-oiled machines for secondary shares in the private markets. They have been very supportive of their shareholder base and their desire to sell," said Andrea Walne, an investor at Manhattan Venture Partners, which holds Palantir stock.

But sellers face two major hurdles, according to Walne. There is too much supply on the secondary markets, and there are so many preference classes that buyers can easily purchase shares from later-stage investors, which means they will get a higher return on those shares if the company goes public below a certain valuation.

"Employees are at the bottom of the cap table," Walne said.

Palantir's decision to pay annual bonuses in RSUs presents another problem for employees. Unlike stock options, which can be sold on the secondary markets, RSUs can only be sold once a company goes public or is acquired.

The number of RSUs issued in bonuses will be equal to the amount of cash, and priced at the discretion of the board of directors, according to the email.

Palantir's true value, however, is up for debate. Though the company was valued at $20 billion in its last funding round in 2015, secondary shares of the company regularly sell at a valuation between $8 billion and $12 billion, according to two investors in the space.

For employees looking to exercise their stock options, the company had a strike price of $7.40 tied to its $20 billion valuation. It lowered that strike price to $6.10 in 2018, according the former employee.

The secondary share market place EquityZen recently announce its was selling Palantir shares for just $4.85, for an implied valuation of $8.9 billion, according to an offering viewed by Business Insider.