This post introduces a brief framework for thinking about how to design a good contributor compensation program. It restricts itself to compensation within a given time period; how compensation should change over time is an important topic of its own.
Good contributor compensation has the following properties
- matches the contributor’s desired financial risk profile
- enables the contributor to cover reasonable life expenses
- incentivizes the contributor to think about the long term and to create lasting value for the organization
- rewards the contributor proportional to the long term value they create for the organization
- enables the contributor to govern the organization in proportion to their commitment to, alignment with, and value created for the organization; thereby increasing the likelihood that the organization will be well-governed
There are three main forms of compensation
- Cash (eg stablecoins)
- Economic Stake (eg DAO tokens, loot, corporate equity, etc)
- Governance Power (eg DAO tokens, shares, reputation, etc)
Note that (2) and (3) are often bundled. An optimal compensation system likely unbundles them to some degree.
No single form of compensation can meet all these requirements
But combined they can cover them all (or at least get close)
Other challenges and considerations
- Long term value created (D) is really hard to predict up front. Some form of future retroactive compensation (retroPGF-style) may be relevant.
- Even expected long term value created is difficult to determine objectively.
- Some form of intersubjective evaluation is likely necessary
- Cash can also help here by serving as compensation in the sense of labor-theory-of-value: at least the contributor’s time/effort is compensated