Compensation
Note: Data in this section last updated July 3rd, 2022
What are Compensation Tools?
Like any organization, DAOs need labor to be successful. Depending on their mission, they may require developers, designers, marketers, operators, finance professionals and / or community managers.
Working for a DAO can be extremely compelling – not only does it provide the opportunity for contributors to “own a piece of the action” and make a meaningful contribution to the development of Web3, it also offers a level of flexibility that has been historically impossible. In particular, “employment” at a DAO offers the following benefits:
No Geographic Barriers: As purely online entities, DAOs have no offices or in-person requirements. This means that anyone can choose to work for any DAO no matter where it is located. This not only benefits workers, but also provides a benefit to DAOs who can access talent from anywhere in the world.
Open: Most DAOs don’t have a hiring process, so anyone can contribute (you just have to show up and start working!). In addition, it’s possible to work for a DAO using an anonymous identity, greatly benefiting workers from marginalized groups who have historically faced discrimination (given the proven benefits of workplace diversity, this is a great benefit for DAOs as well!)
Flexible: DAOs don’t have employment contracts – contributors can choose to work as much or as little as they like and are also free to move fluidly between DAOs or work for multiple organizations at once. This not only benefits workers but also provides benefits the DAO as the workforce (and therefore compensation requirements) will naturally expand and contract based on market conditions and the amount of work that needs to be done.
In fact, one could argue that DAOs are the logical extension of the trend towards freelancing and resulting “gig” economy.
Over 1/3rd of US Workforce Performs Freelance Work
Unfortunately, this style of employment creates many challenges from a compensation perspective. After all, how do you design a compensation program for members who work erratically? Perhaps more importantly, how do you determine compensation without management? Without HR? Without contracts or negotiations?
To be fair, DAOs are still figuring this out. To date, there are a variety of popular compensation methods including:
Salaries: In contrast to what was previously discussed, some DAOs – especially well-funded protocol DAOs – still hire full-time workers and follow the standard model that’s prevalent in traditional organizations (e.g. base, bonus, equity). Compensation is generally voted on by the DAO and these workers are often subject to employment contracts.
Equity: Given that DAOs are member-owned, it’s possible to not offer any compensation and just hope that contributors are purely incentivized by their ownership stake. While great in theory, this may prove difficult in practice due to the “free-rider problem” (i.e. the tendency for people to let others do the work while still reaping the benefits)
Bounties: Many organizations are utilizing “bounties”, compensation schemes which pay for the completion of a specific deliverable. Under this method DAOs can choose a task – such as creating a new website – specify the price and allow members of the community to nominate themselves. Some DAOs don’t even have a nomination process, and simply pay the first person who completes the work.
Point-based Compensation: Some DAOs are experimenting with the use of determining compensation through specific actions. For instance, a DAO could create a formula where attending meetings is worth a certain number of points, completing a task a different number, etc… At the end of each period, the DAO would add the totals and tie this to pay.
Reputation-based Compensation: Reputation-based schemes put compensation in the hands of the community. Each team within the DAO is allocated a compensation budget and then members of the team vote on whom should achieve what. This can be done subjectively (i.e. by simple votes) or objectively (in combination with contribution-based schemes)
Hybrid: Many DAOs are moving towards a “blended” model, which combines a limited number of full-time, contractual employees with a flexible contributor base.
As you can see, DAO founders face a variety of challenges in determining and execution compensation. Fortunately, there are several tools available, such as Coordinape, to assist.
How do Compensation Tools Work?
Coordinape is a reputation-based compensation tool created by Andre Cronje in 2021 to use in his own organization, Yearn Finance. The goal of the tool is to transfer the authority to determine compensation to the membership, allowing contributors to determine fair compensation for their peers.
The platform is built around “circles”, groups of members who work together on a regular basis (i.e. teams).
To use Coordinape, DAO contributors connect their wallet to the platform where they can access their circle and see all of their team members .
Each member of the circle is given a certain number of points (called “GIVE”) that they can then allocate to their co-workers as they see fit. They can choose to give all of the points to one co-worker, split them up equally or distribute based on some other method that they choose. Members don’t even to allocate all of their points (although the unallocated ones will be destroyed).
GIVE Points Allocation for Yearn Finance
After allocation, each person’s GIVE points are transformed into GET tokens, which are used to claim a proportion of the group’s allotted compensation budget.
For example:
The DAO sets the monthly budget for the marketing team at $100,000 USD (in the form of USDC)
There are 10 members of the marketing circle, and each receives 100 GIVE tokens to allocate (1,000 in total)
Alice has had a great month, so she receives 250 GIVE tokens from her peers (25% of the total)
At the end of the period, everyone’s GIVE tokens convert to GET tokens, which can be redeemed for USDC
Because Alice received 25% of the total allocation of tokens, she will exchange her GET for $25,000
Point allocations and the resulting compensation are transparent, meaning that every member of the DAO can see who is getting points, who is giving them and how much everyone is getting paid.
This process occurs once every “epoch” – a time period that can vary from DAO to DAO but is often a month.
Coordinape is establishing itself as one of the premiere reward-based compensation tools, and is used by Yearn, MetaCartel, BanklessDAO, Sushiswap, Gitcoin and DAOhaus.
What are Popular Compensation Tools?
In addition to Coordinape, some of the most popular compensation tools include SourceCred, RabbitHole, Superfluid, Sablier and POAP.
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