The start of a map for rewards & compensation in web3 organisations

The great resignation helped DAOs have more fans, hopeful that DAOs create a new way to exist and work too. However, the state of DAOs does not yet provide a clear and sure way to communicate and set expectations.

I celebrate that we, the web3 folk, stepped into unexplored territory boldly to create new ways, taking on the hard tasks. It was easier when we had straightforward definitions of an organization and a few ways to relate: employer and employee, LP and partner, organization and associates.  When one thinks limitedly, the solution space becomes easy.

When DAOs came in, we said that we are everything and more. We are contributors, members, mercenaries, workers, researchers, vibes officers, clients, shareholders, stewards, supporters and enthusiasts. We aspired to value and reward everything. All the streams of value creation that were dismissed, niche or uncounted. It’s healthy to go beyond to forge new ways, yet we confused ourselves by not having a language or map.

And a reward that is expected and not met is a punishment.

As an ecosystem, we do not yet provide a clear and sure way to communicate and set expectations on what individuals might take-back when they create value. The risk is that if we do not correct the course on DAO compensation and rewards practices, we will end up with “the great disappointment” - A more disruptive event.

The approach in DAOs right now is defining the territory with the tools. The Coordinape way, the Praise way, the Sourcecred one. Which does not help to communicate the diverse ways unless one is immersed in the ecosystem. We cannot speak, we cannot think, and we cannot set expectations.

We need a language; we need a map.  LFTG

Did you know? Rewards and compensation are the same words in origination, although we do not use them to mean the same thing nowadays. The term "reward" comes from Middle English meed, mede ("reward, meed, recompense").

But where does it get complicated?

Where it gets complicated #1: From investment DAOs to doing everything together 

Although DAOs started as an experiment to pool funds and make investment decisions, they have become a means of organizing, governing and owning, for humans (and non-humans) doing things together. Categorising a DAO is more complex than a company,  a network or an industry. They can be everything and beyond. Here is an article that attempts to categorize DAOs.

When the organization type is multifaceted, so is the value created. So are the types of contribution required and hence what the value creator takes back.

Where it gets complicated #2. Work is borked 

The second complexity is induced by the progression of what work and organizations are. There is a recent surge of books published that have titles like “Do we have to work?”,   “Lost in Work” and “What Is Wrong with Work?”. The signal is loud and clear for reconsideration in the mainstream of tedious and mechanical jobs, inspiring no purpose, and with management practices one notch more sophisticated than a factory floor. The collective decided work was broken and started exploring what work is beyond what we call work. 

Motivations 3.0: In his book Drive [Pink, 2009 ], Pink argues we are beyond survival and carrot sticks, and humanity is seeking motivation 3.0, intrinsic value and meaning-seeking behaviour where we all are self-motivated when we are given the freedom to do the work we enjoy and are genuinely passionate about. A similar term is the westernised interpretation of Ikigai(生き甲斐), where work is what the world needs, what you love, what you are good at and what you can be paid for.

One could argue it has been all about motivation. Always has been.

Unmeasured and Hidden: Management practices left a good portion of the value created, not rewarded, strengthening the statement that success has limited and tested definitions. They did not need a language for the unmeasured and nonexistent. One might even argue that it might have been beneficial to the organisation to capture value without reimbursing, at the expense of the value creator.

Progressive Organisations: In reinventing organizations, Laloux [Laloux, "016  ]  talks about the Teal Model, an evolutionary organization, where instead of predicting the future and building hierarchies to achieve set goals, the organization focuses on self-management and an organic way of working. Examples of the Teal Model can be for-profit or non-profit, with diverse industries such as Morning Star, the largest American tomato processing business,  the hip Patagonia brand, and the most widely quoted Buurtzorg, a network of nurses who reinvented and decentralized care business. An approach to organisation design that started much before DAOs and web3.

4th industrial Revolution: The WHO (World health organization) coined the term 4th industrial revolution to address the changes in how we work and identify ourselves,   the time we devote to work and leisure, and how we develop our careers in the time of automation. Driven by  AI and other technologies going beyond a simple digitalization of the 3rd industrial revolution. With this healthy bubble of seeking work beyond work, we are now in the phase of defining the new and  humane practices we need.

Where it gets complicated #3. The guest is the new host (credit to DAOist)

When we participate in a DAO, we might also be the owner. If things do not work, the responsibility might be on us to fix it. In a more advanced position than a mere contribution, we have the right and responsibility to change what does not work for us and the community. Very different to being parented into work, it can feel overwhelming to set up our rewards and compensations, our incentives, as well as making the organisation sustainable and the compensation fair. All the many dimensions and tradeoffs we need to consider, we might lack the experience from an era that asked none of this and even perhaps disincentivised and classified as disobedient behaviour.

Well, there is more that got us here in a more complex territory. However, let's not spend more time understanding and get to creating the map.

Enter DAOs: Join, Contribute and Take-Back

Let’s sow the seeds of the map.

The Map is not the journey!

So I am not taking you on any journey here, folks. The journey is yours. It will depend on who you are, whether an individual contributor, a Core DAO member, an owner or a team leader. It will also depend on your organisation and its place in the ecosystem. However, all of us can use the same map and cater to our different and ever-changing journeys.

We must list some of the many considerations people have when they start their journey. Yes. Considerations such as how to compensate the value of the contributors fairly, how to sustain the DAO treasury, and increase the value of the DAO and the ownership. You can consider the diversity of the people you want to attract and the type of behaviour the organisation seeks to cultivate. There are over 30 consideration points. We must however tackle them in depth in another article. Until then, think of your consideration points.

The Primitives

Let's start to chart and colour the map. There seem to be three main parts within.

1- A part of the language is how we associate with the DAO and the individual,  The Relationship.

2- Another is about how we measure the value. Let’s not get to the philosophy of it but the unit of measure to make it simpler,  The Accounting.

3- The third part is the forms organisations can give value back to reward and compensate,  The Take-Back.  

The Relationship  

We have different relationships with and within a DAO. The intention here is to show how varied the new "social contract" is  

Starting from the simplest – we can be members or contributors.  
We can be a worker/employed  
We can be the owner, partner, and associate 
We can be a creator community  
We can be the service, the audience, the user.  
We can be the investor.   
We can be the steward, gardener or operator. 
How we create value and take-back will change according to our relationship.

The Accounting 

This is how we account for value rather than the philosophy or science of the value. For example, I can say by seniority, but not tackle how you gauge seniority or critique it. 
Some primitives we use to account for the value are.

Deliverables: product, art, utility or intrinsic. Here we are talking about an agreed-defined deliverable—an app, a function, a library, an article, a music piece, a process or a speech

Time-based: Common in freelancing and consultancy,  time spent on task deliverable contribution. Many DAOs will hire part-time and full-time for roles identified which is also a variation of time-based work. For example, RaidGuild can size the work per hour. Aragon might employ a product manager.

Probation: Having a point in time where the accounting is evaluated differently. Completing a cohort in RaidGuild or passing a test phase around a month  in DxDAO.

Intensity commitment: An uplifting factor based on the lets say a weekly commitment with the intention of rewarding who dedicate a more significant fraction of their time. DxDAO or Creator Cabins uses time commitment as an uplifting factor. Units in RnDAO might choose the contributors based on a required threshold.

Longevity commitment: Based on the duration of the commitment. Yearn.fi and Curve use staked governance tokens. Creator Cabins incentivises longer season commitment. It is common in traditional startups and DAOs to have vesting schedules where a giveback is scheduled as the individuals stay long enough. 

Skill-based: Usually valid for time-based accounting, an uplifting rate that can change for developer, community, and marketing. The basis of this is regular market rates.

Entrant order based: Uplifting factor used if the individual is classified as a founding or early entrant.

Seniority/experience based:  This is an adage to measure the quality aspect by accounting the previous experience. DAOhaus, DxDAO, Cabin and many DAOs use it. When role-based placement is the subject, traditional, web3 and DAOs use junior/senior and diverse definitions of these rankings.

Peer-assessed:  Decided by the collective and a subjective measure occurring after the value has been created. The perceived value accounting can be adhoc like tips or consistent as in Commonstack (Praise), RnDAO or Yearn.fi(coordinape)

Competition:  Competition-based rewards have been long used for crowd creations, open innovation, crowdsourced development and DAOs to have several parties submitting work while a selection is rewarded/

Self-set: Sometimes it is based on an arbitrary value that the individual or entity proposes and is valid once accepted.

Bounty: Might have emerged in a sheriff’s office for fugitives, reclaimed its place in web3 for tasks advertised to an audience in a permissionless manner meaning all can participate. Bounty can be similar to competition but can also be acceptance-based, meaning only selected can submit work.

Retrospective: When a value is calculated after the task is delivered, eliminating judging and agreeing on the value before delivery. Meaning it is not guaranteed as well.

Right by belonging:  This is by belonging to a particular entity and having the right to receive an income. It might be Universal basic income at the government level,  DaoHaus base salary when you join a Guild or UBI DAO such as Kleros/Proof of humanity. Airdrops to existing Members performed by DAOs like IndexCoop can also be classified as a right by belonging.

Engagement:  Sometimes called the movement model, this is a collection of pre-defined engagement activities. It can be outcomes or granular activities like tweeting, voting and commenting. Some DAOs MetaGammaDelta(with Govrn) and Maker (with sourcecred)  utilise it.

Performance: The common mechanism used widely in sales and can also be any performance metrics.

Reputation: The mechanisms used, even monitored activities, can be similar to engagement. Reputation is the score of the individual, which can be an uplifting factor. DAOStack implemented a reputation system based on governance activities and gives another example.

Percentage-based: This is a standard compensation model for business development. It is somewhat closer to performance; however, it focuses more on profits/shares and the value created for the organisation. The most common is profit-sharing or revenue-sharing—sales both traditional and web3 native. The value is generally quantified by a portion of an activity's value to the organisation. i.e. 10% of a new deal, 20% of the expansion. This model forces to incentivise and aligns the activities to the P&L, balance sheet and other value streams to the organisation. Business development in RnDAO or Raidguild can be classified within this primitive.

Means-tested: Measure of existing income levels and comparison to a threshold   I am sure there are more but let us stop now.

The Take-Back

We tackled how we account for the value flow towards the organisation. This section will observe and list how the debt to the individual or entity(i.e. team, subDAO, project) is returned. This constitutes the second part of the primitives of rewards and compensation.  

Monetary: The monetary value, be it fiat or web3 currencies, stable or not. We will assume these can be exchanged into each other and or if illiquid, can be redeemable into monetary value.i.e NFTs.

Credits or Points:  Some kind of points system assigned to the individual or team

Governance power:  A means to influence decision-making and organization trajectory

Access to network: The individual can have access desired network most valid when there are information asymmetries and competition. An investors network, an opportunities network or an exclusive group of individuals

Access to services: these can be provided in a manner where they are free or exclusive or, discounted. NFT projects like Surge, including utility, or HR departments include benefits packages and perks for the employees.

The flexibility of work: Flexibility in time and dedication is a benefit that web3 -native and DAOs provide natively, which is an advantage over traditional jobs in the competition of winning over individuals.

Ownership:  Tokens, equity, stock options, NFTs with ownership rights. They will also have monetary value however the liquidity might be low and long-term.

Bonus: Generally, monetary value is based on performance and can be a period one-off.

Dividends: More commonly used term in traditional company ownership, dividends are proportional income from profit.

Reputation: A reputation that can be carried or publicly showcased

Trophy: Anything serving as a token or evidence of victory, valour, skill, etc. Generally, a sentimental value that might gain value. A web3 native example of this would be POAP.

Richer experience: used in gaming a levelled access and perks within a game. This can be similar in clubs, and products.

Yield: a percentage of a primary that has been locked, and staked.     Profit sharing: a percentage or portion of the organization is channelled into the individual/team    Meaningful work: Providing work that serves the purpose of the individuals

Belonging and Community:  when it is about the frens we made along the way

Social capital and signal: if the organisation has social signalling and membership aspect

Experience, Knowledge: the opportunity to experience,skills and knowledge through doing

Space for Self Actualisation, Expression: Ditto

Loot: Whatever valuable things can be gained that is generally the result of unexpected, illegal or unethical activity. Technically it is not rewards and compensation but dear reader this has been a way to take-back from organisations.

Alms: These are giving with no expectation of value creation. It has been used for monks or  people in need.

The Consideration

We will list a few consideration points for selecting the primitives, to arrive somewhere that might not be the end.

Let's first look at the accounting and the take-back together and their possible combinations.
Accounting is how we package and quantify value and what we want to count, and our choices will determine what we want to dismiss too. The take-back is influenced by what we can give back and what contributors want from the organisation.

Some of the examples would be (Longevity commitment, ownership) - vested shares

(Right by belonging, monetary) - Some form of UBI

The puzzle of selecting each and combining them together is many, but how do we choose?

The Relationship has the first place before any consideration, whether they would be classified as an employee, sporadic contributor, community, owner, served and/or customer. The relationship tightens the solution space even if not directly determine the result. A community member coming for vibes and belonging and a DAO member approaching the DAO for work have different social constructs. Community member might ask (even pay) for ( “right by belonging”, “access to services) and whereas the member approaching work might require (deliverables based, monetary) rewards. Also cognizant we might have more than one relationship type.

A second consideration can be the preferred term for contributors. Do we want long-term social contracts versus short ones? The onboarding guild might encourage new members with short-term engagement, however, a core team for building a product might require long-term committed members. If there is a long-term preference (Longevity commitment based, ) primitives would be suitable where take-back is monetary, ownership or governance.

How about the sustainability of the DAO? For simplicity, let's consider the most explicit usage and share with contributors monetary value and equity utility. Would the organisation be able to sustain the treasury with the value given out? Is there an unplanned dilutive aspect?  If so the rewards and compensation become an extractive exercise that terminates the DAO (or subdao) early.  If there is no maturity in sizing up the work, deliverable-based primitives like (bounty and monetary) might be easier on the treasury management while learning the burn rate. Having said that, it is ok for DAOs to be short-term or task-based so sustainability might not be the consideration.

The primitives chosen, are they aligned with the objectives of the individuals, intrinsic or extrinsic? I want to give an example which will be a crude generalisation solely based on how the current systems are working in the services industry and science journals. A scientist favouring deliverable-based reputation and a front-end dev deliverable-based cash might nudge a service DAO on monetary primitives, however, a DAO focusing on science journal articles might be granting reputation.

There are a lot more considerations however we must tackle them another time. Other considerations such as diversity of talent and encouraging the flexibility of work, self-expression. The value created for the DAO is it mainly through teamwork or individuals?  Does the DAO have a signal that makes it appealing to contribute?  Is there trust and whether the reliability of the contributor can be gauged or even necessary? Do the DAO members have a wide range of motivators leading to a buffet-style system? Any impact because of the size of the teams and the size of the DAO Does it require a more generic unified approach? Can peer-evaluated, monetary small groups work?

And the last reminder that your choice can be…

• different within a DAO per project or team.

• personalised differing from one individual or entity to another.

• more than one, bundling them up.

This was the start of a map for rewards of compensation in web3 organisations. More to come…

Let us know your thoughts.

Appendix

References

[Laloux,2016] Frederic Laloux Reinventing organisations
[Taylor, 2021] Do we have to work?   Matthew Tyler Thames &Hudson
[Who,2016]
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/

[Pink,2009] Drive, Daniel Pink

Further, read/watch/listen – not referenced but influenced. Book - What’s is wrong with Work, Lynne Pettinger Book- Lost in work. Amelie Horgan

Why I quit my job. Jay Matthews https://sheshallconquer.notion.site/Why-I-quit-my-job-0a7d0d7884a343b684ad79782cff6b4f

Creator Cabins on Compensation.
https://creators.mirror.xyz/Le68ptgaqsBh1g6w8UqqVL2kIrA_Lqn37bELMO-W_-0

Punished by Rewards.
https://uk.bookshop.org/books/punished-by-rewards-twenty-fifth-anniversary-edition-the-trouble-with-gold-stars-incentive-plans-a-s-praise-and-other-brib/9781328450524

Why rewards systems fail
https://trainingindustry.com/articles/performance-management/why-most-reward-systems-fail-and-what-to-do-about-it/

Understanding DAO Incentives
https://gasless.substack.com/p/understanding-dao-incentives-and

Chris Eberle from Yearn.fi compensation -
https://www.youtube.com/watch?v=ua5qH6ZnXIQ&feature=youtu.be

Thank you, Fren <3

Thank you to Frisson, aka the wholesome person for instigating this with moi and his awesome edits.

Thanks to Paulo Fonseca, Daniel Ospina, Jon Lokopu and RnDAO folk for their feedback on the article.

Thank you, Keely Adler, Jay Matthews, Tina Yip, and Danielle Veermer, for jamming on work and fractional work and beautiful links and inspiration.

Thank you Chris Eberle for being supportive and super insightful, in sharing their experiences.