Onchain Cooperatives: Compensation
Part 1: Compensation
This begins a series about Onchain Cooperatives, highlighting the benefits of an improved corporate model that rewards all participants and delivers sustainable and healthy growth for all types of ventures.
What are Onchain Cooperatives?
A cooperative is an autonomous association of individuals who voluntarily join together to achieve a common goal, such as economic, social, or cultural objectives. It’s worth noting that many web3 communities are structured as a DAO and can look like a cooperative. An onchain cooperative is an organization of people that use blockchain tech for governance, decision-making processes, and operations. By coupling onchain mechanics with cooperative structures, members aren’t just stakeholders, they’re owners of the collective decision-making, resource pooling, and value creation.
Let’s tackle compensation first. Getting paid is important, and is oftentimes pushed aside during the early stages of any team formation. Many DAOs fail to reach sustainability due to a lack of planning and follow-through when rewarding members for their contributions. But here’s the thing: we need to get paid, so that we can continue to cooperate!
Methods of Compensation
Compensation can be handled in a variety of ways, each providing different short term and long term incentives. When designing your compensation model, think carefully about what specific behaviors you are looking to encourage (or discourage!)
Short-Term: Cash 💵
Cash compensation is the most simple short-term incentive: do work and get paid. Cash can be structured as a salary or be rewarded on a task basis.
Tip: Keep it simple, and pay quickly.Example: We use Indie Protocol to facilitate weekly agreements that include what work will be completed, and how much each Indie will be paid for the work when it’s complete.
ie. an Indie agrees to deliver a clickable prototype for a feature in return for 2,000 $USDC, and receives the payment after the prototype is delivered.
Mid-Term: Dividends / Bonuses 🌈💰
Dividends or Bonuses are similar to cash compensation, but are typically distributed at the end of a milestone or calendar date. These are mid-term incentives that help align participants' short term actions with the cooperative’s mid-term goals.
Tip: Align dividends or bonuses with quarterly goals, and keep goal metrics extremely simple. If a member knows exactly which goal metric their current task will contribute towards, you’re doing it right.Example: The Indie Protocol smart contracts collect a percentage of all transactions as a reward to the cooperative. At the end of each quarterly season, the excess revenue is distributed back to $INDIE token holders.
ie. Indie Season 7 distributed ~74,000 $USDC to its members in the form of a dividend.
Long-Term: Equity 📝🌱
Equity is a long-term incentive, and is often the most misunderstood and abused, yet it can be the most rewarding form of compensation when designed correctly. For decades, equity has contributed to a growing wealth gap, where less than 1% of humans hold more wealth than the rest of the world combined. Finally, new designs are allowing cooperatives to create a sustainable and fair approach to long-term compensation, using equity and ownership principles at a membership-focused level.
Tip: Equity usually ends up heavily gated by wealth or social influence. Design your equity to be accessible by everyone, and create limits or automatic dilution that will encourage early equity holders to continue to provide value to the community over time.Example: The $INDIE membership token is used to constitute legal ownership/membership in a Colorado Limited Cooperative Association (LCA) which grants member protections and governance from the start. Building on this specification with custom Bylaws allows us to manage all of our governance, equity issuance, and upside distribution collectively, keeping long-term incentives aligned with the health of our cooperative.
Future Equity 🤔💭
Hybrid engagements with our clients are often negotiated to allow them to pay us in both cash and equity. We are currently researching and experimenting with wrapping these equity agreements into fungible assets that can be issued to cooperative members in relationship to their value contributions. This will allow us to align our cooperative incentive models with each partner that we interact with, taking compensation incentives to the next level. Web3/blockchain ecosystems are making these complex concepts extremely easy to implement, execute, and automate at scale.
We’re always experimenting with compensation and incentive models to create the most healthy cooperative for passionate designers and developers. If this sounds like something you’d like to learn more about or provide your own experience to, reach out.
Stay tuned for the next post in this series: Onchain Cooperatives: Shared Brand.
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