Contractor compensation directed by shareholders?

tomjoad · April 1, 2015, 9:51pm

In organizational design theory, the main trade-off between different power hierarchies occurs between “effectiveness” and “efficiency”. Generally speaking, “efficiency” increases the more specialized the work gets, but “effectiveness” (the ability for the organization to communicate information clearly across all levels in pursuit of a broader strategy) suffers. Many of you will understand that frustration if you have worked in large bureaucratic organizations. Likewise, in a small start-up of generalists “effectiveness” is easier to pursue because everyone works closely with one another in pursuit of a common goal, but you lose the benefits of “efficiency” without pure specialists.

This preamble is necessary to consider if we are moving towards purely decentralized decision making for contributors. While I support increased transparency of expenses that will come from paying contributors through custodial grants, I’m not quite sure yet how shareholders will be able to monitor everything. In particular, there are concerns around compensation, standardization of roles, performance management, and shareholder attention span. It’s a reality that having a centralized decision maker for fund expenditures is much more efficient, and possibly more effective depending on the ability of shareholders to understand the work being performed.

Possible questions that I think would need to be addressed well before transitioning to a system where shareholders make those decisions:

Should classifications be created for different roles? Similar to a bureaucratic structure, having a “Developer” or “QA” or “Marketing” base salary would be important. Otherwise, all hourly rates will almost immediately skew upwards to the highest rate demanded by an individual contributor. There is a reason compensation is kept secret in most organizations, and that’s to prevent employee dissatisfaction, and to keep salary costs lower.
Will all contractors move from hourly-based submissions to salaried contracts of a fixed duration? Our current system of submitting hours every two weeks would be overly cumbersome if shareholders had to approve each one.
Do shareholders have the capacity to individually assess the performance of each contributor? When sigmike or erasmospunk write some excellent code for a new feature, how will shareholders determine if it is good enough for the salary being asked for?

I like the approach of shareholders determining “budgets” for different functional areas with an elected leader (Development, QA, Marketing, etc.), but I think we need a lot more discussion on if shareholders are capable of performing a full spectrum of HR activities for each contributor. At our current size (roughly 10 contributors) it may be possible, but in a scaled-up future of 100 contributors it would be almost impossible. I think we can already see a case example of the social loafing that occurs in BitShares’ automated delegates system, when many of them simply fly under the radar and collect their delegate pay.

cryptog · April 2, 2015, 6:07am

I think the questions you raised are all valid ones.
I am looking forward to the discussions among the community members.
I feel however that managing a DAO as Nu is, is the job of the shareholders not the job of a single person,
Since we have a tool to vote for NBT custodial grants, we have a great tool to ask for funds and get the green light from the shareholders. This is something we have never seen with traditional corporations.
I feel it is time to really use the power given by the trust-less mechanisms of custodial grants votes of Nu.
If the network cannot afford to print NBTs, the individual asking for cash could make instead a NSR custodial grant vote, get the corresponding NSRs and sell them in the open market in exchange for cash.
So in sum Nu gives 2 great tools for active members to get a monetary compensation for the work done.

zoro · April 2, 2015, 8:46am

nu is something very new and unique. you can’t expect for “traditional” shareholders to “work” efficiently in something so new!
moreover, shareholders as i understand the term, it means that you invest in a project that others are working on it. then you wait to get earnings from others’ work.
i know it sounds like shit but this is how investments are working now days.
do you see this behavior to change any time soon?

Cybnate · April 2, 2015, 8:54am

I’m with Tom here. Determining rates and budgets can be done by Shareholders but performance monitoring/KPIs etc. is another story. I think it can be done but the question if whether the Shareholders have the appetite for ‘micromanaging’ resources working for the DAO. So most likely they would soon assign a proxy who can deal with these matters on their behalf. They can still set the budgets and rates but would leave the proxy to feed them with information about performance and provide the proxy with mandates, policies, KPIs etc. So basically just a classic organisational model.

I think where the DAO can make a difference that Shareholders can act more swiftly and make adjustments when this is required whereas in a classic organisation model it would take 6 or 12 months for Shareholders to make their voice heard. This will require a proxy who is prepared to work with short term mandates and changing views which can be a potentially difficult job with not much long term responsibilities and career advancements. Logical response would be for the proxy to negotiate a contract for a longer mandate or a higher salary and there we go again in the direction of a classical organisation.

I consider the Peercoin community a interesting example of a decentralised organisation. I’ve noticed that you can only achieve something when you can find a few people who work in the same direction or you can get some decent funding to organise a few people to achieve something. At that point one is again very close to a classic organisation.

There are some interesting studies on how ants stay organised while still not being led centrally. I’m looking forward to that algorithm which may be the answer to organisations which are not centrally led, but just by cooperation.

Until then I’m not sure whether Nu can continue to innovate and progress at the current pace, and not descent down to the pace the Peercoin community and some other struggling decentralised communities are at, without one or more ‘central’ roles and leadership covering ‘Development’ and ‘Marketing’ not being afraid to work as a team and particpate in the work to be done. Even within Peercoin most of the development work and leadership is done by 2, maybe 3 persons and a handful of supporters around them as far as I’m aware.

Finally I like to share my experience that it is very important that whoever you hire will need to have a significant stake in the network and unable to trade this stake freely for the time in this role. Part of this stake should be earned during the agreed duration of the role. Other incentives seems to be weaker or complimentary at best or worse even counterproductive for the Shareholders. I wish it was different but one has to face reality. But maybe someone has better experiences…

desrever · April 2, 2015, 9:43am

I am glad you started this discussion and you touched most of delicate points. And I am directly very interested in continuing this discussion.

I agree that we should transition “out” of our initial contractors terms and shift towards shareholders “approved” contracts.

long post, so I’ll make a TL;DR

Fully decentralising HR is a very bad idea under every angle : shareholders, contractors and resulted efficiency. We should clearly come up with an hybrid model where we define responsibilities. I envision a model where Shareholders elect and pay one or two HR managers (workforce custodians) responsible for coordinating the workforce. The HR manager has responsibility over contracts and manages all the aspects of it. The HR manager respond directly to Shareholders and must publish periodical reports (anonymized) over spenditure and performances. A clear separation of roles : day-to-day decisions are carried out by HR custodians, while shareholders can intervene on important matters with spontaneous motions or when queried by HR. Shareholders can vote on bonuses for performances or penalties and the overall budget, but shouldn’t engage in the details of each contract.
Implementing the above terms will be already a huge shift from today’s model and it is the next logical step.

Long post :
I also need to make a short preamble:

Working on this network so far, was one of the most professionally and personally intense activity I have done. Beside the development work, being a small startup, we often had to wear different hats and adapt to the ever changing surroundings.

Nu is innovating in so many areas that is impressive : a distributed organisation that maintains a stable token via elastic supply, online democracy, human/protocol hybrid decisions, market maker bots, liquidity pools and acting as a financial organisation by setting interest rates in a context that transcends national boundaries. … Well, wow, is all I can say. Startups generally live in complex and uncertain domains by nature, but this one, o boy, this one is without doubt one of the most uncharted territory I can think of.

Now back to contracts, I don’t think we should try to innovate too much there : while I think Shareholders must have a word and also a veto on contracts, I have mixed feelings on fully distributing all the responsibilities. Estimations and evaluations in software are one of the most complex and controvert HR problems and the whole industry. Defining a quantitative metric to evaluate the knowledge worker is still something up in the air : hours, task density, lines of code, number of commits, team velocity, milestones, value delivered, an non-linear combination of all of them… You name one.
If you chose a single pay-metric , no matter what, a poisonous environment will emerge over time, where the competition on the metric becomes unhealthy (developers spending time writing scripts to maximise the number of commits). There is no silver bullet in software engineering and Nu shouldn’t attempt finding one. We should stick with the classic worldwide model used pretty much everywhere :hourly rates.

Despite contractors, especially developers, are often seen as code monkeys paid to generate code, this is very far from truth. Good developers can write 10 Lines of code a day and make a difference for a software project. In the future you’ll have AI writing codes for you, now you have human beings carrying out a whole bunch of activities that are hardly bounded to quantitative metrics. For mental sanity the whole knowledge work industry agreed that a “fair enough” metric is the manhour. That is something I hardly see changing in the near future, unless the nature of the task itself is non-creative.

I’d send my manhour detailed report to HR manager, which has the duty of verifying it and periodically compensate honouring whatever agreement has been defined in the contract.

Moreover for HR there are an increasing number of software platform that can be used nowadays to manage automated or semi/automated payments and simplifying invoicing and reports.

Answering Tom’s questions :

Should classifications be created for different roles?

I don’t think so.

2)Will all contractors move from hourly-based submissions to salaried contracts of a fixed duration?

A fixed monthly salary vs. per hour basis compensation should be up to the contractor and the HR negotiation. For Shareholders what matters is the final value delivered and they will put their trust in the custodian to do his job.

Personally, to provide more certainty to shareholders I will attempt a mixed approach with pre-approved packets of hours/month. Id set a min and max number of hours committed per pay-period and set penalties/bonuses for doing less/more than agreed upon.

A fixed salary doesn’t belong to remote contractors, I believe, unless full-time and exclusive commitment can be achieved and verified (see question at the bottom about nu foundation).

Work for equity, NBT or BTC , also is an open question, and an important one.

Do shareholders have the capacity to individually assess the performance of each contributor?

Do americans have the capacity to individually asses the performance of each public worker paid with their tax money? I personally don’t think a single person that is able to fairly assess performances of all kind of public workers exists on earth. However people still (should) have the power to vote for someone to supervise on their account, and can decide to protest in case something goes wrong. The same is true for shareholders imho: not all shareholders are able to asses each contribution (and that shouldn’t be their task anyway). However they can elect someone they trust to do the job for them and fire him/her in case something goes wrong (without waiting the 5 years election terms(?) or the quarterly shareholders meetings of traditional corporations.

But I believe that it must be now everybody concern answer to another question.

How can Nu develop a sustainable strategy to afford paying contractors?
Now that the initial investment and the proceeds from NSR sales are running low, this become the most important open question. Because if there are no money to offer, there are no contracts.
And ,no, the answer cannot be “just do a custodian grant” because that alone is not sustainable.

Another final question I want to ask : what is the Shareholders opinion in respect of having a Nu Foundation registered somewhere? We have seen this happening already with Ethereum (Switzerland) and now NeoCoin (Isle of Man). Their project is grounded to one or more foundations/legal entities in some country. They can have proper employees and make invoices with a legal validity. Without that, life of contractors will be forever confined in grey/dark areas and won’t encourage long-term commitment.

woolly_sammoth · April 2, 2015, 1:25pm

Being on the Nu books, as it were, I have a personal interest and stake in this discussion.
I agree that it makes a lot of sense to transition to a more decentralised method of re-imbursement for contractors as this aids to the perception of Nu as a true DAO. I’d also like to re-itterate, however, the feelings of Tom and Desrever above, that this shift shouldn’t be at the expense of the teams ability to adjust to new challenges.

While I baulk sligthly at the thought of centralising through a dedicated proxy functioning as an HR department on behalf of the shareholders, I don’t really see anyother way for the short term issues, that will arise, to be dealt with swiftly.
I think a comittee of Shareholder Proxies, each in charge of a different, identified area of Nu construction, would be the best model. At least then some consensus can be gained on important decisions on behalf of Shareholders, rather than devolving all responsability to one individual. This ‘HR’ proxy role within Nu would be a valuable one and could be a good way for shareholders who don’t fall into the traditional contractor categories, to gain re-imbursment.

Cybnate, I can see your points around the speed of development in other communities such as Peercoin. Nu differs slightly in the capability to generate capital through the Custodial Grant mechanism. Obviously, as Desrever says, using custodial grants to fund development is not sustainable in the long run but, to get to a point where a different strategy is possible will take work which should be compensated or else risk the stagnation of which you speak.

With regards the question of salaries over hourly rate. I would hope that whatever system is put in place to manage contrators would be able to cope with either as each way has it’s own merits which could benefit each contractor individually. Tom, with the introduction of an HR proxy model, the secrecy of re-imbursment could largely remain to avoid the skew to the highest rate you mention.

Desrever, I have no problem with the idea of forming a Nu foundation. Having the legal framework around the activities of Nu would be of great benefit and lend validity to them. How long do you think setting up such a real world organisation would take?