Analysis of Current Compensation model

Hello Everyone,

I am working on an updated compensation framework for DAO contributors and in order to keep that proposal short(er) and to the point, I am going to add the analysis of the existing compensation model that we have been working with for the last 9-ish months.

Prior Work

Here is the original compensation model proposal: YIP: Yam Contributor Manifesto and Compensation Revised 12.1.2020.
And the current compensation guidelines document that applies to everyone hired after the original compensation proposal: Contributor Compensation Guidelines
It is worth reading through this, but I will give a rundown of how the system is working in practice.

Summary

Things are a little confusing because there are 2 different models that we are working under. One model for the contributors who were hired as part of the original proposal (referred to as “OG” from here on out) and another for those hired after. Not to mention there are some of us (like me) who have a mix of the 2.

OG compensation is based on a monthly stablecoin allocation and a year-long YAM stream that does not rebalance except at the end of the stream. So the amount of YAM given out does not change based on the price of YAM. Fulltime OG contributors typically earn more in stablecoins than YAM, although there does not seem to be a standard, and this depends heavily on the YAM price. Part time OG contributors are paid exclusively in YAM, also on a 1 year period.

The model for contributors who joined after this original proposal allows for up to half of a full time contributor’s salary to be paid in stable-coins. The other half is paid in YAM, with a price (and subsequent quantity distributed) determined at the beginning of a 3 month stream. Part time contributors can only receive YAM, also on a 3 month stream. There is also a Contributor trial period with a length that is not specified in the guidelines other than a recommendation that it be longer than 1 month. Per discussions with @ethe and others, this trial period is often set to 3 months for newly hired developers. For non-developers, this trial period has not been used consistently.

Contributors apply to work by submitting a proposal to governance for approval which needs to be approved by tokenholders.

Benefits of this model

The main benefits of the model for new contributors is that it limits the amount of Treasury funds that are paid to contributors and that contributors are incentive aligned by earning YAM.

Potential Problems with this model

This model exposes some contributors to fluctuations in the price of YAM over a 3 or 12 month period, which can be quite large. At the time of writing the price of YAM is ~$0.90/yam and was ~3.50 3 months previous. Anyone paid entirely in YAM (all part time contributors), whose stream started 3 months ago, is receiving an ~80% pay cut in dollar terms for the current hours they are working.

While this model also provides for equal upside if the price of YAM increases during the same period of time, it adds additional mental overhead for contributors who may be relying on their paycheck to pay bills denominated in their local currency. A common complaint among contributors is that their expenses are fixed but their pay is not, and the stable portion of their pay is not sufficient to cover expenses. This means they have to sell YAM to pay expenses, even if they don’t want to.

Beyond inconvenience, this dynamic is problematic for a few reasons:

  1. Employees who are now being underpaid may be less committed and incentivized to contribute appropriately to their jobs. If these contributors are also suffering from financial hardships during this time then they could be distracted and less able to focus on their work, even if they want to.
  2. Contributors who need to sell YAM to pay bills add consistent sell pressure to the YAM token and can potentially add to a downward spiral in price where selling pushes prices down further, requiring more and more of a contributor’s YAM to be sold for living expenses. While this may not be a problem with healthy market activity, we must be aware that we are working in a very volatile and unpredictable market with limited liquidity.
    • The treasury currently pays out ~80,000 YAM per month (unvested)
    • If we assume that 1/4 of that gets sold monthly (~15,000), that is 1.3% price impact on the sushiswap pool.
    • If the price drops further and/or people sell more then this price impact becomes even greater. Some of this will probably get arbed back to the CEX pools, but the impact is still there.
  3. We risk losing talent who do not want to take on this currency risk.
  4. Incentives are not aligned if contributors are selling most of their YAM and we risk community backlash if it is determined that they are doing so. Even if they don’t want to sell.

Other Issues:

  1. The fact that different contributors are compensated with different frameworks is confusing and potentially unfair.
  2. While it is clear how hiring works (submit proposal to work and get it voted on) it is less clear how the DAO removes contributors who are not working effectively or have disappeared. Currently, other contributors need to make this known and submit a proposal to remove them. But this is not clearly defined and there is not a robust structure for accountability.

New Proposal

Proposal to update compensation Guidelines: Update to Contributor Compensation Guidelines