Exploring reward models for self-managing teams

The norms around employment and remuneration haven’t changed much in recent years. If you join a traditional company you’re likely get paid primarily for your time (salary) and may then also have access to performance-based bonuses. Bonuses are typically paid out annually, based on targets set by management a year prior.

This all works, to a degree, if you’re not expecting much change. If you’re sure of the market, your product, who you’ll need and how long for then you can form a plan, set a budget and bonus targets for the year.

But what if you’re building something that hasn’t been done before. What if you don’t know your exact destination yet, or how many times you’ll need to pivot to get there? What if you can’t be sure who you’ll need along the way, how much they will contribute, and how long for? What if you’re working with limited resources, with future funding dependent on the work the team is doing today?

With little certainty and no crystal ball how do you motivate the team? How do you divide value?

The search for a better model

I recently had the opportunity to explore alternatives, and being a start-up we had completely blank slate.

The team:

• Was building a novel product, with novel technology
• Was incredibly capable and talented, but completely distributed
• Was self-managing, in the sense that decisions were all made collectively
• Had no existing contracts
• Consisted of members whose contributions would fluctuate depending on availability and the particular skills needed at the time
• Was likely to change in composition as the direction of the product adapted
• Was bootstrapped, with a wide array of funding opportunities to pursue
• Valued a combination of equity and wages in return for their efforts

Dividing value with rules set up front wouldn’t work in an environment with so many unknowns. We needed to find a model with flexibility at its core. One that took into account:

• Contributions to date
• Current contributions (the timelier the better)
• The core assumption that contributions would change over time

Time-centric contribution model

One option was to measure time spent and dish out rewards based on who contributed more or less hours/days/weeks. The issue is that this rewards only time spent, with no consideration for results. The team’s success hangs on its results, not how much time it spent.

It also gets complicated when trying to accommodate team members with different levels of seniority and is easily manipulated once scaled out.

A DAO inspired alternative

Decentralised Autonomous Organisations have spawned new approaches and tooling for dealing with great uncertainty. Teams collaborate to divide wages (e.g. stable coin treasuries) and equity (typically governance tokens) amongst themselves on a regular basis. Participants can come and go, with all work visible and decisions documented on a blockchain like Ethereum.

This model is easily dismissed by traditional organisations but presents an incredible opportunity for those building software products in a start-up setting. It embodies the principals of agility, and more specifically the Scrum Framework. The work is transparent with iteration, inspection and adaptation built right in. The teams are truly-self organising and empowered to make their own decisions, all the way down to their remuneration.

Scrum meets DAO

Below is an example to illustrate how a DAO/Scrum model might work, combining the core components from each:

• Contributors self-organise into guilds, squads (or scrum teams)
• Time is broken down into fixed length epochs. In a scrum environment these could be sprints, each housing the typical scrum events.
• At the end of each epoch peers value each other’s contributions by distributing points (e.g. 100 pts each to share around). Perceived contribution could be effort (time), results (deliverables), impact (future upside), or assets supplied. There are no fixed rules. It’s purely subjective. This fits in very neatly with sprint retrospectives, triggering meaningful conversations and helping the team inspect and adapt to the changing nature of work.
• Points organically accrue to those who contribute the most in an epoch and determine the distribution of rewards. Rewards could be treasury funds budgeted for distribution in the epoch (e.g. wage budget for the team) or equity conversion.
• All decisions and rewards distributed are recorded transparently on the blockchain. While this is ideal, a hybrid organisation could record these using other technology.

The benefits

1. Builds a feedback model into the business to keep the team aligned and shake out concerns early
2. Flexible enough to adapt to changing nature of the work, the project and the people involved
3. Values all types of contribution including those not easily quantified (e.g. ideas)
4. Can be applied retroactively to account for work already done
5. Scales if new team members are brought on or whole new teams are formed

Further reading

Bankless DAO
Coordinape
Are DAOs the Future of Agile Organizations?